S-4

 
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                ---------------
 
                                    FORM S-4
 
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
 
                                ---------------
 
                            AEI Resources, Inc. and
                           AEI Holding Company, Inc.
             (Exact Name of Registrant as Specified in Its Charter)
 
                                ---------------
 
                                  61-13155723
                    (I.R.S. Employer Identification Number)
 
                  1222                                  Delaware
      (Primary Standard Industrial           State of Other Jurisdiction of
      Classification Code Number)            Incorporation or Organization)
                            1500 North Big Run Road
                            Ashland, Kentucky 41102
                                 (606) 928-3433
   (Address, including Zip Code and Telephone Number, including area code, of
                   Registrant's Principal Executive Offices)
 
                          Kevin Crutchfield, President
                            1500 North Big Run Road
                            Ashland, Kentucky 41102
                                 (606) 928-3433
   (Address, including Zip Code and Telephone Number, including area code, of
                               Agent for Service)
 
                                ---------------
 
                                With copies to:
            Alan K. MacDonald                        Paul E. Sullivan
      Brown, Todd & Heyburn PLLC                     Jeffrey L. Hallos
     400 West Market Street, 32nd Floor         Brown, Todd & Heyburn PLLC
     Louisville, Kentucky 40202-3363            2700 Lexington Financial
              (502) 589-5400                    Center
                                                Lexington, Kentucky 40507-1749
                                                      (606) 231-0000
 
  Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
 
  If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
 
  If this form is filed to registered additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
 
  If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
 
                        CALCULATION OF REGISTRATION FEE
 
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                                                          Proposed
                                                          Maximum
 Title of Each Class of     Amount    Proposed Maximum   Aggregate         Amount
    Securities to be        to be      Offering Price  Offering Price        of
       Registered         Registered      Per Note          (1)       Registration Fee
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10 1/2 Senior Notes due
 2005................... $200,000,000       100%        $200,000,000      $55,600
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Guarantees of 10 1/2
 Senior Notes due
 2005(2)................ $200,000,000       100%        $200,000,000       $0(3)

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(1) Estimated solely for the purpose of calculating the registration fee.
(2)  See inside facing page for table of additional Registration guarantors.
(3)  Pursuant to Rule 457(n), no separate filing fee is required for the
     guarantees.
 
  The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or this Registration Statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
 
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                   TABLE OF ADDITIONAL REGISTRANT GUARANTORS
 


                                                                    Address, including zip
                                                                             code
                                                                     and telephone number
                              State or Other                            of Registrant
                              Jurisdiction of                            Guarantor's
       Exact Name of           Incorporation      IRS Employer       Principal Executive
    Registrant Guarantor      or Organization Identification Number        Offices
    --------------------      --------------- --------------------- ----------------------
                                                           
17 West Mining (f/k/a
 Martiki Coal Corporation)       Delaware          73-0961272       1500 North Big Run Rd.
                                                                    Ashland, KY 41102
 
Aceco, Inc.                      Kentucky          61-0855680       1500 North Big Run Rd.
                                                                    Ashland, KY 41102
 
Addington Mining, Inc.           Kentucky          61-0855680       1500 North Big Run Rd.
                                                                    Ashland, KY 41102
 
AEI Coal Sales Company, Inc.     Kentucky          61-1331912       1500 North Big Run Rd.
                                                                    Ashland, KY 41102
 
AEI Resources Holding, Inc.      Delaware          61-1331911       1500 North Big Run Rd.
                                                                    Ashland, KY 41102
 
Americoal Development
 Company                         Delaware          37-1302915       1500 North Big Run Rd.
                                                                    Ashland, KY 41102
 
Appalachian Realty Company       Kentucky          36-3336051       1500 North Big Run Rd.
                                                                    Ashland, KY 41102
 
Ayrshire Land Company            Delaware          06-1208946       1500 North Big Run Rd.
                                                                    Ashland, KY 41102
 
Beech Coal Company               Delaware          06-1187153       1500 North Big Run Rd.
                                                                    Ashland, KY 41102
 
Bellaire Trucking Company        Delaware          76-0012930       1500 North Big Run Rd.
                                                                    Ashland, KY 41102
 
Bentley Coal Company             New York          61-1128414       1500 North Big Run Rd.
                                                                    Ashland, KY 41102
 
Bluegrass Coal Development
 Company                         Delaware          76-0078312       1500 North Big Run Rd.
                                                                    Ashland, KY 41102
 
Bowie Resources Limited          Colorado          84-1287719       1500 North Big Run Rd.
                                                                    Ashland, KY 41102
 
Cannelton, Inc.                  Delaware          55-0711787       1500 North Big Run Rd.
                                                                    Ashland, KY 41102
 
Cannelton Industries, Inc.     West Virginia       55-0136145       1500 North Big Run Rd.
                                                                    Ashland, KY 41102
 
Cannelton Land Company           Delaware          55-0715858       1500 North Big Run Rd.
                                                                    Ashland, KY 41102
 
Cannelton Sales Company          Delaware          55-0677801       1500 North Big Run Rd.
                                                                    Ashland, KY 41102
 
CC Coal Company                  Kentucky          61-7329892       1500 North Big Run Rd.
                                                                    Ashland, KY 41102


 


                                                         Address, including zip
                                                                  code
                                                          and telephone number
                   State or Other                            of Registrant
  Exact Name of    Jurisdiction of                            Guarantor's
   Registrant       Incorporation      IRS Employer       Principal Executive
    Guarantor      or Organization Identification Number        Offices
  -------------    --------------- --------------------- ----------------------
                                                
Coal Ventures
 Holding Company,
 Inc.                 Delaware          61-1328606       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Dunn Coal and
 Dock Company       West Virginia       55-0677800       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
East Kentucky
 Energy
 Corporation          Kentucky          54-0971896       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Employee Benefits
 Management, Inc.     Delaware          36-4168193       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Encoal
 Corporation          Delaware          76-0287726       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
EnerZ Corporation     Delaware          37-1362012       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Evergreen Mining
 Company            West Virginia       54-1206519       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Fairview Land
 Company              Delaware          37-1267975       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Franklin Coal
 Sales Company        Delaware          13-3121923       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Grassy Cove Coal
 Mining Company       Delaware          51-0274983       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Hayman Holdings,
 Inc.                 Kentucky          61-1313636       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Heritage Mining
 Company              Delaware          61-1286455       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Highland Coal,
 Inc.                 Kentucky          61-0923993       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Ikerd-Bandy Co.,
 Inc.                 Kentucky          61-0505276       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Kanawha
 Corporation          Delaware          84-1107027       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Kentucky Prince
 Mining Company       New York          61-1128412       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Kermit Coal
 Company            West Virginia       55-0515741       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Kindill Holding,
 Inc.                 Kentucky          31-1529620       1500 North Big Run Rd.
                                                         Ashland, KY 41102


 


                                                         Address, including zip
                                                                  code
                                                          and telephone number
                   State or Other                            of Registrant
  Exact Name of    Jurisdiction of                            Guarantor's
   Registrant       Incorporation      IRS Employer       Principal Executive
    Guarantor      or Organization Identification Number        Offices
  -------------    --------------- --------------------- ----------------------
                                                
Kindill Mining,
 Inc.                  Indiana          35-1962074       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Leslie Resources,
 Inc.                 Kentucky          61-1013125       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Leslie Resources
 Management, Inc.     Kentucky          61-1292388       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Meadowlark, Inc.       Indiana          35-0782260       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Mega Minerals,
 Inc.               West Virginia       55-0720327       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Mid-Vol Leasing,
 Inc.               West Virginia       55-0691054       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Midwest Coal
 Company              Delaware          84-1324803       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Midwest Coal
 Sales Company        Delaware          35-1599521       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Mining
 Technologies,
 Inc.                 Kentucky          61-1319730       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Mountain Coals
 Corporation          Delaware          63-0725639       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Mountain-Clay
 Incorporated
 d/b/a Mountain
 Clay, Inc.           Kentucky          61-0621350       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Mountaineer Coal
 Development
 Company            West Virginia       54-0989613       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
NuCoal LLC            Delaware          36-4143611       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Old Ben Coal
 Company              Delaware          34-1291413       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Phoenix Land
 Company              Delaware          37-1302916       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Premium Coal
 Development
 Company              Delaware          36-4186350       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Premium
 Processing, Inc.   West Virginia       55-0750451       1500 North Big Run Rd.
                                                         Ashland, KY 41102
 
Pro-Land, Inc.
 d/b/a Kem Coal
 Company              Kentucky          61-0727363       1500 North Big Run Rd.
                                                         Ashland, KY 41102


 


                                                                     Address, including zip
                                                                              code
                                                                      and telephone number
                               State or Other                            of Registrant
                               Jurisdiction of                            Guarantor's
        Exact Name of           Incorporation      IRS Employer       Principal Executive
    Registrant Guarantor       or Organization Identification Number        Offices
    --------------------       --------------- --------------------- ----------------------
                                                            
R. & F. Coal Company                Ohio            34-0832344       1500 North Big Run Rd.
                                                                     Ashland, KY 41102
 
River Coal Company, Inc.          Kentucky          61-0567214       1500 North Big Run Rd.
                                                                     Ashland, KY 41102
 
Roaring Creek Coal Company        Delaware          35-1597000       1500 North Big Run Rd.
                                                                     Ashland, KY 41102
 
Shipyard River Coal Terminal
 Company                       South Carolina       54-1156890       1500 North Big Run Rd.
                                                                     Ashland, KY 41102
 
Skyline Coal Company              New York          61-1128411       1500 North Big Run Rd.
                                                                     Ashland, KY 41102
 
Straight Creek Coal Resources
 Company                          Kentucky          36-3317309       1500 North Big Run Rd.
                                                                     Ashland, KY 41102
 
Tennessee Mining, Inc.            Kentucky          62-1640672       1500 North Big Run Rd.
                                                                     Ashland, KY 41102
 
Turris Coal Company               Delaware          74-2121674       1500 North Big Run Rd.
                                                                     Ashland, KY 41102
 
West Virginia-Indiana Coal
 Holding Company, Inc.            Delaware          61-1328604       1500 North Big Run Rd.
                                                                     Ashland, KY 41102
 
Wyoming Coal Technology, Inc.      Wyoming          61-1336980       1500 North Big Run Rd.
                                                                     Ashland, KY 41102
 
Zeigler Coal Holding Company      Delaware          36-3344449       1500 North Big Run Rd.
                                                                     Ashland, KY 41102
 
Zeigler Environmental
 Services Company                 Delaware          36-4143610       1500 North Big Run Rd.
                                                                     Ashland, KY 41102
 
Zenergy, Inc.                     Delaware          35-1870468       1500 North Big Run Rd.
                                                                     Ashland, KY 41102


 
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE     +
+SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN    +
+OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE +
+SECURITIES IN ANY STATE WHERE THE OFFER OR SELL IS NOT PERMITTED.             +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                THIS PROSPECTUS, DATED     , 1999, IS SUBJECT TO
                           COMPLETION AND AMENDMENT.
 
PROSPECTUS
 
                       Offer to Exchange All Outstanding
 
                   10 1/2 Senior Notes Due December 15, 2005
 
                                      for
 
                   10 1/2 Senior Notes Due December 15, 2005
 
                                       of
 
                              AEI RESOURCES, INC.
                         and AEI HOLDING COMPANY, INC.,
                          its wholly owned subsidiary
 
We hereby offer, upon the terms and conditions described in this Prospectus, to
exchange all of our outstanding 10 1/2 Senior Notes due December 15, 2005 ("Old
Notes") for our registered 10 1/2 Senior Notes due December 15, 2005 ("New
Notes").
 
The terms of the New Notes are identical to the terms of the Old Notes, except
that the New Notes are registered under the Securities Act of 1933 and will not
contain any legend restricting their transfer.
 
Please consider the following:
 
  . You should carefully review the Risk Factors beginning on page    of this
    Prospectus.
 
  . Our offer to exchange Old Notes for New Notes will be open until
    p.m., New York City time, on            , 1999, unless we extend the
    offer.
 
  . You should also carefully review the procedures for tendering the Old
    Notes beginning on page     of this Prospectus.
 
  . If you fail to tender your Old Notes, you will continue to hold
    unregistered securities and your ability to transfer them could be
    adversely affected.
 
  . No public market currently exists for the Old Notes. We do not intend to
    list the New Notes on any securities exchange. Therefore, we do not
    anticipate that there will be an active public market for the New Notes.
 
Information about the Notes:
 
  . AEI Resources, Inc. and our wholly owned subsidiary, AEI Holding Company,
    Inc., are co-issuers of the Notes.
 
  . The Notes will mature on December 15, 2005.
 
  . The Notes bear interest at the rate of 10 1/2% per year. We will pay
    interest on the Notes semi-annually on June 15 and December 15 of each
    year beginning June 15, 1999.
 
  . The Notes are general, unsecured obligations of both Issuers. In priority
    of payment the Notes rank:
 
    . Senior to our 11 1/2% Senior Subordinated Notes due 2006 and our other
      subordinated indebtedness.
 
    . Equal with all our existing and future unsecured and unsubordinated
      indebtedness.
 
    . Subordinate to our secured indebtedness (such as current borrowing
      under our Senior Credit Facility).
 
  . We have the option to redeem the Notes:
 
    . On or after December 15, 2002, at the redemption prices in this
      Prospectus.
 
    . Before December 15, 2002, at 100% of the principal amount, plus an
      applicable "make whole" premium.
 
    . On or before December 15, 2000, we may redeem up to 35% of the
      aggregate principal amount with the net cash proceeds from an initial
      public offering of common stock, at a redemption price equal to the
      principal amount, plus a premium.
 
  . The Notes are jointly and severally guaranteed on a senior subordinated
    basis by our parent company and our current and future domestic
    subsidiaries.
 
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
 
              THE DATE OF THIS PROSPECTUS IS              , 1999.

 
                      Where You Can Find More Information
 
We, together with our parent company and our current domestic subsidiaries,
have filed a Registration Statement on Form S-4 to register the New Notes to be
issued in exchange for the Old Notes with the Securities and Exchange
Commission (the "SEC"). This Prospectus is part of that Registration Statement.
As allowed by the SEC's rules, this Prospectus does not contain all of the
information you can find in the Registration Statement or the exhibits to the
Registration Statement.
 
You may read and copy the Registration Statement and exhibits at the SEC's
public reference rooms in Washington, D.C., New York, New York, and Chicago,
Illinois. Please call 1-800-SEC-0330 for further information on the public
reference rooms. Our Registration Statement is also available to the public
from commercial document retrieval services and at the Website maintained by
the SEC at http://www.sec.gov.
 
We have not authorized anyone to give you any information or to make any
representations about the transactions we discuss in this Prospectus other than
those contained herein or in the Registration Statement. If you are given any
information or representations about these matters that is not discussed in
this Prospectus or included in the Registration Statement, you must not rely on
that information.
 
This Prospectus is not an offer to sell or a solicitation of an offer to buy
securities anywhere or to anyone where or to whom we are not permitted to offer
or sell securities under applicable law.
 
The delivery of this Prospectus does not, under any circumstances, mean that
there has not been a change in our affairs since the date of this Prospectus.
It also does not mean that the information in this Prospectus or in the
Registration Statement is correct after this date.
 
           Cautionary Statement Regarding Forward-Looking Statements
 
This Prospectus contains certain forward-looking statements about our final
condition, results of operations, and business. You can find many of these
statements by looking for words such as "believes," "expects," "anticipates,"
"estimates," or similar expressions used in this Prospectus.
 
These forward-looking statements are subject to numerous assumptions, risks and
uncertainties. Factors which may cause our actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by us in those forward-looking statements
include, among others, the following:
 
 .Our ability to pay interest and principal on a very large amount of debt;
 
 .Our ability to successfully integrate our recent acquisitions;
 
 .Our ability to achieve cost savings from integrating our recent acquisitions;
 
 .A significant decline in coal prices and any resulting impact on our operating
margins;
 
 .  Our ability to continue to obtain long-term sales contracts, due to the high
   level of competition in the coal industry; and
 
 .  Changes in governmental regulation of the coal industry, including among
   other things, employee health and safety, limitations on land use, and
   environmental matters.
 
Because forward-looking statements are subject to risks and uncertainties,
actual results differ materially from those expressed or implied by the
forward-looking statements. You are cautioned not to place undue reliance on
such statements, which speak only as of the date of this Prospectus.
 
We do not undertake any responsibility to release publicly any revisions to
these forward-looking statements to take into account events or circumstances
that occur after the date of this Prospectus. In addition, we don't undertake
any responsibility to update you on the occurrence of any unanticipated events
that may cause actual results to differ from those expressed or implied by the
forward-looking statements contained in this Prospectus.
 
                                       i

 
                               Market Share Data
 
Except as otherwise indicated, the market share data included in this
Prospectus are based upon estimates by our management, using third-party
sources where available. While management believes that its estimates are
reasonable, they have not been independently verified. Accordingly, we cannot
assure you that the market share data are accurate in all material respects.
 
                               Coal Reserve Data
 
The estimates of our proven and probable reserves are based on the following
reports: (i) the estimates of proven and probable coal reserves of AEI Holding
Company, Inc., set forth herein, were reviewed and evaluated by Marshall Miller
& Associates ("Marshall Miller") in June 1997 and September 1997, and such
reserve estimates were updated in September 1998; (ii) the estimated proven and
probable coal reserves acquired in the Zeigler Acquisition (as defined) are
based on a reserve study prepared by Weir International Mining Consultants
("Weir") in 1994, as updated in May 1998; (iii) the estimated proven and
probable coal reserves acquired in the Cyprus Acquisition (as defined), as of
April 1998, set forth herein, have been reviewed and evaluated by Marshall
Miller as of such date; (iv) the estimated proven and probable reserves
acquired in the Crockett Acquisition (as defined) were reviewed and evaluated
by Stagg Engineering Services, Inc. ("SESI") in February 1998; (v) the
estimated proven and probable reserves acquired from The Battle Ridge Companies
were reviewed and evaluated by Marshall Miller in November 1997; (vi) the
estimated proven and probable reserves acquired in the Mid-Vol Acquisition (as
defined) were reviewed and evaluated by Marshall Miller in May 1998; and (vii)
the estimated proven and probable coal reserves acquired in the Kindill
Acquisition (as defined), as of November 1997, as updated in August 1998, set
forth herein, have been reviewed and evaluated by Norwest Mine Services
("Norwest"). While management believes that such estimates are reasonable, no
assurances can be given that such coal reserve data are accurate in all
material respects.
 
                           Trademarks and Tradenames
 
Addcar is a trademark which is federally registered in the United States
pursuant to applicable intellectual property laws and is the property of Mining
Technologies, Inc., an indirect subsidiary of AEI Resources, Inc.
 
 
                                       ii

 
 
                               PROSPECTUS SUMMARY
 
  This brief summary highlights selected information from the Prospectus. It
does not contain all of the information that is important to you. We urge you
to carefully read and review the entire Prospectus and the other documents to
which it refers to fully understand the terms of the New Notes and the exchange
offer.
 
  In this Prospectus, we use the term "Notes" to refer to the Old Notes and the
New Notes inclusively as to matters where their terms do not differ. We also
use the term "the Company" to refer to AEI Resources, Inc. and its combined
subsidiaries and predecessors, unless the context indicates otherwise.
 
                                  The Company
 
AEI Resources, Inc.
AEI Holding Company, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
(606) 928-3433
 
AEI Resources, Inc. is one of the largest coal producers in the United States.
We mine and market coal at our 49 mines in Kentucky, West Virginia, Tennessee,
Indiana, Illinois, Ohio and Colorado. Since October 1, 1997, we have grown
substantially by acquiring coal mining operations. These acquisitions, and our
subsequent sale of some of the assets we acquired in them, are described in
"The Company" beginning on page    and in the "Pro Forma Financial Information"
beginning on page     of this Prospectus. We would have been the fourth largest
steam coal company in the United States as measured by revenues for 1997 after
giving pro forma effect to these transactions. Our operational data presented
throughout this "Summary" section give pro forma effect to our transactions
since October 1, 1997.
 
AEI Resources, Inc. was organized in 1998 as the parent company for AEI Holding
Company, Inc. and the coal mining operations we have acquired since October 1,
1997. The chart on page    illustrates the ownership structure of the Company
and its affiliates.
 
Our primary customers are electric utility companies in the eastern United
States. We generated 74% of our revenues for the nine months ended September
30, 1998 under 51 long-term contracts to sell steam coal to electric utilities.
As of September 30, 1998, our long-term sales contracts had an average
remaining term of 5.4 years on a volume-weighted basis. We also sell steam coal
under short-term contracts and on the spot market and supply premium-quality,
mid- and low-volatility metallurgical coal to steel producers.
 
According to reserve studies, we have approximately 1.1 billion tons of proven
and probable coal reserves assigned to our mining projects. Of our assigned
reserves, approximately 36% is low-sulfur coal and an additional 37% is near
low-sulfur coal. In addition, we have 1.3 billion tons of reserves that have
not been assigned and are available for development.
 
Our acquisitions since October 1, 1997, have:
 
  .  Added coal operations that together produced 47.8 million tons of coal
     during the twelve months ended September 30, 1998;
 
  .  Given us a leading market position among the Central Appalachia and
     Illinois Basin coal producers;
 
  .  Significantly increased our low-sulfur coal reserves; and
 
  .  Enabled us to realize significant economies of scale in our coal mining
     operations.
 
                                       1

 
 
Our strategy is to improve our transportation, mining method and administrative
efficiency by continuing to integrate the operations we have acquired. We
believe this will help us to maintain and increase our base of long-term sales
contracts with electric utility customers. We believe we can improve our
efficiency by:
 
  .  Fulfilling our customers' coal purchases from several different mines,
     thereby decreasing transportation costs and production costs;
 
  .  Increasing productivity by applying more efficient, lower-cost mining
     methods; and
 
  .  Eliminating certain corporate overhead expenses through consolidation.
 
Other elements of our strategy include:
 
  .  Acquiring coal reserves or operations that complement our existing
     reserves and operations when opportunities to do so arise. We believe such
     acquisitions would enhance our market position among producers in the
     Central Appalachian and Illinois Basin coal regions;
 
  .  Expanding production of high Btu, low-sulfur coal at our Colorado
     operations, which could increase our market share if demand for this kind
     of coal increases; and
 
  .  Increasing sales of higher-margin metallurgical coal by using more
     advanced mining methods to increase production and reduce costs.
 
Recent Developments
 
We have entered into a non-binding letter of intent, contemplating our purchase
of all of the issued and outstanding stock of Princess Beverly Coal Company. We
are currently reviewing legal, financial and operational information obtained
from Princess Beverly. We must resolve several key issues based on our
investigation before we would be able to complete the negotiation of the terms
of a binding transaction agreement.
 
                                       2

 
 
                               The Exchange Offer

Securities To Be Exchanged    
 ............................ On December 14, 1998, AEI Resources, Inc. and our
                             subsidiary co-issuer, AEI Holding Company, Inc.,
                             issued $200.0 million aggregate principal amount
                             of Old Notes in exchange for $200.0 million
                             aggregate principal amount of debt securities of
                             AEI Holding Company, Inc. The transaction was
                             exempt from the registration requirements of the
                             Securities Act of 1933. The New Notes are
                             substantially identical in all material respects
                             to the Old Notes, except that the New Notes will
                             be freely transferrable by their holders, with
                             certain exceptions described in "Description of
                             New Notes" beginning on page    .
 
The Exchange Offer.......... We are offering $1,000 principal amount of New
                             Notes in exchange for each $1,000 principal
                             amount of Old Notes.
 
                             We believe that, with the exceptions noted below,
                             a holder of New Notes received in exchange for
                             Old Notes may offer its New Notes for resale and
                             resell or otherwise transfer them without
                             compliance with the registration and prospectus
                             delivery requirements of the Securities Act, as
                             long as:
 
                               . the holder acquired its New Notes in the
                                  ordinary course of its business, and
 
                               . the holder has no arrangement with any person
                                  to engage in a distribution of New Notes.
 
                             Holders who can offer New Notes for resale,
                             resell or otherwise transfer New Notes only in
                             compliance with certain requirements of the
                             Securities Act include:
 
                               . any holder which is an affiliate of ours, and
 
                               . any broker-dealer who acquired Old Notes
                                  directly from us to resell pursuant to Rule
                                  144A or any other available exemption under
                                  the Securities Act.
 
                             We have based our belief on interpretations by
                             the staff of the SEC, as set forth in no-action
                             letters issued to parties unrelated to us. The
                             SEC staff has not specifically considered our
                             exchange offer. We cannot be sure that the SEC
                             staff would make a similar determination with
                             respect to our exchange offer as it has made in
                             other circumstances.
 
                             Each holder, other than a broker-dealer, must
                             acknowledge to us that it has not engaged in,
                             does not intend to engage in, and has no
                             arrangement or understanding to participate in a
                             distribution of New Notes.
 
                             Each broker-dealer that receives New Notes for
                             its own account in our exchange offer must
                             acknowledge to us that it will comply with the
                             prospectus delivery requirements of the
                             Securities Act in connection with any resale of
                             New Notes.
 
 
                                       3

 
                             Broker-dealers who acquired Old Notes directly
                             from us and not as a result of market-making
                             activities or other trading activities may not
                             rely on the SEC staff's interpretations discussed
                             above or participate in the exchange offer and
                             must comply with the prospectus delivery
                             requirements of the Securities Act in order to
                             resell the Old Notes.

Registration Rights         
Agreement.................   We issued the Old Notes in exchange for debt
                             securities of our subsidiary co-issuer in
                             reliance on Section 4(2) of the Securities Act.
                             In connection with that issuance, we have agreed
                             to file a registration statement for this
                             exchange offer as soon as practicable.
 
                             We also agreed to pay to each holder of Old
                             Notes, as liquidated damages, $0.15 per $1,000
                             principal amount of Old Notes per week,
                             commencing December 8, 1998, until we complete
                             the exchange offer. If we do not complete the
                             exchange offer during the 90 days ending March 8,
                             1999, the amount of liquidated damages payable
                             weekly during the 90 days ending June 6, 1999,
                             will increase to $0.20 per $1,000 principal
                             amount per week. Until we complete the exchange
                             offer, the amount of liquidated damages payable
                             weekly will increase by an additional $0.05 per
                             $1,000 principal amount per week for every
                             subsequent 90-day period, up to a maximum of
                             $0.50 payable weekly per $1,000 principal amount
                             of Old Notes.
 
Expiration Date............. The exchange offer will expire at 5:00 p.m., New
                             York City time, on            , 1999 or such
                             later date and time to which it is extended.
 
Withdrawal ................. A holder may withdraw its tender of Old Notes at
                             any time before 5:00 p.m., New York City time, on
                                          , 1999, or such later date and time
                             to which we extend the offer. If for any reason
                             we do not accept any Old Notes for exchange, the
                             Old Notes will be returned without expense to the
                             tendering holder as soon as practicable after the
                             expiration or termination of the exchange offer.
 
Interest On The New Notes
And The Old Notes .......... Interest on the New Notes will accrue from the
                             date of the last periodic payment of interest on
                             the Old Notes, or, if no interest has been paid
                             on the Old Notes, from December 14, 1998.
 
Conditions To The Exchange   
Offer....................... The exchange offer is subject to certain
                             customary conditions, certain of which may be
                             waived by us. See "The Exchange Offer--Certain
                             Conditions to Exchange Offer" on page.
 
Procedures For Tendering     
Old Notes................... Each holder of the Old Notes wishing to accept
                             the exchange offer must complete, sign and date
                             the letter of transmittal that accompanies this
                             Prospectus in accordance with its instructions.
                             The holder must then mail or otherwise deliver
                             the letter of transmittal, together with the Old
                             Notes and any other required documentation, to
                             the exchange agent at the address on page.
                             Persons holding the Old Notes through the
                             Depository Trust Company ("DTC") and wishing to
                             accept the exchange offer must do so pursuant to
                             DTC's Automated Tender Offer Program, by which
                             each tendering
 
                                       4

 
                             participant will agree to be bound by the letter
                             of transmittal. By executing or agreeing to be
                             bound by the letter of transmittal, each holder
                             will represent to us and the guarantors that,
                             among other things:
 
                               . the New Notes are being acquired in the
                                  ordinary course of business of the
                                  recipient, whether or not such person is the
                                  registered holder of the Old Notes;
 
                               . the holder is not engaging and does not
                                  intend to engage in a distribution of such
                                  New Notes;
 
                               . the holder does not have an arrangement or
                                  understanding with any person to participate
                                  in the distribution of such New Notes; and
 
                               . the holder is not our "affiliate," as defined
                                  under Rule 405 promulgated under the
                                  Securities Act, or an affiliate of our
                                  parent company or our subsidiaries who are
                                  guaranteeing the Notes.
 
                             The Registration Rights Agreement provides that
                             we must file a "shelf" registration statement for
                             a continuous offering of the Old Notes if we
                             determine that we cannot complete the exchange
                             offer as contemplated because of a change in
                             applicable law or SEC policy, or because any
                             holder of Old Notes notifies us before the 20th
                             day after we complete the exchange offer that:
 
                               . the holder is prohibited by law or SEC policy
                                  from participating in the exchange offer;
 
                               . the holder may not resell the New Notes
                                  acquired by it in the exchange offer to the
                                  public without delivering a prospectus and
                                  that this Prospectus is not appropriate or
                                  available for such resales; or
 
                               . the holder is a broker-dealer and owns Old
                                  Notes acquired directly from us or an
                                  affiliate of ours.
 
                             We will accept for exchange any and all Old Notes
                             that are properly tendered (and not withdrawn) in
                             the exchange offer prior to 5:00 p.m., New York
                             City time, on         , 1999. The New Notes
                             issued in our exchange offer will be delivered
                             promptly following the expiration date. See "The
                             Exchange Offer."
 
Exchange Agent ............. IBJ Whitehall Bank and Trust Company is serving
                             as Exchange Agent in connection with this
                             exchange offer.

Federal Income Tax            
Considerations.............. The exchange of Old Notes for New Notes in this
                             exchange offer should not constitute a sale or an
                             exchange for federal income tax purposes. See
                             "Certain Federal Income Tax Considerations."
 
Effect of Not Tendering..... Old Notes that are not tendered will continue to
                             be subject to the existing transfer restrictions
                             after we complete the exchange offer. We will
                             have no further obligation to provide for the
                             registration under the Securities Act of such Old
                             Notes.
 
                                       5

 
 
                                 The New Notes
 
  The summary below describes the principal terms of the New Notes. Important
limitations and exceptions apply to certain of the terms and conditions
described below. The "Description of the New Notes" section beginning on page
 of this Prospectus contains a more detailed description of the terms and
conditions of the New Notes.
                             
Issuers.....................  AEI Resources, Inc. and AEI Holding Company,
                              Inc., its wholly owned subsidiary.
 
Securities Offered..........  $200,000,000 in aggregate principal amount of 10
                              1/2% Senior Notes due 2005.
 
Maturity Date...............  December 15, 2005.
 
Interest Rate...............  10 1/2% per year.
 
Interest Payment Dates......  June 15 and December 15 of each year.
 
Ranking.....................  The Notes are general, unsecured obligations of
                              both Issuers. In priority of payment, the Notes
                              rank:
 
                                . Senior to our Senior Subordinated Notes due
                                   2006 and our other subordinated
                                   indebtedness.
 
                                . Equal with all our existing and future
                                   unsecured and unsubordinated indebtedness.
 
                              In addition, the Notes are effectively
                              subordinated to all borrowings outstanding under
                              our Senior Credit Facility to the extent of the
                              value of our assets because all of our assets and
                              all of the assets of our subsidiary co-issuer and
                              our subsidiary guarantors are collateral for
                              borrowings under our Senior Credit Facility.
 
Optional Redemption.........  We may choose to redeem the Notes:
 
                                . On or after December 15, 2002, at the
                                   redemption prices in this Prospectus, plus
                                   accrued and unpaid interest and Liquidated
                                   Damages (as defined on page  ), if any.
 
                                . Before December 15, 2002, at 100% of the face
                                   amount, plus an applicable Make Whole
                                   Premium (as defined on page  ).
 
                              On or before December 15, 2000, we can choose to
                              buy back up to 35% of the aggregate outstanding
                              face amount of the Notes with the net cash that
                              we or our parent company raise in an initial
                              public offering of common stock. We may do this
                              so long as:
 
                                . We pay 110.5 % of the face value of the
                                   Notes, plus accrued and unpaid interest and
                                   Liquidated Damages, if any;
 
                                       6
                              

 
 
                                . We buy back the Notes within 45 days of the
                                   completion of the public stock offering; and
 
                                . At least $130 million of the principal amount
                                   of the Notes remains outstanding afterwards.
 
Guarantees..................  Our payment obligations under the New Notes will
                              be jointly and severally guaranteed on a senior
                              unsecured basis by our parent company and each of
                              our current and future domestic subsidiaries
                              (with certain exceptions).
 
                              In right of payment, the guarantee of each
                              guarantor will have priority over all of its
                              existing and future subordinated debt and be
                              equal with its unsubordinated debt. However, the
                              guarantees will be effectively subordinated to
                              any borrowings under our senior credit facility
                              to the extent the senior credit facility is
                              secured by a lien on the assets of the
                              guarantors.
 
Change of Control...........  If a Change of Control occurs (as defined on page
                                ), we must give holders of the Notes an oppor-
                              tunity to sell their Notes at 101% of their face
                              amount, plus accrued interest and Liquidated Dam-
                              ages, if any.
 
                              We may not be able to pay you the required price
                              for the Notes you request us to purchase at the
                              time of a Change of Control because we may also
                              have to repay our senior credit facility and may
                              not have enough funds to pay all our senior debt
                              at that time.
 
Certain Covenants...........  The indenture governing the Notes contains cove-
                              nants limiting our ability (and the ability of
                              most of our subsidiaries) to:
 
                                . incur additional debt;
 
                                . issue capital stock;
 
                                . enter into transactions with affiliates;
 
                                . transfer or sell assets;
 
                                . incur certain liens; and
 
                                . consolidate or merge with another company.
 
                              These covenants are subject to several important
                              limitations and exceptions and are more fully de-
                              scribed in "Description of the New Notes" begin-
                              ning on page  .
 
Use of Proceeds.............  The Company will not receive any cash proceeds
                              from the issuance of the New Notes in exchange
                              for Old Notes.
 
                                  Risk Factors
 
We urge you to carefully read the Risk Factors beginning on page   for a
discussion of factors you should consider before exchanging your Old Notes for
New Notes.
 
 
                                       7

 
                   SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
 
We have summarized below the unaudited combined pro forma financial information
of the Company for the year ending December 31, 1997 and for the nine months
ended September 30, 1998. The information should be read in conjunction with
the unaudited pro forma condensed financial statements included on pages
through      of this Prospectus and in conjunction with our historical
financial statements and related notes included on pages F-1 through F-     of
this Prospectus.
 
You should be aware that this pro forma information may not be indicative of
what actual results will be in the future or would have been for the periods
presented.
 


                                                      (Dollars in Millions,
                                                       Except Per Ton Data)
                                                    --------------------------
                                                           The Company
                                                    --------------------------
                                                                  Nine Months
                                                     Year Ended      Ended
                                                    December 31, September 30,
                                                        1997         1998
                                                    ------------ -------------
                                                           
Operating Data:
Revenues...........................................   $1,395.2     $1,031.7
Cost of operations.................................    1,120.8        820.4
Depreciation, depletion and amortization...........      172.0        130.7
Selling, general and administrative................       41.6         31.2
Writedowns and special items(1)....................       82.5          --
                                                      --------     --------
Income (loss) from operations......................      (21.7)        49.4
Interest expense...................................     (112.4)       (86.4)
Other income (expense), net(2).....................       18.5          8.5
                                                      --------     --------
Income (loss) before income taxes..................     (115.6)       (28.5)
Income tax provision (benefit).....................      (23.9)       (11.7)
                                                      --------     --------
Net income (loss) from continuing operations.......   $  (91.7)    $  (16.8)
                                                      --------     --------
Other Data:
Adjusted EBITDA(3).................................   $  249.7     $  187.4
Capital Expenditures...............................      114.0         55.1
Ratio of Adjusted EBITDA to cash interest
 expense(3)(4).....................................       2.7x         2.3x
Ratio of total debt to Adjusted EBITDA(3)..........         NA         6.3x
Operating Data:
Proven and probable reserves
 (at period end in millions of tons)...............      2,440        2,401
Coal sales (millions of tons)(5)...................       52.2         38.9
Average sales price per ton........................   $  25.62     $  25.87
Average cost per ton sold(6).......................      23.89        24.21
Balance Sheet Data (end of period):
Working capital....................................         NA     $  (38.8)
Total assets.......................................         NA      2,584.6
Total long-term debt (including current portion)...         NA      1,174.7
Stockholders' equity (deficit).....................         NA        (84.3)

 
                                       8

 
- --------
(1) In 1997, the Company's subsidiaries acquired from Cyprus Amax Coal Company
    in June 1998 recorded historical write downs and special items of $92.1
    million. Such write downs and special items consist of: (i) charges of
    $35.8 million for the anticipated closure of the Armstrong Creek mine
    (which includes a $9.6 million charge related to end-of-mine reclamation);
    (ii) $2.3 million charge to increase current reclamation accounts for the
    Chinook mine; (iii) charges of $6.9 million to writedown land assets and
    prepaid royalties to net realizable value; (iv) write downs of $33.5
    million in asset values at the subsidiaries' West Virginia mines; and (v)
    write downs of $13.6 million in asset values at the subsidiaries' Chinook
    mine that resulted from updated mine and business plans that reflected the
    views of the subsidiaries' management regarding the domestic market for
    mid- to high-sulfur coal and updated reserve information. The write downs
    and special items were partially offset by pro forma adjustments for
    changes to the reclamation expense of the subsidiaries to conform to the
    Company's reclamation cost accounting policy ($9.6 million).
 
(2)Other income (expense), net reflects the inclusion of gain or loss on asset
sales and minority interest.
 
(3) Adjusted EBITDA as presented above and as used elsewhere in this Prospectus
    consists of earnings before interest, taxes, depletion, depreciation,
    amortization and other non-cash charges as adjusted to exclude certain
    unusual or nonrecurring charges, all in accordance with the term
    "Consolidated Cash Flow" as that term is used in the term "Fixed Charge
    Coverage Ratio" in the Indenture governing the Notes. See "Description of
    the New Notes" for a complete presentation of the methodology employed in
    calculating Adjusted EBITDA. Adjusted EBITDA is presented because it is a
    widely accepted financial indicator of a company's ability to service
    indebtedness and because it is used in the Indenture to determine
    compliance with certain covenants. However, Adjusted EBITDA should not be
    considered as an alternative to income from operations or to cash flows
    from operating activities (as determined in accordance with generally
    accepted accounting principles) and should not be construed as an
    indication of a company's operating performance or as a measure of
    liquidity. See Note G to Unaudited Pro Forma Combined Income Statement in
    "Unaudited Pro Forma Combined Financial Statements" for Adjusted EBITDA
    calculations.
 
(4) Cash interest expense is calculated as interest expense plus capitalized
    interest less interest accreted on discounted notes and amortization of
    deferred financing costs.
 
(5) Coal sales do not give effect to sales from purchased coal tonnage, which
    was 1.9 million tons in the nine months ended September 30, 1998.
 
(6) Average cost per ton sold is calculated based on total coal operating costs
    included in the cost of operations, plus depreciation costs related to
    mining, divided by coal sold.
 
NA = Not Available
 
 
                                       9

 
                       SUMMARY HISTORICAL FINANCIAL DATA
 
We have summarized below consolidated financial data derived from the following
financial statements included in this Prospectus:
 
  .  Annual financial statements of AEI Holding Company, Inc., our
     predecessor company, as of December 31, 1996 and 1997, and for the three
     years in the period ended December 31, 1997, which have been audited.
 
  .  Unaudited interim financial statements of AEI Resources, Inc. and our
     predecessor company as of September 30, 1998 and for the nine-month
     periods ended September 30, 1997 and 1998.
 
  .  Audited financial statements of the predecessor to AEI Holding Company,
     Inc. for the ten-month period ended November 1, 1995.
 
The annual financial statements and the ten-month financial statements have
been audited by Arthur Andersen LLP, independent public accountants. The
unaudited financial statements include, in the opinion of our management, all
normal recurring adjustments necessary for a fair presentation of the results
for the unaudited interim periods. You should be aware that results for the
nine months ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the entire year.
 
The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages     through     and the historical financial statements and related notes
included on pages F-1 through F-143 of this Prospectus.
 
            AEI Resources Holding, Inc. (including its predecessors)
                   (Dollars in millions, except per ton data)
 


                                                                 Nine-Month
                                 For the Fiscal Year Ended      Period Ended
                                       December 31,             September 30,
                                 -----------------------------  --------------
                                 1995 (1)    1996      1997      1997    1998
                                 -------------------  --------  ------  ------
                                                                 (unaudited)
                                                         
Operating Data:
Revenues.......................   $  112.3  $  123.2  $  175.3  $124.1  $376.2
Cost of operations.............       94.5      97.1     145.2   100.7   309.5
Depreciation, depletion and
 amortization..................        6.0       6.9      10.8     6.9    28.2
Selling, general and
 administrative................        8.6       9.1      13.9     9.9    19.8
                                  --------  --------  --------  ------  ------
Income from operations.........        3.2      10.1       5.4     6.6    18.7
Interest expense...............       (2.0)     (5.5)     (9.2)   (5.3)  (29.8)
Other income (expense), net
 (2)...........................       (0.5)      0.5       0.4    (0.6)    2.5
                                  --------  --------  --------  ------  ------
Income (loss) before income tax
 provision.....................        0.7       5.1      (3.4)    0.7    (8.6)
Income tax provision (benefit)
 (3)...........................       (0.4)      --       17.5     1.4    (0.9)
                                  --------  --------  --------  ------  ------
Net income (loss) from
 continuing operations (4).....   $    1.1  $    5.1   $ (20.9) $ (0.7) $ (7.7)
                                  --------  --------  --------  ------  ------
Other Data:
Adjusted EBITDA (5)............   $    8.7  $   17.5  $   16.6  $ 12.9  $ 48.4
Cash flows from operating
 activities....................       11.1       4.8     (10.2)   (8.0)  (30.1)
Cash flows from investing
 activities....................      (11.0)    (12.5)    (38.3)  (18.2) (907.0)
Cash flows from financing
 activities....................        0.9       7.3     131.6    26.9   908.4
Capital expenditures...........       12.6      14.1      32.2    18.3    33.3
Ratio of Adjusted EBITDA to
 interest expense (5)..........        4.4x      3.2x      1.8x    2.4x    1.6x
Ratio of total debt to Adjusted
 EBITDA (5)....................        6.0x      3.7x     13.1x    7.1x   29.5x

 
 
                                       10

 
                       SUMMARY HISTORICAL FINANCIAL DATA
 
            AEI Resources Holding, Inc. (including its predecessors)
                   (Dollars in millions, except per ton data)
 


                                                                  Nine-Month
                                 For the Fiscal Year Ended       Period Ended
                                       December 31,             September 30,
                                 -----------------------------  ---------------
                                 1995 (1)    1996      1997      1997    1998
                                 -------------------  --------  ------  -------
                                                                 (unaudited)
                                                         
Operating Data:
Proven and probable reserves
 (at period end,
 in millions of tons)..........         NA        NA       166     168    2,446
Coal sales (millions of tons)..        3.3       4.2       6.5     4.6     14.8
Average sales price per ton....   $  26.27  $  24.84  $  25.19  $24.43  $ 24.99
Average cost per ton sold(6)...      24.20     21.32     22.08   22.00    22.30
Balance Sheet Data (end of
 period):
Working capital................    $  (5.6)  $ (11.6) $   85.1  $ 12.7  $ (36.0)
Total assets...................       92.3     106.9     265.4   141.5  2,843.1
Total debt (including current
 portion)......................       52.4      64.1     217.0    91.6  1,425.8
Stockholders' equity
 (deficit).....................       (4.7)      0.3     (18.1)   (0.2)   (69.8)

- --------
(1) The operations data for the year ended December 31, 1995 combine the
    audited results of operations for AEI Holding Company, Inc. (the
    predecessor to AEI Resources Holding, Inc.) for the period from January 1,
    1995 through December 31, 1995 (see page F-5 of this Prospectus) and the
    results of Addington Coal Operations (the predecessor to AEI Holding
    Company, Inc.) for the period from January 1, 1995 through November 1, 1995
    (see page F-49 of this Prospectus). The operations data for the year ended
    December 31, 1995 do not purport to represent what the Company's combined
    results of operations would have been if the predecessor businesses had
    actually been acquired as of January 1, 1995.
 
(2) Other income (expense), net reflects the inclusion of gain or loss on asset
    sales and minority interest.
 
(3) In April 1997, Bowie changed its tax reporting status from an S-corporation
    to a C-corporation, resulting in an initial deferred tax liability of $1.6
    million. In November 1997, the other subsidiaries of AEI Holding Company,
    Inc. likewise changed from S-corporations to C-corporations, resulting in
    an initial deferred tax liability of $18.0 million.
 
(4) Net income (loss) from continuing operations is prior to extraordinary
    items and accounting changes.
 
(5) Adjusted EBITDA as presented above and as used elsewhere in this Prospectus
    consists of earnings before interest, taxes, depletion, depreciation,
    amortization and other non-cash charges as adjusted to exclude certain
    unusual or nonrecurring charges, all in accordance with the term
    "Consolidated Cash Flow" as that term is used in the term "Fixed Charge
    Coverage Ratio" in the Indenture. See "Description of the Notes" for a
    complete presentation of the methodology employed in calculating Adjusted
    EBITDA. Adjusted EBITDA is presented because it is a widely accepted
    financial indicator of a company's ability to service indebtedness and
    because it is used in the Indenture to determine compliance with certain
    covenants. However, Adjusted EBITDA should not be considered as an
    alternative to income from operations or to cash flows from operating
    activities (as determined in accordance with generally accepted accounting
    principles) and should not be construed as an indication of a company's
    operating performance or as a measure of liquidity.
 
(6) Average cost per ton sold is calculated based on total coal operating costs
    included in cost of operations, plus depreciation costs related to mining,
    divided by coal sold.
 
                                       11

 
                                  RISK FACTORS
 
Before purchasing the Notes, a prospective investor should consider the
specific factors set forth below, as well as the other information set forth
elsewhere in this Prospectus.
 
This Prospectus includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act
of 1934 including, in particular, the statements about the Company's plans,
strategies and prospects under the headings "Prospectus Summary," "Unaudited
Pro Forma Combined Financial Statements," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "The Coal Industry,"
"Business" and "Government Regulation." Although we believe that our plans,
intentions and expectations reflected in or suggested by such forward-looking
statements are reasonable, we can give no assurance that such plans, intentions
or expectations will be achieved. Important factors that could cause actual
results to differ materially from the forward looking statements we make in
this Prospectus are set forth below and elsewhere in this Prospectus. All
forward-looking statements attributable to the Company or persons acting on our
behalf are expressly qualified in their entirety by the following cautionary
statements.
 
Substantial Leverage--Our substantial indebtedness could adversely affect the
financial health of our Company and prevent us from fulfilling our obligations
under the Notes.
 
Our Company has a significant amount of indebtedness. The following chart shows
certain important credit statistics.
 


                                                           At September 30, 1998
                                                           ---------------------
                                                                (unaudited)
                                                        
Total indebtedness........................................       $1,174.7
                                                                 --------
Stockholders' equity......................................       $  (84.3)
                                                                 --------
Debt to equity ratio......................................          N/A
                                                                 --------

 


                                  For the Year Ended For the Nine Months Ended
                                  December 31, 1997     September 30, 1998
                                  ------------------ -------------------------
                                                            (unaudited)
                                               
Excess of earnings to fixed
 charges (deficiency)............      $(117.6)               $(36.7)
                                       -------                ------

 
 
The Company's substantial indebtedness could have important consequences to
you. For example, it could:
 
  . make it more difficult for us to satisfy our obligations with respect to
    the Notes;
 
  .increase our vulnerability to general adverse economic and industry
  conditions;
 
  . limit our ability to fund future working capital, capital expenditures,
    research and development costs and other general corporate requirements;
 
  . require us to dedicate a substantial portion of our cash flow from
    operations to payments on our indebtedness, thereby reducing the
    availability of our cash flow to fund working capital, capital
    expenditures, research and development efforts and other general
    corporate purposes;
 
  . limit our ability to obtain additional financing to fund future
    acquisitions of coal producers or coal reserves;
 
  . limit our flexibility in planning for, or reacting to, changes in our
    business and the industry in which we operate;
 
  . place us at a competitive disadvantage compared to our competitors that
    have less debt; and
 
  . limit, along with the financial and other restrictive covenants in our
    indebtedness, among other things, our ability to borrow additional funds.
    And, failing to comply with those covenants could result in an event of
    default which, if not cured or waived, could have a material adverse
    effect on us.
 
                                       12

 
See "Capitalization," "Description of the Notes--Repurchase at Option of
Holder--Change of Control" and "Description of Other Indebtedness--The Senior
Credit Facility."
 
Subordination--Your right to receive payments on these Notes is junior to our
existing indebtedness and possibly all of our future borrowings. Although our
subsidiaries have guaranteed the Notes, their guarantees rank behind all of
their existing indebtedness and possibly behind all their future borrowings.
 
Our domestic subsidiary companies, through which we hold the assets used to
operate our coal mining businesses, guarantee our obligations on the Notes. The
Notes and these Subsidiary Guarantees rank behind all of our and our
subsidiaries' existing indebtedness (other than trade payables) and all of our
and their future borrowings (other than trade payables), except for any future
indebtedness that expressly ranks equal with, or is subordinated to, the Notes
and the Subsidiary Guarantees. As a result, upon any distribution to creditors
of ours or our subsidiaries in a bankruptcy or similar proceeding, the holders
of indebtedness comprising "Senior Indebtedness" (as defined on page    ) of
ours or our subsidiaries will have the right to be paid in full in cash before
any amounts will be paid with respect to these Notes or the Subsidiary
Guarantees.
 
In addition, all payments on the Notes and the Subsidiary Guarantees will be
blocked in the event of a payment default on Senior Indebtedness and may be
blocked for up to 179 of 360 consecutive days in the event of certain non-
payment defaults on senior debt.
 
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or our subsidiaries, holders of the Notes will
participate with trade creditors and all other holders of subordinated
indebtedness of ours or our subsidiaries in the assets remaining after we and
our subsidiaries have paid all of our Senior Indebtedness. However, because the
Indenture governing the Notes requires that amounts otherwise payable to
holders of the Notes in a bankruptcy or similar proceeding be paid instead to
holders of Senior Indebtedness, holders of the Notes may receive less, ratably,
than holders of trade payables in any such proceeding. In any of these cases,
our Company and its subsidiaries may not have sufficient funds to pay all of
our creditors and holders of Notes may receive less, ratably, than the holders
of Senior Indebtedness.
 
As of September 30, 1998, after giving effect to payments and borrowings after
that date, the Notes and the Subsidiary Guarantees would have been subordinated
to $949.0 million of Senior Indebtedness and $73.5 million would have been
available for borrowing as additional Senior Indebtedness under our credit
facility. The Indenture governing the Notes will allow us to borrow substantial
additional indebtedness, including Senior Indebtedness, in the future.
 
Our parent company also guarantees the Notes on a senior subordinated basis.
Its guarantee will be subordinated to any Senior Indebtedness our parent
company incurs in the future. Because our parent company has no significant
assets other than the capital stock of the Company, Note holders should not
rely on the guarantee of our parent company.
 
Additional Borrowings Available--Despite current indebtedness levels, we may
still be able to incur substantially more debt. This could further exacerbate
the risks described above.
 
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the Indenture do not fully prohibit us
or our subsidiaries from doing so. Our Senior Credit Facility will permit
additional borrowings by the Company of up to $73.5 million as of September 30,
1998 (after giving proforma effect to the borrowings to fund a subsequent
acquisition) and all of those borrowings would be senior to the Notes. If new
debt is added to our current debt levels, the related risks that we now face
could intensify.
 
See "Capitalization," "Selected Historical Consolidated Financial Data" and
"Description of the Notes--Repurchase at the Option of Holders--Change of
Control" and "Description of Other Indebtedness--The Senior Credit Facility."
 
                                       13

 
Ability to Service Debt--To service our indebtedness, we will require a
significant amount of cash. Our ability to generate cash depends on many
factors beyond our control.
 
Our ability to make payments on and to refinance our indebtedness, including
the Notes, and to fund planned capital expenditures and research and
development efforts will depend on our ability to generate cash in the future.
This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control.
 
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe our cash flow from operations, available
cash and available borrowings under the Senior Credit Facility, will be
adequate to meet our future liquidity needs for at least the next few years.
 
We cannot assure you, however, that our business will generate sufficient cash
flow from operations, that currently anticipated cost savings and operating
improvements will be realized on schedule or at all, or that future borrowings
will be available under the Senior Credit Facility in amounts sufficient to
enable us to pay our indebtedness, including the Notes, or to fund our other
liquidity needs. We may need to refinance all or a portion of our indebtedness,
including the Notes, on or before maturity. We cannot assure you that we will
be able to refinance any of our indebtedness, including the Senior Credit
Facility and the Notes, on commercially reasonable terms or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity."
 
Secured Indebtedness--Any claims of holders of the Notes will be effectively
subordinated to claims of holders of any secured indebtedness of the Company or
our subsidiaries.
 
Holders of any secured indebtedness of the Company or our subsidiaries will
have claims that have priority over claims of the holders of the Notes with
respect to the assets securing such other indebtedness. The Company and our
subsidiaries are currently parties to the Senior Credit Facility. The Senior
Credit Facility is secured by liens on all of the capital stock of the Company
and our subsidiaries, as well as all present and future assets and properties
of the Company and our subsidiaries. The Notes will remain effectively
subordinated to all such secured indebtedness. In the event of any distribution
or payment of our assets in any bankruptcy, liquidation or distribution or
similar proceeding, holders of secured indebtedness will have a prior claim to
our assets that constitute their collateral. Holders of the Notes will
participate ratably with all holders of our unsecured indebtedness that is
deemed to be of the same class as the Notes. They may also be able to
participate with all of our other general creditors' based upon the respective
amounts owed to each holder or creditor, in any distribution of our remaining
assets. If any of these events occur, we cannot assure you that there would be
sufficient assets to pay amounts due on the Notes. As a result, holders of the
Notes may receive less, ratably, than holders of secured indebtedness.
 
As of September 30, 1998, on a pro forma basis after giving effect to payments
and borrowings after that date, the Company and its subsidiaries would have had
$749.0 million in aggregate amount of secured indebtedness (excluding the
guarantees of borrowings under the Senior Credit Facility), and $73.5 million
would have been available for additional borrowing under the Senior Credit
Facility.
 
Integration of Acquisitions--We may not be able to effectively integrate the
various businesses we have acquired.
 
Our business has been developed principally through the acquisition of
established coal businesses. Each of the businesses we have acquired since
October 1, 1997 operated independently before we acquired it. Our Unaudited Pro
Forma Combined Financial Statements in this Prospectus include the combined
operating results of these acquired businesses during periods before they were
under our control. Thus, the statements may not indicate what our results would
have been if we had operated the acquired businesses on a combined basis during
such periods. Our prospects should be considered in light of the numerous risks
commonly encountered
 
                                       14

 
in business combinations. We cannot assure you that our management group will
be able to effectively integrate the businesses we have acquired since October
1, 1997, or generate the cost savings and operating improvements we currently
anticipate. Our business, financial condition and results of operations
could be materially adversely affected if we are unable to retain the key
operational personnel that have contributed to our historical performance and
that of the businesses we have acquired. See "--Dependence on Key Management
and Control by Principal Shareholder."
 
While we intend to pursue acquisitions of additional coal reserves and other
coal companies, in the future, we have no present binding commitments or
agreements with respect to any such acquisitions. We may incur additional debt
and contingent liabilities to finance future acquisitions, either of which may
adversely effect our business, financial condition and results of operations.
Acquisitions involve numerous risks, including difficulties in the assimilation
of the operations, technologies, services and products of the acquired
companies and the diversion of management's attention from other business
concerns. If we complete such an acquisition in the future, the acquisition may
adversely affect our business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity."
 
Ability to Achieve Anticipated Cost Savings and Synergies--We may not be able
to achieve our anticipated cost savings in the manner and on the schedule
currently anticipated.
 
Our management currently estimates that if we had completed all of our recent
acquisitions by January 1, 1997, we could have achieved cost savings of
approximately $71 million through integration of the businesses acquired. These
estimates were prepared solely by members of our management and are necessarily
based on a number of assumptions. These include our ability to implement
headcount reductions and long-term supply contract flexibility and our ability
to optimize production costs and implement more cost-effective mining
techniques. However, other matters may affect these estimates, including
general industry, business and economic conditions, many of which are beyond
our control. These forward-looking statements are based on estimates and
assumptions made by our management that, although believed to be reasonable,
are inherently uncertain and difficult to predict. We cannot assure you that
the cost savings anticipated in these forward-looking statements will be
achieved on the schedule currently anticipated or at all, nor can we assure you
that unforeseen costs and expenses or other factors will not offset any
estimated or actual cost savings. If we cannot achieve the anticipated cost
savings and synergies, we may encounter financing constraints in the future.
 
Reliance on Long-Term Coal Supply Contracts--Many of our long-term contracts
allow contract price renegotiation, contract termination and other provisions
that may adversely affect our operating margins.
 
We sell a substantial portion of our coal under long-term coal supply
contracts, which are significant to the stability and profitability of our
operations. The execution of a satisfactory long-term sales contract is
frequently the basis for our decision to develop coal reserves needed to
fulfill the contract. For the nine months ended September 30, 1998,
approximately 74% of our revenues came from coal sales under long-term sales
contracts. As of September 30, 1998, the Company had 51 long-term sales
contracts with a volume-weighted average term of approximately 5.4 years. As of
September 30, 1998, most of the Company's contracts provide for coal to be sold
at a price higher than the price at which such coal could be sold in the spot
market.
 
Most of our recently negotiated contracts with a term of more than three years
contain price reopeners. The reopeners usually occur midway through a contract
or every two to three years, depending upon the length of the contract.
Reopeners allow the contract price to be renegotiated in order to be in line
with the market price prevailing at the time. In some circumstances, the
utilities have an option to terminate the contract if prices have increased by
over 10% from the price at the commencement of the contract or if the parties
do not agree on a new price. We cannot assure you that our long-term contracts
will not terminate before their current terms expire or that the prices we
obtain for coal under such contracts will not decrease.
 
                                       15

 
Historically, long-term sales contracts were priced above the spot prices for
coal. However, in the past several years the price of new contracts has been
very competitive, with new contracts being priced at or near existing spot
rates. In addition, the length of the term of sales contracts has decreased
significantly over the last two decades as competition in the coal industry has
increased and, more recently, as the electricity generators have prepared
themselves for the Clean Air Act Amendments and the impending deregulation of
their industry. We believe that the average term of long-term sales contracts
was 20 years in the 1970s and 10 years in the 1980s, but then fell to one to
two years in the early 1990s. However, in the last three years, there has been
a return to longer term contracts of five to ten years in length. At the same
time, customers have insisted on price reopeners every two or three years,
providing them with the security of having coal under contract and knowing that
the price will not significantly exceed market. See "Business--Long-Term Coal
Contracts."
 
Our operating profit margins under our long-term coal supply contracts depend
on a variety of factors. These include production costs, transportation costs,
delivered coal qualities and quantities and various general macro-economic
indices, many of which are beyond our control. In addition, price adjustment,
price reopener and other provisions may reduce the insulation from short-term
coal price volatility provided by such contracts and may adversely impact our
operating profit margins. If any of our long-term sales contracts are modified
or terminated, we could be adversely affected to the extent that we cannot find
alternate customers at the same level of profitability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
 
We must sell coal from our Bowie Mine to TVA under a ten-year contract dated
July 1, 1998. Our costs to supply coal for the TVA contract will be higher if
we cannot lease certain reserves located on federal land in Colorado. We cannot
assure you that we will be successful in leasing such reserves. The failure to
do so could materially adversely impact the profitability of the Bowie Mine.
 
Highly Competitive Industry--The high level of competition in the coal industry
may make it difficult for us to continue to obtain long-term sales contracts,
making us vulnerable to changes in spot market coal prices.
 
The U.S. coal industry is highly competitive, with numerous producers in most
coal producing regions. We compete with other large producers and hundreds of
small producers in the United States and abroad. Many of our customers also
purchase coal from our competitors. The markets in which we sell our coal are
highly competitive and affected by factors beyond our control. Demand for coal
and the prices that we obtain for our coal are closely linked to coal
consumption patterns of the domestic electric utility industry, which has
accounted for approximately 87% of domestic coal consumption in recent years.
The demand for electricity, coal transportation costs, environmental and other
governmental regulation, technological developments and the location,
availability and price of competing sources of coal, alternative fuels such as
natural gas, oil and nuclear, and alternative energy sources such as
hydroelectric power all influence coal consumption by utilities. In addition,
during the mid-1970s and early 1980s, a growing coal market and increased
demand attracted new investors to the coal industry and spurred the development
of new mines and added production capacity throughout the industry. As a result
of the increased development of large surface mining operations, particularly
in the western United States, and more efficient mining equipment and
techniques, the industry has developed excess coal production capacity in the
United States. Competition resulting from excess capacity encourages producers
to reduce prices and to pass productivity gains through to customers. Moreover,
because of greater competition in the domestic electric utility industry and
increased pressure from customers and regulators to lower electricity prices,
public utilities are lowering fuel costs by buying higher percentages of spot
coal through a competitive bidding process and by only buying the amount of
coal necessary under existing contracts to meet their contractual requirements.
We cannot assure you that we will continue to be able to obtain long-term sales
contracts with reliable customers as existing contracts expire. If the
percentage of our revenues generated from long-term sales contracts decreases,
changes in spot market coal prices will have a greater impact on our results.
 
                                       16

 
Transportation--Any disruption in our transportation services or any
significant increase in transportation costs may adversely affect our business.
 
The U.S. coal industry depends on rail, trucking and barge transportation to
deliver shipments of coal to customers. In particular, we depend on railroads
at a significant number of our mines. If weather-related or other events
disrupt these transportation services, it could temporarily impair our ability
to supply coal to our customers and thus adversely affect our business and
operating results. In addition, transportation costs, including fuel costs,
represent a significant component of the total cost of supplying coal to
customers and can significantly affect a coal producer's competitive position
and profitability. Increases in our transportation costs, or changes in such
costs relative to transportation costs incurred by providers of competing coal
or of other fuels, could have an adverse effect on our business and operating
results.
 
Risks Inherent in Mining Operations--Mining operations are vulnerable to
weather and other conditions that are beyond our control.
 
Conditions beyond our control can increase or decrease the cost of mining at
particular mines for varying lengths of time. These conditions include weather
and natural disasters, such as heavy rains and flooding, unexpected maintenance
problems, variations in coal seam thickness, variations in the amount of rock
and soil overlying the coal deposit, variations in rock and other natural
materials and variations in geological and other conditions. Additionally, the
highwall mining process can be more sensitive to adverse geological conditions
which may diminish coal recovery, and in extreme cases, contribute to the loss
or damage of highwall mining equipment.
 
Government Regulation of the Mining Industry--Government regulations may impose
costly requirements on us.
 
The coal mining industry is subject to regulation by federal, state and local
authorities on matters such as employee health and safety, limitations on land
use, permitting and licensing requirements, air quality standards, water
pollution, plant and wildlife protection, reclamation and restoration of mining
properties after mining, the discharge of materials into the environment,
surface subsidence from underground mining and the effects that mining has on
groundwater quality and availability. Legislation mandating certain benefits
for current and retired coal miners also affects the industry. Mining
operations require numerous governmental permits and approvals. We may be
required to prepare and present to federal, state or local authorities data
pertaining to the impact that any proposed exploration for or production of
coal may have upon the environment. Compliance with these requirements may be
costly and time-consuming and may delay commencement or continuation of
exploration or production operations. New legislation and/or regulations and
orders may materially adversely affect our mining operations, our cost
structure and/or our customers' ability to use coal. New legislation, including
proposals related to the protection of the environment that would further
regulate and tax the coal industry, may also require us or our customers to
change operations significantly or incur increased costs. All of these factors
could have a material adverse effect on our business, financial condition and
results of operations. See "Government Regulation."
 
Reclamation and Mine Closure Accruals. The Federal Surface Mining Control and
Reclamation Act of 1977 ("SMCRA") and similar state statutes require us to
restore mine property in accordance with specified standards and an approved
reclamation plan, and require that we obtain and periodically renew permits for
mining operations. We accrue for the costs of final mine closure over the
estimated useful mining life of the property and for rectifying current mine
disturbance through reclamation prior to final mine closure. These costs relate
to reclaiming the pit and support acreage at surface mines and sealing portals
at deep mines. Other costs common to both types of mining are related to
reclaiming refuse and slurry ponds. We establish our final mine closure
reclamation liability based upon permit requirements and various estimates and
assumptions, principally associated with costs, facilities and disturbed
acreage. We review our entire environmental liability under SMCRA annually and
make necessary adjustments, including mine reclamation plan and permit changes
and revisions to costs and production levels to optimize mining and reclamation
efficiency. We record the
 
                                       17

 
economic impact of such adjustments to the cost of coal sales. We accrue the
entire reclamation liability for operating mines which we acquire and begin to
accrue for the cost of final mine closure at new mines when mining activities
begin. The accruals for end of mine reclamation costs and mine-closing costs
totaled approximately $363.4 million on the Company's pro forma balance sheet
as of September 30, 1998, of which $28.4 million is a current liability. The
amount included as an operating expense for such liability for the pro forma
nine-month period ended September 30, 1998 was $2.4 million, while the related
cash expense for such period was $13.6 million. Although our management
believes it is making adequate provisions for all expected reclamation and
other costs associated with mine closures, future operating results would be
adversely affected if such accruals were later determined to be insufficient.
 
Impact of Clean Air Act Amendments on Coal Consumption. The Federal Clean Air
Act, including the Clean Air Act Amendments of 1990, and corresponding state
laws that regulate emissions of materials into the air, affect coal mining
operations both directly and indirectly. Direct impacts on coal mining and
processing operations occur through Clean Air Act permitting requirements
and/or emissions control requirements relating to particulate matter (e.g.,
"fugitive dust"), including future regulation of fine particulate matter. In
July 1997, the U.S. Environmental Protection Agency ("EPA") adopted new, more
stringent standards for particulate matter and ozone. As a result, some states
must change their existing implementation plans to attain and maintain
compliance with the new standards. Because coal mining operations emit
particulate matter, our mining operations are likely to be affected directly
when the revisions to the new standards are implemented by the states. State
and federal regulations relating to implementation of the new standards may
restrict our ability to develop new mines or could require us to modify our
existing operations. The extent of the potential direct impact of the new
standards on the coal industry will depend on the policies and control
strategies associated with the state implementation process under the Clean Air
Act, but could have a material adverse effect on our business, financial
condition and results of operations.
 
The Clean Air Act indirectly affects coal mining operations by extensively
regulating the emissions by coal-fueled utility power plants. Reductions in SO2
emissions under the Clean Air Act Amendments will occur in two phases: (i)
Phase I began in 1995 and applies only to certain identified facilities and
(ii) Phase II is scheduled to begin in 2000 and will apply to all coal-fueled
utility power plants, including those subject to the 1995 restrictions. The
affected utilities have been and may be able to meet these requirements by,
among other methods, switching to lower sulfur coal or other low-sulfur fuels,
installing pollution control devices such as scrubbers, reducing electricity
generating levels or purchasing excess emission allowances from other
facilities. See "Government Regulation--Environmental Laws--Clean Air Act." We
cannot fully determine the effect of these developments on the Company at this
time. We believe that implementation of Phase II will likely tend to reduce the
price of higher sulfur coal, as additional coal-burning utility power plants
become subject to more restrictions. We expect this price effect to occur after
the large surplus of emission allowances which has accumulated in connection
with Phase I has been reduced, and before utilities can install sulfur-
reduction technologies to comply with Phase II. The extent to which this
expected price decrease will adversely affect the Company will depend upon
several factors, including our ability to secure long-term sales contracts for
our coal reserves with higher sulfur content. Moreover, if the price of
compliance coal rises as Phase II is implemented, scrubber compliance
strategies may become more attractive to utility customers, thereby lessening
the downward pressure on the price of high sulfur coal.
 
The Clean Air Act Amendments also indirectly affect coal mining operations by
requiring utilities that currently are major sources of nitrogen oxides in
moderate or higher ozone nonattainment areas to install reasonably available
control technology ("RACT") for nitrogen oxides, which are precursors of ozone.
In addition, we expect the stricter ozone standards, as discussed above, to be
implemented by EPA by 2003. In September 1998, EPA issued an implementation
plan (the "SIP call") that will require 22 eastern states to amend their state
implementation plans to make substantial reductions in nitrogen oxide
emissions. The SIP call includes state-by-state nitrogen oxide budgets and was
accompanied by two additional actions that EPA has proposed to implement if the
SIP call does not adequately address nitrogen oxide emissions. EPA expects that
 
                                       18

 
states subject to the SIP call will achieve the reductions by requiring power
plants to make substantial reductions in their nitrogen oxide emissions.
Installation of RACT and additional control measures required under the SIP
call will make it more costly to operate coal-fueled utility power plants and,
depending on the requirements of individual state attainment plans and the
development of revised new source performance standards, could make coal a less
attractive fuel alternative in the planning and building of utility power
plants in the future. Any reduction in coal's share of the capacity for power
generation could have a material adverse effect on our business, financial
condition and results of operations. We cannot predict how present or future
regulations will affect the coal industry in general and the Company in
particular. They may limit the ability of some of our customers to burn higher
sulfur coal unless our customers have or are willing to install scrubbers,
blend coal or bear the cost of acquiring emission credits that permit them to
burn higher sulfur coal. We have tried to mitigate the potential adverse
effects of the legislation's limitations on sulfur dioxide emissions through
the acquisition and development of super-compliance, compliance and low-sulfur
coal reserves. We cannot assure you, however, that the implementation of the
Clean Air Act, the new air quality standards or any other future regulatory
provisions will not materially adversely affect the Company.
 
Impact of the Framework Convention on Global Climate Change on the Coal
Industry. The United States and more than 160 other nations are signatories to
the 1992 Framework Convention on Global Climate Change which is intended to
limit or capture emissions of greenhouse gases, such as carbon dioxide. In 1997
the signatories to the Convention established the Kyoto Protocol, a binding set
of emissions targets for developed nations. The United States would be required
to reduce emissions to 93% of 1990 levels over a five-year budget period from
2008 through 2012. Although the United States has not ratified the Kyoto
Protocol and no comprehensive requirements focusing on greenhouse gas emissions
are in place, legislative or regulatory requirements to control greenhouse gas
emissions, if established, could reduce the use of coal if electric power
generators switch to lower carbon sources of fuel. It is unclear what impact,
if any, greenhouse gas restrictions may have on our operations. We cannot
guarantee you, however, that such restrictions, if established through
regulation or legislation, will not have a material adverse effect on our
business, financial condition and results of operations.
 
Black Lung and Workers' Compensation Obligations. Under federal law, each coal
mine operator must secure payment of federal black lung benefits to claimants
who are current and former employees and to a trust fund for the payment of
benefits and medical expenses to claimants who last worked in the coal industry
before July 1, 1973. Less than 7% of the miners currently seeking federal black
lung benefits are awarded such benefits by the federal government. The trust
fund is funded by an excise tax on production of up to $1.10 per ton for deep-
mined coal and up to $0.55 per ton for surface-mined coal, neither amount to
exceed 4.4% of the per ton sales price. We pass this tax on to the purchaser of
our coal under many of our long-term sales contracts.
 
If legislation similar to recently proposed but unenacted legislation
ultimately is enacted, the number of claimants who are awarded benefits could
significantly increase. We cannot assure you that such proposed legislation or
other proposed changes in black lung legislation will not have an adverse
effect on the Company.
 
The U.S. Department of Labor has proposed amendments to the regulations
implementing the federal black lung laws which, among other things, establish a
presumption in favor of a claimant's treating physician and limit a coal
operator's ability to introduce medical evidence regarding the claimant's
medical condition. If adopted, we cannot predict the extent to which the
amendments could have an adverse impact on the Company.
 
Additionally, we are required to compensate employees for work-related
injuries. Our workers' compensation liabilities (including black lung claims)
totaled approximately $119.8 million on the Company's pro forma balance sheet
as of September 30, 1998, $26.9 million of which is a current liability. The
amount that was included as an operating expense for such liability for the pro
forma nine-month period ended September 30, 1998 was $19.9 million, while the
related cash expense for such period was $21.4 million. See "Government
Regulation -- Black Lung."
 
                                       19

 
Postretirement Benefits and Pension Plan Liabilities--If our actuarial
assumptions regarding our post-retirement benefit obligations do not
materialize, our cash expenditures and costs incurred could be higher than
anticipated.
 
We provide post-retirement health and life insurance benefits to eligible union
and union-free employees. We have calculated the total accumulated post-
retirement benefit obligation under SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106") and estimate that at
September 30, 1998, the pro forma present value of such future obligation was
approximately $388.8 million, $34.5 million of which is a current liability.
The amount that was included as an operating expense for such liability for the
pro forma nine-month period ended September 30, 1998 was $22.5 million, while
the related cash expense for such period was $12.1 million. We have estimated
these obligations based on assumptions described in the Notes to the financial
statements. If our actuarial assumptions do not materialize as expected, cash
expenditures and costs that we would incur could be materially higher than
those reflected in the Company's Unaudited Pro Forma Combined Financial
Statements.
 
Replacement and Recoverability of Reserves--Our business may be adversely
affected if we are unable to continue acquiring coal reserves that are
economically recoverable.
 
Our continued success depends, in part, upon our ability to find, develop or
acquire additional coal reserves that we can recover economically. Our proven
and probable reserves will generally decline as reserves are depleted, except
to the extent that we conduct successful exploration and development activities
or acquire properties containing proven and probable reserves. To increase
reserves and production, we must continue our development, exploration and
acquisition activities or undertake other replacement activities. Our current
strategy includes increasing our reserve base through acquisitions of
complementary properties and by continuing to exploit our existing properties.
We cannot assure you, however, that our planned development and exploration
projects and acquisition activities will increase our reserves significantly or
that we will have continuing success developing additional mines. For a
discussion of our reserves, see "Business--Coal Reserves." We conduct most of
our mining operations on properties we own or lease. Because we do not
thoroughly verify title to most of our leased properties and mineral rights
until we apply for a permit to mine the property, defects in title or
boundaries can adversely affect our right to mine certain of our reserves. In
addition, we cannot assure you that we can successfully negotiate new leases or
mining contracts for properties containing additional reserves or maintain our
leasehold interest in properties on which we do not begin mining operations
during the term of the lease. See "Business--Coal Reserves."
 
Intellectual Property--Although we do not consider it likely, any of our
patents may be challenged in the future.
 
Our intellectual property is patented, and these patents give us the exclusive
right to use our intellectual property for the life of the patent. However, we
cannot guarantee the validity and enforceability of any of our patents. The
validity of a patent is open to challenge on a number of grounds, including
lack of novelty and the failure to adequately describe the invention in the
patent claim. Our patents may be successfully challenged in the future,
although we do not consider this to be likely. Any loss of patent protection
could have a material adverse effect on the Company, as it might allow new
competitors to use our technology.
 
Price Fluctuations and Markets--Any significant decline in coal prices may
adversely affect our ability to meet our obligations.
 
Our results of operations depend upon the prices we receive for our coal.
Although we realized 74% of our coal sales in the nine-month period ended
September 30, 1998, under to long-term sales contracts, some of these contracts
include price adjustment provisions which permit an increase or decrease at
specified times in the contract price to reflect changes in certain price or
other economic indices, taxes and other charges. Additionally, some of our
long-term sales contracts contain price reopener provisions that allow contract
price to be adjusted upward or downward at specified times on the basis of
market factors. See "--Reliance on Long-Term Coal Supply Contracts." Any
significant decline in prices for coal could have a material adverse
 
                                       20

 
effect on our financial condition, results of operation and quantities of
reserves recoverable on an economic basis. Should the industry experience
significant price declines from current levels or other adverse market
conditions, we may not be able to generate sufficient cash flow from operations
to meet our obligations and make planned capital expenditures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity" and "Government Regulation."
 
The availability of a ready market for our higher sulfur coal production also
depends on a number of other market factors, including the demand for and
supply of low-sulfur coal, and the availability of pollution credits. See "--
Government Regulation of the Mining Industry--Impact of Clean Air Act
Amendments on Coal Consumption."
 
Reliance on Estimates of Proven and Probable Reserves--Estimates on proven and
probable reserves may vary substantially from actual results and you should not
rely on these estimates unduly.
 
There are numerous uncertainties inherent in estimating quantities of proven
and probable reserves, including many factors beyond our control. Estimates of
economically proven and probable coal reserves and future net cash flows
necessarily depend upon a number of variable factors and assumptions. These
include historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies
and assumptions concerning future coal prices, future operating costs,
severance and excise taxes, development costs and reclamation costs, all of
which may in fact vary considerably from actual results. For these reasons,
estimates of the economically recoverable quantities of coal attributable to
any particular group of properties, classifications of such reserves based on
risk of recovery and estimates of future net cash flows expected from them
prepared by different engineers or by the same engineers at different times may
vary substantially. Actual production, revenues and expenditures with respect
to our reserves will likely vary from estimates, and such variances will likely
be material. As a result, prospective holders of the Notes should not place
undue reliance on the coal reserve data included herein. See "Business--Coal
Reserves."
 
Dependence on Key Management and Control by Principal Shareholder--We depend on
our key personnel and the loss of any of them may adversely affect us. In
addition, one principal shareholder can control the corporate and management
policies of the Company.
 
Our business is managed by a number of key personnel and the loss of any of
them could have a material adverse effect on us. In addition, as the Company's
business develops and expands, we believe that our future success will depend
greatly on its continued ability to attract and retain highly skilled and
qualified personnel. We cannot assure you that we will continue to employ key
personnel or that we will be able to attract and retain qualified personnel in
the future. Our failure to retain or attract such key personnel could have a
material adverse effect on us. See "Management."
 
Larry Addington beneficially owns 100% of the outstanding voting securities of
our parent company, which owns 100% of the common stock of the Company.
Accordingly, Mr. Addington is able to control the election of the Company's
directors and to determine the corporate and management policies of the
Company, including decisions relating to any mergers or acquisitions by the
Company, the sale of all or substantially all of the Company's assets and other
significant corporate transactions that could result in a Change of Control
under the Indenture. See "Security Ownership of Principal Stockholders and
Management."
 
Unionization of Labor Force--If we cannot extend existing collective bargaining
agreements before they expire, our unionized labor may go on strike. In
addition, our competitors who employ non-unionized employees may have a
competitive advantage over us.
 
Approximately 38% of the Company's coal employees and the mines at which those
employees work, which accounted for 34% of the Company's coal production in the
twelve-month period ended September 30, 1998, are represented by the United
Mine Workers of America (the "UMWA"). We have several collective bargaining
agreements with the UMWA. We cannot assure you that our unionized labor will
not go on strike
 
                                       21

 
upon expiration of existing contracts. See "Business--Employees." Certain of
our competitors have union-free work forces. Because of the increased risk of
strikes and other work-related stoppages in addition to higher labor costs
which may be associated with union operations in the coal industry, our union-
free competitors may have a competitive advantage in areas where they compete
with our unionized operations. If some or all of our current union-free
operations were to become unionized, we could incur an increased risk of work
stoppages and higher labor costs.
 
Surety Bonds--Federal and state laws require us to place and maintain Surety
Bonds in connection with certain obligations described below, and we cannot
assure you that the Surety Bond holders will continue to renew or refrain from
demanding additional collateral upon any renewal.
 
Federal and state laws require bonds to secure our obligations to reclaim lands
disturbed for mining, to pay federal and state workers' compensation benefits
and to satisfy other miscellaneous obligations (the "Surety Bonds"). On a pro
forma basis after giving effect to the Transactions, as of September 30, 1998,
we had outstanding Surety Bonds with third parties for post-mining reclamation
totaling $567.8 million and an additional $182.3 million are in place for
federal and state workers' compensation obligations and other miscellaneous
obligations. These Surety Bonds are typically renewable on a yearly basis. We
cannot assure you that the Surety Bond holders will continue to renew the
Surety Bonds or refrain from demanding additional collateral upon such
renewals. The failure to maintain, or the inability to acquire, sufficient
Surety Bonds, as required by state and federal law, would have a material
adverse effect on the Company and therefore create certain risks for holders of
Notes. Such failure could result from a variety of factors including the
following: (i) lack of availability, higher expense or unreasonable terms of
new Surety Bonds, (ii) restrictions on the demand for collateral by current and
future third-party Surety Bond holders due to the terms of the Indenture, the
Senior Note Indenture or the Senior Credit Facility; and (iii) the exercise by
third-party Surety Bond holders of their right to refuse to renew the surety.
 
Financing Change of Control Offer--We may not have the ability to raise the
funds necessary to finance the change of control offer required by the
Indentures.
 
If certain specific kinds of change of control events occur, we will be
required to offer to repurchase all outstanding Notes. However, we may not have
sufficient funds at the time of the change of control to make the required
repurchase of Exchange Notes, that restrictions in our Senior Credit Facility
will not allow such repurchases or that the repurchase will constitute an event
of default under the Senior Credit Facility. In addition, certain important
corporate events, such as leveraged recapitalizations that would increase the
level of our indebtedness, would not constitute a "Change of Control" under the
Indentures. See "Description of the Notes--Repurchase at the Option of
Holders--Change of Control."
 
Fraudulent Conveyance Matters--Federal and state statutes allow courts, under
specific circumstances, to void the Notes and the Guarantees and require
noteholders to return payments received from the Company or the Guarantors.
 
Under the federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, the Notes and the Guarantees could be voided, or claims in
respect of the Notes and the Guarantees could be subordinated to all other
debts of the Company or any guarantor if, among other things, the Company or
such guarantor, at the time it incurred the indebtedness evidenced by the Notes
and the Guarantees:
 
  .  received less than reasonably equivalent value or fair consideration for
     the incurrence of such indebtedness; and
 
  .  was insolvent or rendered insolvent by reason of such incurrence; or
 
  .  was engaged in a business or transaction for which the Company or such
     guarantor's remaining assets constituted unreasonably small capital; or
 
  .  intended to incur, or believed that we would incur, debts beyond our
     ability to pay such debts as they mature.
 
                                       22

 
In addition, any payment by the Company or such guarantor pursuant to the Notes
or the Guarantees could be voided and required to be returned to the Company or
such guarantor, or to a fund for the benefit of the creditors of the Company or
such guarantor.
 
The measures of insolvency for purposes of these fraudulent transfer laws will
vary depending upon the law applied in any proceeding to determine whether a
fraudulent transfer has occurred. Generally, however, the Company or a
guarantor would be considered insolvent if:
 
  .  the sum of our debts, including contingent liabilities, were greater
     than the fair saleable value of all of our assets, or
 
  .  if the present fair saleable value of our assets were less than the
     amount that would be required to pay our probable liability on our
     existing debts, including contingent liabilities, as they become
     absolute and mature, or
 
  .  we could not pay its debts as they become due.
 
On the basis of historical financial information, recent operating history and
other factors, we believe that we will not be insolvent, will not have
unreasonably small capital for the business in which we are engaged and will
not have incurred debts beyond our ability to pay such debts as they mature. We
cannot assure you, however, as to what standard a court would apply in making
such determinations or that a court would agree with our conclusions in this
regard.
 
No Prior Market for the Notes--You cannot be sure that an active trading market
will develop for the Notes.
 
There is no existing market for the Notes and we cannot assure you as to the
liquidity of any markets that may develop for the Notes, the ability of holders
of the Notes to sell their Notes, or the prices at which holders would be able
to sell their Notes. In addition, changes in the overall market for high yield
securities and changes in our financial performance or prospects or in the
prospects for companies in our industry generally may adversely affect the
liquidity of the trading market in the Notes, and the market price quoted for
the Notes. As a result, you cannot be sure that an active trading market will
develop for the Notes.
 
Impact of Year 2000 Issue--Although we believe that the Year 2000 Issue will
not pose significant operational problems for our business systems, any failure
to make needed conversions may adversely affect our operations. In addition, we
will need to monitor our customers and suppliers and we cannot guarantee that
the systems of other companies on which we rely will be timely converted.
 
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of our computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations and the ability to engage
in normal business activities. Based on our ongoing assessment of our business
information systems, we determined that our key business systems are
substantially compliant with year 2000 requirements. We are currently in the
process of deploying a new Company-wide management and accounting system which
is expected to be completed in March 1999. This system is year 2000 compliant
and is being installed due to additional functionality needed to meet the
growth of the Company. Non-information technology components could have an
impact on the Company. Management is currently in the process of reviewing all
non-information technology components including embedded technology, equipment
related hardware and software, as well as communication systems with such
review expected to be completed by March 1999. Any necessary upgrades or
replacements are expected to be completed by May 1999. We are not materially
reliant on third party systems (e.g. electronic data interchange) to conduct
business.
 
We presently believe that the year 2000 issue will not pose significant
operational problems for our business systems. However, if any needed
modifications and conversions were not made, or were not completed timely, the
year 2000 issue would likely have a material impact on our operations. Our
total year 2000 project cost is
 
                                       23

 
not expected to be material, based on presently available information. However,
we cannot guarantee that the systems of other companies on which our systems
rely will be timely converted and would not have an adverse effect on our
systems. We have determined that we have no exposure to contingencies related
to the year 2000 issue for the majority of the products we have sold. If any of
our suppliers or customers do not, or if we do not, successfully deal with the
year 2000 issue, we could experience delays in receiving or shipping coal and
equipment that would increase costs and that could cause us to lose revenues
and even customers and could subject us to claims for damages. Customer
problems with the year 2000 issue could also result in delays in our invoicing
its customers or in our receiving payments from them that would affect our
liquidity. Problems with the year 2000 issue could affect the activities of our
customers to the point that their demand for our products is reduced. The
severity of these possible problems would depend on the nature of the problem
and how quickly it could be corrected or an alternative implemented, which is
unknown at this time. In the extreme such problems could bring the Company to a
standstill.
 
Based on our normal interaction with our customers and suppliers and the wide
attention the year 2000 issue has received, we believe that our suppliers and
customers will be prepared for the year 2000 issue. We cannot assure you,
however, that this will be so. In February 1999 we have requested from all our
major customers and suppliers written assurances as to their year 2000
compliance. Some risks of the year 2000 issue are beyond our control and that
of our suppliers and customers. For example, we do not believe that we can
develop a contingency plan which will protect us from a downturn in economic
activity caused by the possible ripple effect throughout the entire economy
that could be caused by problems of others with the year 2000 issue.
 
We will use both internal and external resources to test business systems for
year 2000 compliance. We anticipate completing our year 2000 testing by
December 1999, before any anticipated impact on our operating systems. For 1999
we have budgeted $0.1 million for assessment and testing of year 2000
compliance by outside service providers. Information technology costs
specifically for the year 2000 issue in excess of normal operations to cover
assessment, remediation and testing are not expected to exceed $0.5 million and
will be expensed as incurred. We have not yet seen any need for contingency
plans for the year 2000 issue, but this need will be continuously monitored as
we acquire more information.
 
The costs of the project and the date on which we believe we will complete the
year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including third party
modification plans and other factors. However, we cannot guarantee that these
estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the ability to locate and correct all relevant
computer codes, the ability to successfully integrate the business systems of
newly acquired entities and similar uncertainties. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Impact of year
2000 issue."
 
                                       24

 
                                  THE COMPANY
 
History
 
From 1982 to 1984, Larry Addington and his brothers, Robert and Bruce,
developed several coal and coal-related companies in eastern Kentucky and Ohio.
In 1984, ownership of these companies was consolidated into Addington
Resources, Inc. ("Addington Resources"), which became a public company in 1987.
From 1984 through 1995, Addington Resources expanded its coal operations and
developed various other business lines, including integrated waste disposal
operations, metal mining operations and citrus operations. In 1995,
Messrs. Addington resigned from the board of directors of Addington Resources
and shortly thereafter, purchased the coal mining operations of Addington
Resources through Addington Enterprises, Inc. ("Addington Enterprises"), their
wholly owned corporation. Those coal mining operations comprised the Company's
initial eastern Kentucky and Tennessee mining operations and coal reserves. The
Company acquired its Colorado mining operations and coal reserves through an
asset purchase from Cyprus Orchard Valley Coal Corporation ("Cyprus Orchard
Valley") in December 1994 and the purchase of an adjacent reserve tract from
Coors Energy Company ("Coors Energy") in January 1995.
 
Recent Acquisitions
 
Ikerd-Bandy Acquisition
 
The Company acquired all the outstanding capital stock of Ikerd-Bandy Coal,
Inc. ("Ikerd-Bandy") in October 1997 for $12.3 million (including $0.3 million
of related fees and expenses) (the "Ikerd-Bandy Acquisition"). The Ikerd-Bandy
Acquisition generated 1.0 million tons of production in the nine-month period
ended September 30, 1998 from approximately 30 million tons of proven and
probable reserves. At the time of the Ikerd-Bandy Acquisition, Ikerd-Bandy
owned and operated a storage facility, a preparation plant and a loadout
facility at each of two mines. The Ikerd-Bandy Acquisition (i) provided
reserves strategically located for shipment under the Company's TVA Kingston
contract; (ii) broadened the Company's market to include industrial customers;
and (iii) allowed the Company to build market share in southeastern Kentucky.
For the nine-month period ended September 30, 1998, Ikerd-Bandy generated
revenues of $22.0 million.
 
Leslie Resources Acquisition
 
On January 16, 1998, the Company acquired the stock of Leslie Resources, Inc.
and Leslie Resources Management, Inc. (collectively, "Leslie Resources") for
$11.3 million in cash (including $0.3 million of related fees and expenses) and
the assumption of approximately $10.8 million of debt (the "Leslie Resources
Acquisition"). Additionally, the Company agreed to pay the former owners of
Leslie Resources an $8.1 million promissory note. The Leslie Resources
Acquisition added five mines in Knott, Perry and Leslie counties in Kentucky,
which generated approximately 3.6 million tons of production in the nine-month
period ended September 30, 1998 from 46 million tons of proven and probable
reserves. The Leslie Resources Acquisition added significant uncommitted
production capacity to the Company, allowing it the opportunity to develop
strategies for entering contracts to be filled by production from the lower-
cost Leslie Resources mines. For the nine-month period ended September 30,
1998, Leslie Resources generated revenues of $65.8 million.
 
Crockett Acquisition
 
The Company acquired the assets and operations of Crockett Collieries Co.
("Crockett") on June 26, 1998 for $4.0 million (including $0.2 million of
related fees and expenses) (the "Crockett Acquisition"). The Crockett
Acquisition added 0.4 million tons of production in the nine-month period ended
September 30, 1998 from 14 million tons of proven and probable reserves and a
significant contract with the Tennessee Valley Authority ("TVA").
 
Cyprus Acquisition
 
The Company acquired all the outstanding capital stock of certain coal-
producing subsidiaries (the "Cyprus Subsidiaries") of Cyprus Amax Coal Company
("Cyprus Amax") in June 1998 for a purchase price of
 
                                       25

 
$98.0 million, plus a working capital adjustment (excluding $8.9 million of
related fees and expenses) (the "Cyprus Acquisition"). Additionally, as part of
the Cyprus Acquisition, the Company purchased certain mining equipment that had
previously been leased by the Cyprus Subsidiaries for $30.0 million, assumed a
$1.0 million debt obligation and agreed to pay Cyprus Amax a royalty on all
coal underlying real property held by the Cyprus Subsidiaries as of June 30,
1998. Such royalty payments will commence on June 1, 2002 and will be $0.50 per
ton in Indiana, Illinois, Ohio or California and $0.35 per ton in West
Virginia, Kentucky or Tennessee for coal mined from properties owned or
controlled by the Cyprus Subsidiaries at the closing of the Cyprus Acquisition.
In the event the Company or AEI Resources Holding, Inc. ("Holdings"), directly
or indirectly, receives an equity investment equal to or greater than $75.0
million, the Company will be required to pay Cyprus Amax $25.0 million (less
55% of any prior royalty payments) in satisfaction of the royalty obligation
(the "Royalty Buyout Obligation"). The Cyprus Acquisition added approximately
11.5 million tons of production in the nine-month period ended September 30,
1998, to the Company and increased its proven and probable reserves by 707
million tons. The Company believes that these mines provide the Company with a
very strong market position in the markets served by its mines in eastern
Kentucky. In addition, the West Virginia operations provided an entry to the
markets served by barge transportation from the Kanawha River in West Virginia.
Many of these markets are the same markets served by the Company's eastern
Kentucky mines, which transport coal through barge loading facilities on the
Big Sandy River in eastern Kentucky. Both the Kanawha River and the Big Sandy
River are navigable tributaries of the Ohio River, which accesses the largest
river-borne market for coal in the United States. The Indiana operations
acquired from Cyprus Amax provided strong earnings from the above-market
contracts and access to the scrubbed markets in Indiana. For the nine-month
period ended September 30, 1998, the Cyprus Subsidiaries generated revenues of
$299.2 million.
Battle Ridge Acquisition
 
The Company acquired certain assets of The Battle Ridge Companies ("Battle
Ridge") in July 1998 for a purchase price of approximately $6.6 million
(including $0.1 million of related fees and expenses) in a transaction
authorized by the U.S. Bankruptcy Court for the Southern District of West
Virginia (the "Battle Ridge Acquisition"). The primary assets included two
river dock facilities on the Kanawha River, one on the Big Sandy River and
twelve mineral leases covering approximately 32 million tons of proven and
probable coal reserves approximately half of which is compliance coal and the
remainder is low-sulfur coal. Battle Ridge produced 0.4 million tons of coal in
the nine-month period ended September 30, 1998. The Company believes that the
assets acquired from Battle Ridge complement the Company's West Virginia
operations acquired from Cyprus Amax.
 
Mid-Vol Acquisition
 
The Company acquired all the outstanding capital stock of Mid-Vol Leasing,
Inc., Mega Minerals, Inc. and Premium Processing, Inc. (collectively, "Mid-
Vol") in July 1998 for $20.2 million (including $0.2 million of related fees
and expenses) and a $15.0 million note (the "Mid-Vol Acquisition").
Additionally, the Company agreed to pay the former owners of Mid-Vol a
production payment on coal mined in the future from certain properties acquired
in the Mid-Vol Acquisition. Mid-Vol is a producer of high-quality mid- and low-
volatile coking coals, a coal product with a niche market. Mid-Vol added
approximately 0.8 million tons of production in the nine-month period ended
September 30, 1998, to the Company and increased proven and probable reserves
by 51.0 million tons. The Company believes that Mid-Vol's production tonnage
can be enhanced and costs reduced by using the Company's Addcar systems and the
Company's efficient tailored cast blasting and heavy dozer pushing mining
methods. For the nine-month period ended September 30, 1998, Mid-Vol generated
revenues of $21.3 million.
 
Kindill Acquisition
 
In September 1998, the Company acquired all of the outstanding capital stock of
Kindill Holding, Inc. and Hayman Holdings, Inc. (collectively, "Kindill") from
certain sellers, including Stephen Addington, Larry Addington's brother, for
$11.5 million, including $0.5 million of related fees and expenses, and the
assumption
 
                                       26

 
of $50.0 million of indebtedness (the "Kindill Acquisition"). See "Certain
Related Party Transactions." Rothschild, Inc. ("Rothschild") delivered in
connection with this acquisition an opinion to the Company that such
transaction was fair to the Company from a financial point of view. The Kindill
Acquisition generated approximately 3.5 million tons of production in the nine-
month period ended September 30, 1998, and added 183.0 million tons of proven
and probable reserves to the Company. The Kindill Acquisition provides the
Company an opportunity to move production for certain long-term sales contracts
to its lower-cost operations. The Company also believes that the Kindill
Acquisition complements the Company's Indiana operations acquired as part of
the Cyprus Acquisition. For the nine-month period ended September 30, 1998,
Kindill generated revenues of $55.2 million.
 
Zeigler Acquisition
 
The Company acquired all the outstanding capital stock of Zeigler Coal Holding
Company ("Zeigler") in September 1998 for $871.6 million, including the
assumption of $255.0 million of indebtedness and the payment of $16.6 million
of related fees and expenses, pursuant to a tender offer and merger transaction
(the "Zeigler Acquisition"). The Company sold Triton Coal Company ("Triton"),
which was acquired in the Zeigler Acquisition, for $275.0 million on December
14, 1998. The remaining Zeigler businesses (the "Retained Zeigler Businesses")
added approximately 12.4 million tons of production in the nine-month period
ended September 30, 1998, and 1.2 billion tons of proven and probable reserves
to the Company. In addition, the Retained Zeigler Businesses provided a strong
portfolio of long-term sales contracts, with over 84% of its sales in the nine-
month period ended September 30, 1998, made pursuant to long-term sales
contracts. Zeigler's operations in Kentucky added about 3.3 million tons of
annual production in the nine-month period ended September 30, 1998, to the
Company, making the Company the largest producer and marketer of coal in
eastern Kentucky as measured by production, further aiding the Company's
ability to optimize its mix of production and sales. The Company believes that
its position in West Virginia and in the Illinois Basin was improved
significantly by the Zeigler Acquisition. In addition, there were significant
duplications of structure in the combined companies, which the Company believes
will allow it to realize overhead expense savings by combining the management
of Zeigler and the Company. For the nine-month period ended September 30, 1998,
Zeigler's coal operations generated revenues of $392.4 million (net of $38.4
million related to Triton, $28.3 million related to R&F, and $117.6 million
related to its other non-coal operations). See "--Recent Dispositions."
 
Prior to the consummation of the Zeigler Acquisition, Zeigler was the second
largest publicly traded coal company and ninth largest coal producer in the
United States, in each case measured by tons produced. Zeigler operated active
underground and surface coal mining complexes located in West Virginia,
Kentucky, Illinois, Ohio and Wyoming. Zeigler also had operations in non-coal
businesses, including energy trading and marketing, asset management, "clean
coal" technology, environmental services and property development, most of
which the Company has classified as assets held for sale.
 
Martiki Acquisition
 
On November 6, 1998, the Company acquired all of the capital stock of Martiki
Coal Corporation ("Martiki"), a subsidiary of MAPCO Coal Inc. ("MAPCO") for
$32.3 million (including $0.3 million of related fees and expenses) (the
"Martiki Acquisition"). Martiki added 2.2 million tons of strategically located
production in the nine-month period ended September 30, 1998, and 24.0 million
tons of proven and probable reserves. Martiki is a keystone acquisition in that
it allows consolidation of significant Addington Mining, Inc. ("Addington
Mining") and Zeigler reserve positions. The Martiki Acquisition includes a
1,000 ton per hour preparation plant and a high speed unit train loading
facility located on the Norfolk Southern Corporation ("Norfolk Southern") rail
line. For the nine-month period ended September 30, 1998, Martiki generated
revenues of $54.4 million.
 
MTI Acquisition
 
On January 2, 1998, the Company acquired certain facilities, equipment and
intellectual property (the "Highwall Mining Assets") through the purchase of a
substantial portion of the assets of the Mining Technologies Division of
Addington Enterprises for $51.0 million (the "MTI Acquisition"). Addington
 
                                       27

 
Enterprises is owned 80%, 10% and 10% by Larry Addington, Robert Addington and
Bruce Addington, respectively. Larry Addington is a director and Robert
Addington is a director and officer of the Company. Robert Addington and Bruce
Addington are employees of the Company. The Highwall Mining Assets are
currently held by Mining Technologies, Inc. ("MTI"), a wholly owned subsidiary
of the Company. The Company believes that significant opportunities for the
application of the Addcar highwall system exist as a result of the Cyprus,
Kindill, Zeigler, Leslie Resources, Crockett and Mid-Vol Acquisitions. The
Company believes that it will be able to reduce its mining costs significantly
and increase the amount of economically mineable reserves at many of these
operations. The Highwall Mining Assets included 13 patents, one registered
trademark in North America relating to the Addcar highwall mining system,
certain mobile mining equipment, spare parts, continuous mining machines and an
80,000 square foot manufacturing and warehousing facility. The issued patents
acquired from Addington Enterprises will expire between December 10, 2010 and
November 20, 2015, and the registered trademark acquired from Addington
Enterprises will expire September 28, 2013. The Highwall Mining Assets also
include the equipment and facility for manufacturing Addcar highwall mining
systems, as well as six existing, operable Addcar highwall mining systems.
 
Recent Dispositions
 
The Company recently sold (i) Triton Coal Company, LLC, the successor by merger
to Triton Coal Company, Inc. ("Triton"), which conducts operations in the
Powder River Basin (the "Triton Disposition") (ii) certain dock facilities (the
"Dock Disposition,") and (iii) certain assets of its R&F Coal Company
subsidiary (the "R&F Disposition" and collectively with the Triton Disposition
and the Dock Disposition, the "Dispositions").
 
Triton Disposition
 
On December 14, 1998, the Company sold Triton for an aggregate cash purchase
price of $275.0 million in cash (the "Triton Disposition"). Prior to the
closing of the Triton Disposition, all assets and liabilities of Triton which
are not related to the North Rochelle Mine or the Buckskin Mine were move
inserted language to between "triton Disposition" and "all" transferred to a
subsidiary of the Company. As a result, the Company retained Triton's assets
and liabilities relating to its lignite reserves in Texas and Arkansas and its
coal reserves located in Montana. The Company agreed to provide certain
transition services to the purchaser of Triton following the closing.
 
Dock Disposition
 
On December 18, 1998, the Company sold the coal transshipment terminal
facilities and related assets of (1) the Pier IX Terminal in Newport News,
Virginia, formerly owned and operated by Mountaineer Coal Development Company,
a subsidiary of the Company; and (2) the Shipyard River Terminal in Charleston,
South Carolina, formerly owned and operated by Shipyard River Coal Terminal
Company, also a subsidiary of the Company (collectively, the "Docks"). The
purchaser purchased all land, personal property, fixtures, and equipment used
in connection with the operation of the terminal facilities for an aggregate
cash purchase price of $35.0 million.
 
R&F Disposition
 
On December 21, 1998, the Company sold coal mining equipment, inventories, real
property, and a coal supply contract used in the operations of its R&F Coal
Company subsidiary for an aggregate purchase price of $7.6 million.
 
Other Assets Held for Sale
 
As part of the Zeigler Acquisition, the Company acquired certain assets, in
addition to the assets subject to the Dispositions, that are currently being
held for sale, including businesses related to fuel technology and power
marketing. The book value of these assets at September 30, 1998, was $15.0
million and they generated $103.5 million and $(3.4) million of revenue and
EBITDA, respectively, during the nine-month period ended September 30, 1998.
 
                                       28

 
Ownership Structure
 
Larry Addington owns approximately 85.5% of the outstanding capital stock of
Holdings (50% directly and 40% through Addington Enterprises) while 9.5% is
owned collectively by Robert and Bruce Addington through Addington Enterprises,
and approximately 5% is owned by Robert Addington individually. Holdings owns
100% of the common stock of the Company. The summary structure is as
follows: [options]
 
                           [FLOW CHART APPEARS HERE]
 
The Company's principal executive office is located at 1500 North Big Run Road,
Ashland, Kentucky 41102, telephone: (606) 928-3433.
 
                                       29

 
                                 CAPITALIZATION
 
The following table sets forth, as of September 30, 1998, (i) the historical
capitalization of the Company and (ii) the pro forma combined capitalization of
the Company after giving effect to the Transactions (as defined on p.33). This
table should be read in conjunction with "Description of the Notes,"
"Description of Other Indebtedness," the Unaudited Pro Forma Combined Financial
Statements and the notes thereto and the Historical Consolidated Financial
Statements and the notes thereto appearing elsewhere in this Prospectus.
 


                                                        September 30, 1998
                                                   ----------------------------
                                                   Historical (1) Pro Forma (1)
                                                   -------------- -------------
                                                      (Dollars in millions)
                                                           (unaudited)
                                                            
Old Credit Facility...............................    $   19.6      $    --
Other short-term obligations (including current
 portion of
 long-term obligations)...........................       314.2          29.2
                                                      --------      --------
    Total short-term obligations..................       333.8          29.2
                                                      --------      --------
Long-term obligations (net of current portion):
  Bridge Facility.................................    $  300.0      $    --
  Senior Credit Facility..........................       400.0         560.0
  Revolving Credit Facility (2)...................         --           43.5
  Senior Notes due 2005...........................       200.0         200.0
  Zeigler IRBs ...................................       145.8         145.8
  Senior Subordinated Notes due 2006..............         --          150.0
  Other long-term obligations.....................        46.2          46.2
                                                      --------      --------
    Total long-term obligations...................     1,092.0       1,145.5
                                                      --------      --------
Stockholders' equity (deficit)....................       (69.8)        (84.3)
                                                      --------      --------
    Total Capitalization..........................    $1,356.0      $1,090.4
                                                      ========      ========

- --------
(1) Reflects the consolidated balance sheet of the Company including AEI
    Holding Company, Inc., ("AEI Holding") the Company's predecessor, as of
    September 30, 1998.
(2) Up to approximately $73.5 million would have been available to the Company
    under the Revolving Credit Facility (as defined on p.   ) after giving
    effect to borrowings to finance the Martiki Acquisition and $183 million of
    outstanding letters of credit related to the Zeigler IRBs (as defined on p.
    158). See "Description of Other Indebtedness--The Senior Credit Facility,"
    "--Zeigler IRBs."
 
                                       30

 
               UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
 
The following Unaudited Pro Forma Combined Financial Statements of the Company
are based on the audited and unaudited financial statements of AEI Resources
Holding, Inc. and its predecessor appearing elsewhere in this Prospectus as
adjusted to illustrate the estimated effects of the transactions that the
Company has completed since October 1, 1997 that are described under "The
Company" beginning on page    (the "Transactions"). The Transactions include,
among other things:
 
  .  The acquisitions of the following businesses (the "Recent Acquisitions")
     for which financial statements are included in this Prospectus:
    .  Martiki (November 1998)     .  The Cyprus Subsidiaries (June 1998)
    .  Zeigler (September 1998)    .  Leslie Resources (January 1998)
    .  Kindill (September 1998)    .  Ikerd Bandy (October 1997)
    .  Mid-Vol (July 1998)
  .The Dispositions;
  .  The issuance of $200 million principal amount of 10 1/2% Senior Notes
     Due 2005 by the Company and AEI Holding as co-issuers, in exchange for
     $200 million principal amount of 10% Senior Notes Due 2007 of AEI
     Holding (the "Senior Note Exchange");
  .  The sale of $150 million principal amount of the Company's 11 1/2%
     Senior Subordinated Notes Due 2006 ("Subordinated Notes"); and
  .  The restructuring of the Company's Senior Credit Facility and the
     related repayment of Company indebtedness.
 
The unaudited pro forma adjustments are based upon available information and
certain assumptions that the Company believes are reasonable. The Unaudited Pro
Forma Combined Financial Statements and accompanying notes should be read in
conjunction with the historical financial statements of the Company and other
financial information pertaining to the Company appearing elsewhere in this
Prospectus, including "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
 
The Unaudited Pro Forma Combined Financial Statements have been prepared to
give effect to the Transactions as if such transactions had occurred on January
1, 1997 for the statement of income for the year ended December 31, 1997 and
for the statement of income for the nine-month period ended September 30, 1998
(the "Unaudited Pro Forma Combined Income Statements") and on September 30,
1998 for the balance sheet (the "Unaudited Pro Forma Combined Balance Sheet,"
which, together with the Unaudited Pro Forma Combined Income Statements,
comprise the "Unaudited Pro Forma Combined Financial Statements").
 
The Unaudited Pro Forma Combined Financial Statements reflect the application
of the principles of purchase accounting to the Recent Acquisitions. The
allocation of the purchase price is based, in part, on preliminary information,
which is subject to adjustment upon obtaining complete appraisal, engineering,
actuarial and valuation information with respect to each acquisition and the
net assets acquired. Accordingly, the Company's pro forma adjustments presented
in this Prospectus are subject to change upon the completion of such valuation
information, and such changes may be material. Pending final disposition of
these items, the Company cannot presently determine the overall effect of the
ultimate adjustments in the accompanying pro forma statements.
 
In addition, the Unaudited Pro Forma Combined Income Statements do not reflect
a charge of $18.5 million ($12.9 million, net of taxes) relating to the write-
off of deferred financing fees upon retirement of the indebtedness incurred by
the Company and Holdings in connection with the acquisition of Zeigler.
Further, certain of the businesses acquired in the Recent Acquisitions followed
different accounting policies with respect to the expensing of overburden
removal costs. While the Company capitalizes such costs, certain of the
acquired entities expensed such costs as they were incurred. Because the
information needed to conform most of the acquirees' historical accounting to
the Company's accounting for overburden inventory is not available, no pro
forma adjustment has been recorded to the Unaudited Pro Forma Combined Income
Statements. As a result of these factors, the Unaudited Pro Forma Combined
Financial Statements may not be comparable to, or indicative of, the Company's
results of operations in future periods.
 
The Unaudited Pro Forma Combined Financial Statements do not purport to be
indicative of what the Company's financial position or results of operation
would actually have been had the Transactions been completed on such date or at
the beginning of the periods indicated or to project the Company's results of
operations for any future date.
 
                                       31

 
                   UNAUDITED PRO FORMA COMBINED BALANCE SHEET
 
                            As of September 30, 1998
                             (Dollars In Millions)
 


                                              R&F Coal    Pro Forma
                                    Martiki  Disposition Adjustments       As
                          Holdings  (Note A)  (Note B)    (Note C)      Adjusted
                          --------  -------- ----------- -----------    --------
                                                         
         ASSETS
Current Assets:
 Cash and cash
  equivalents and short-
  term investments......  $   55.0   $ --       $ 7.6      $  10.0 (1)  $   45.2
                                                              (5.1)(3)
                                                             (38.9)(5)
                                                              25.0 (6)
                                                             (19.6)(7)
                                                             (32.3)(8)
                                                              43.5 (11)
 Accounts receivable....     148.8     7.9        --          (7.9)(9)     148.8
 Inventories............     139.0     6.8       (1.8)         3.4 (10)    147.4
 Prepaid expenses and
  other.................      30.7     --         --           --           30.7
 Net assets held for
  sale..................     307.7     --         --        (275.0)(1)       2.7
                                                             (35.0)(2)
                                                               5.0 (5)
                          --------   -----      -----      -------      --------
 Total current assets...  $  681.2   $14.7      $ 5.8      $(326.9)     $  374.8
                          --------   -----      -----      -------      --------
Property, Plant and
 Equipment, including
 mineral reserves and
 mine development costs,
 net....................  $2,067.0   $25.5       (6.5)     $  11.3 (10) $2,097.3
Debt issuance costs.....      52.1     --         --           5.0 (3)      70.0
                                                             (18.5)(4)
                                                              31.4 (5)
Other assets............      42.8     2.1       (0.4)        (2.0)(9)      42.5
                          --------   -----      -----      -------      --------
 Total assets...........  $2,843.1   $42.3      $(1.1)     $(299.7)     $2,584.6
                          ========   =====      =====      =======      ========
    LIABILITIES AND
  STOCKHOLDERS' EQUITY
       (DEFICIT)
Current Liabilities:
 Accounts payable.......  $  123.2   $ 2.7      $ --        $ (2.7)(9)  $  123.2
 Current portion of
  long-term debt and
  lease obligations.....     333.8     --         --        (265.0)(1)      29.2
                                                             (35.0)(2)
                                                              15.0 (6)
                                                             (19.6)(7)
 Accrued expenses and
  other.................     260.2     1.9        0.9         (1.8)(9)     261.2
                          --------   -----      -----      -------      --------
 Total current
  liabilities...........     717.2     4.6        0.9       (309.1)        413.6
                          --------   -----      -----      -------      --------
Non-Current Liabilities:
 Long-term debt and
  lease obligations, net
  of current portion....   1,092.0     --         --          10.0 (6)   1,102.0
 Revolving line of
  credit................       --      --         --          43.5(11)      43.5
 Employee benefits......     504.0     2.1                    (0.1)(9)     505.7
                                                              (0.3)(10)
 Reclamation and mine
  closure...............     324.3     4.5       (2.0)         8.2(10)     335.0
 Deferred taxes.........     210.9     --         --          (5.6)(4)     204.3
                                                              (1.0)(5)
 Other non-current
  liabilities...........      64.5     0.3        --           --           64.8
                          --------   -----      -----      -------      --------
 Total non-current
  liabilities...........   2,195.7     6.9       (2.0)        54.7       2,255.3
                          --------   -----      -----      -------      --------
 Total liabilities......   2,912.9    11.5       (1.1)      (254.4)      2,668.9
                          --------   -----      -----      -------      --------
Stockholders' equity
 (deficit)..............     (69.8)   30.8        --          (0.1)(3)     (84.3)
                                                             (12.9)(4)
                                                              (1.5)(5)
                                                             (30.8)(10)
                          --------   -----      -----      -------      --------
 Total liabilities and
  stockholders' equity
  (deficit).............  $2,843.1   $42.3      $(1.1)     $(299.7)     $2,584.6
                          ========   =====      =====      =======      ========

 
                                       32

 
Note A:
 
This column reflects the historical balance sheet of Martiki and is prior to
any adjustments for items described in Note C below. Martiki was acquired in a
stock purchase on November 6, 1998 for $32.3 million.
 
Note B:
 
This column reflects the elimination of R&F Coal Company's ("R&F") historical
balance sheet. R&F was sold on December 21, 1998 for $7.6 million. Also
included is $0.9 million of accrued disposal related costs.
 
Note C:
 
The pro forma adjustments include purchase accounting adjustments and financing
entries necessary to reflect the acquisition of Martiki and the related debt
financing transactions. The aggregate sources and uses for these transactions
were as follows (in millions):
 


           Sources
           -------
                            
Decrease in working capital..  $   17.4
Senior Credit Facility.......     575.0
Notes........................     150.0
Triton and Dock Disposition
 proceeds....................     310.0
Revolving Credit Facility....      43.5
                               --------
  Total......................  $1,095.9
                               ========



              Uses
              ----
                               
Retire Old AEI Credit Facility..  $   19.6
Senior Credit Facility..........     400.0
Repay Bridge Credit Facility....     600.0
Fees and expenses...............      44.3
Martiki acquisition.............      32.0
                                  --------
  Total.........................  $1,095.9
                                  ========

 
The following notes describe the pro forma adjustments:
 
1. Reflects the Triton Disposition and the use of the disposition proceeds to
   reduce indebtedness.
2. Reflects the Dock Disposition and the use of the disposition proceeds to
   reduce indebtedness.
3. Reflects expenses related to the consent solicitation in connection with the
   Senior Note Exchange, including $5.0 million paid to the holders of the Old
   Notes and $0.1 million of associated costs that will be written off as
   incurred.
4. Reflects the write off of unamortized loan costs from the extinguishment of
   the Bridge Credit Facility ($18.5 million net of $5.6 million tax benefit).
5. Reflects the payment of debt issuance costs related to the Notes and
   additional borrowings under the Senior Credit Facility (as defined on p.156)
   as well as selling/disposal costs related to the Triton Disposition.
6. Reflects the increase in long-term debt and reclassification of current
   portion following the retirement of the Bridge Credit Facility, the
   application of the proceeds from the Dispositions and the restructuring of
   the Senior Credit Facility.
7. Reflects the retirement of AEI's prior $25.0 million credit facility.
8. Reflects the purchase of Martiki for $32.0 million in cash and $0.3 million
   in acquisition costs.
9. Reflects the Martiki carve out adjustments for certain assets and
   liabilities to be retained by the seller.
10. Reflects purchase accounting adjustments for the purchase of Martiki. Such
    adjustments include the elimination of historical equity ($30.8 million),
    recording end of mine reclamation ($8.2 million) recording deferred
    overburden ($3.4 million) and recording the write up of property, plant and
    equipment ($11.0 million) to reflect their estimated fair market values.
11. Reflects borrowing under revolving line of credit ($43.5 million) to
    finance Martiki acquisition: ($32.3 million) and working capital ($11.2
    million).
 
                                       33

 
                 UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
 
                  For the nine months ended September 30, 1998
                             (Dollars In Millions)
 


                                      Cyprus
                                   Subsidiaries  Zeigler      Other      R&F Coal    Pro Forma
                                    (1/1-6/30)  (1/1-8/31) Acquisitions Disposition Adjustments       As
                          Holdings   (Note A)    (Note B)    (Note C)    (Note D)    (Note E)      Adjusted
                          -------- ------------ ---------- ------------ ----------- -----------    --------
                                                                              
Operating Data:
Revenues................   $376.2     $201.8      $533.4      $118.7      $(28.3)     $ (7.8)(1)   $1,031.7
                                                                                        (5.2)(2)
                                                                                        (1.1)(3)
                                                                                      (156.0)(4)
Costs and expenses:
 Cost of operations.....    309.5      180.5       438.2       106.4       (20.8)       (7.8)(1)      820.4
                                                                                        (4.6)(2)
                                                                                      (153.2)(4)
                                                                                        (0.2)(5)
                                                                                       (11.4)(6)
                                                                                        (1.0)(7)
                                                                                        (4.4)(8)
                                                                                        (0.9)(9)
                                                                                        (7.4)(14)
                                                                                        (2.5)(17)
 Depreciation, depletion
  and amortization......     28.2       18.7        43.5        11.7        (2.8)       37.3 (10)     130.7
                                                                                        (5.9)(4)
 Selling, general and
  administrative........     19.8        6.7         9.2         5.0         --         (9.1)(14)      31.2
                                                                                        (0.4)(16)
 Write-downs and special
  items.................      --         --         21.2         --          --        (21.2)(16)       --
                           ------     ------      ------      ------      ------      ------       --------
 Total costs and
  expenses..............    357.5      205.9       512.1       123.1       (23.6)     (192.7)         982.3
                           ------     ------      ------      ------      ------      ------       --------
 Income (loss) from
  operations............     18.7       (4.1)       21.3        (4.4)       (4.7)       22.6           49.4
Interest and other
 income (expense)
 Interest expense.......    (29.8)      (0.2)       (8.0)       (3.7)        --        (37.5)(11)     (86.4)
                                                                                        (3.7)(12)
                                                                                        (3.5)(8)
 Gain (loss) on sale of
  assets................      1.2        0.9         0.7        (0.1)        0.6        (0.2)(4)        3.1
 Other, net.............      1.3       (0.1)        4.5         0.7        (0.9)       (0.1)(4)        5.4
                           ------     ------      ------      ------      ------      ------       --------
                            (27.3)       0.6        (2.8)       (3.1)       (0.3)      (45.0)         (77.9)
                           ------     ------      ------      ------      ------      ------       --------
 Income (loss) before
  income taxes..........     (8.6)      (3.5)       18.5        (7.5)       (5.0)      (22.4)         (28.5)
Income tax provision
 (benefit)..............     (0.9)       --          2.8        (3.9)       (0.8)       (9.6)(13)     (11.7)
                                                                                         0.7 (4)
                           ------     ------      ------      ------      ------      ------       --------
 Net Income (loss) from
  continuing operations
  (Note F)..............   $ (7.7)    $ (3.5)     $ 15.7      $ (3.6)     $ (4.2)     $(13.5)      $  (16.8)
                           ======     ======      ======      ======      ======      ======       ========
Other Data:
Adjusted EBITDA (Note
 G).....................   $ 48.4      $15.4       $69.0        $7.7      $ (7.8)     $ 54.7         $187.4
Capital expenditures....     33.3        3.3        73.4         1.0        (0.4)      (55.5)          55.1
Cash interest expense
 (Note H)...............     37.6        0.2         6.0         3.7         --         34.8           82.3
Ratio of Adjusted EBITDA
 to cash interest
 expense................      1.3x      77.0x       11.5x        2.1x        --          1.6x           2.3x
Ratio of earnings to
 fixed charges (Note
 I).....................        *          *         2.4x          *         --            *              *

 
                                       34

 
                 UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
 
                      For the year ended December 31, 1997
                             (Dollars In Millions)
 


                                                                 Cyprus                Other      R&F Coal    Pro Forma
                                                              Subsidiaries Zeigler  Acquisitions Disposition Adjustments
                                                     Holdings   (Note A)   (Note B)   (Note C)    (Note D)    (Note E)
                                                     -------- ------------ -------- ------------ ----------- -----------
                                                                                           
Operating Data:
Revenues...................................           $175.3    $ 422.9     $800.8     $288.5      $(43.0)     $  (7.2)(1)
                                                                                                                  (5.2)(2)
                                                                                                                  (0.4)(3)
                                                                                                                (236.5)(4)
Costs and expenses:
 Cost of operations........................            145.2      377.9      641.3      253.0       (31.3)        (7.2)(1)
                                                                                                                  (4.6)(2)
                                                                                                                  (2.5)(5)
                                                                                                                   8.2 (6)
                                                                                                                   4.1 (7)
                                                                                                                  (6.3)(8)
                                                                                                                  (3.5)(9)
                                                                                                                (242.9)(4)
                                                                                                                 (10.6)(14)
 Depreciation, depletion and
  amortization.............................             10.8       41.9       57.9       19.9        (2.8)        52.9 (10)
                                                                                                                  (8.6)(4)
 Selling, general and administrative.......             13.9       16.4       15.6        9.3         --         (13.6)(14)
 Write downs and special items.............              --        92.1        --         --          --          (9.6)(6)
                                                      ------    -------     ------     ------      ------      -------
  Total costs and expenses.................            169.9      528.3      714.8      282.2       (34.1)      (244.2)
                                                      ------    -------     ------     ------      ------      -------
 Income (loss) from operations.............              5.4     (105.4)      86.0        6.3        (8.9)        (5.1)
 Interest and other income (expense).......
 Interest expense..........................             (9.2)      (0.6)     (24.9)      (2.9)        --         (60.7)(11)
                                                                                                                  (7.6)(12)
                                                                                                                  (4.9)(8)
                                                                                                                   0.5 (9)
                                                                                                                  (2.1)(15)
 Gain (loss) on sale of assets.............              0.3        6.8        --         2.4        (0.6)         --
 Other, net................................              0.1        0.1        7.9        2.0        (0.5)         --
                                                      ------    -------     ------     ------      ------      -------
                                                        (8.8)       6.3      (17.0)       1.5        (1.1)       (74.8)
                                                      ------    -------     ------     ------      ------      -------
 Income (loss) before income taxes.........             (3.4)     (99.1)      69.0        7.8       (10.0)       (79.9)
Income tax provision (benefit).............             17.5        --        10.4       (0.4)       (1.5)       (51.4)(13)
                                                                                                                   1.5 (4)
                                                      ------    -------     ------     ------      ------      -------
 Net Income (loss) from continuing
  operations (Note F)......................           $(20.9)   $ (99.1)    $ 58.6     $  8.2      $ (8.5)     $ (30.0)
                                                      ======    =======     ======     ======      ======      =======
Other Data:
Adjusted EBITDA (Note G)...................           $ 16.6    $  33.9     $150.6     $ 30.6      $(12.8)     $  30.8
Capital expenditures.......................             32.2       24.5       74.4       10.5        (0.9)       (26.7)
Cash interest expense (Note H).............              9.4        0.5       20.3        2.9         --          58.6
Ratio of Adjusted EBITDA to cash interest expense..      1.8x      67.8x       7.4x      10.6x        --           0.5x
Ratio of earnings to fixed charges (Note
 I)........................................                *          *        3.4x       3.1x        --             *

                                                        As
                                                     Adjusted
                                                     ---------
                                                  
Operating Data:
Revenues...................................          $1,395.2
 
 
 
Costs and expenses:
 Cost of operations........................           1,120.8
 
 
 
 
 
 
 Depreciation, depletion and
  amortization.............................             172.0
 
 Selling, general and administrative.......              41.6
 Write downs and special items.............              82.5
                                                     ---------
  Total costs and expenses.................           1,416.9
                                                     ---------
 Income (loss) from operations.............             (21.7)
 Interest and other income (expense).......
 Interest expense..........................            (112.4)
 
 
 Gain (loss) on sale of assets.............               8.9
 Other, net................................               9.6
                                                     ---------
                                                        (93.9)
                                                     ---------
 Income (loss) before income taxes.........            (115.6)
Income tax provision (benefit).............             (23.9)
 
                                                     ---------
 Net Income (loss) from continuing
  operations (Note F)......................          $  (91.7)
                                                     =========
Other Data:
Adjusted EBITDA (Note G)...................          $  249.7
Capital expenditures.......................             114.0
Cash interest expense (Note H).............              91.7
Ratio of Adjusted EBITDA to cash interest expense..       2.7x
Ratio of earnings to fixed charges (Note
 I)........................................                 *

 
                                       35

 
             NOTES TO UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
 
   For the nine and twelve months ended September 30, 1998 and the year ended
                               December 31, 1997
                             (Dollars in Millions)
 
Note A:
 
This column reflects the historical results of operations of the Cyprus
Subsidiaries for the periods indicated and is prior to any adjustments for
certain seller retained activities and other items described in Note D below.
 
Note B:
 
This column reflects the historical results of operations of Zeigler and is
prior to any adjustments for the net assets held for sale and other items
described in Note D below.
 
Note C:
 
This column reflects the pre-acquisition actual combined historical results of
operations for each of (i) Martiki, Kindill and Mid-Vol for the nine months
ended September 30, 1998, and (ii) Martiki, Kindill, Mid-Vol, Leslie Resources
and Ikerd-Bandy for the year ended December 31, 1997. Set forth on the
following pages is a presentation of the combination of the preacquisition
results of operations for the entities.
 
                                       36

 
       UNAUDITED PRO FORMA COMBINED INCOME STATEMENT--Other Acquisitions
 
                  For the nine months ended September 30, 1998
                             (Dollars In Millions)
 


                                          Other Acquisitions
                                     -----------------------------
                                              Kindill    Mid-Vol   Total Other
                                     Martiki (1/1-8/31) (1/1-6/30) Acquisitions
                                     ------- ---------- ---------- ------------
                                                       
Operating Data:
Revenues............................  $54.4    $49.0      $15.3       $118.7
Costs and expenses:
  Cost of operations................   51.7     42.6       12.1        106.4
  Depreciation, depletion and
   amortization.....................    8.6      3.0        0.1         11.7
  Selling, general and
   administrative...................    2.4      2.4        0.2          5.0
                                      -----    -----      -----       ------
    Total costs and expenses........   62.7     48.0       12.4        123.1
                                      -----    -----      -----       ------
  Income (loss) from operations.....   (8.3)     1.0        2.9         (4.4)
Interest and other income
 (expense)..........................
  Interest expense..................    --      (3.7)       --          (3.7)
  Gain (loss) on sale of assets.....    --      (0.1)       --          (0.1)
  Other, net........................    0.1      0.6        --           0.7
                                      -----    -----      -----       ------
                                        0.1     (3.2)       --          (3.1)
                                      -----    -----      -----       ------
  Income (loss) before income
   taxes............................   (8.2)    (2.2)       2.9         (7.5)
Income tax provision (benefit)......   (3.0)    (0.9)       --          (3.9)
                                      -----    -----      -----       ------
  Net Income (loss) from continuing
   operations
   (Note E).........................  $(5.2)   $(1.3)     $ 2.9       $ (3.6)
                                      =====    =====      =====       ======
Other Data:
Adjusted EBITDA (Note F)............  $ 0.4    $ 4.1      $ 3.2       $  7.7
Capital expenditures................    --       1.0        --           1.0
Cash interest expense (Note G)......    --       3.7        --           3.7

 
                                       37

 
       UNAUDITED PRO FORMA COMBINED INCOME STATEMENT--Other Acquisitions
 
                      For the year ended December 31, 1997
                             (Dollars In Millions)
 


                                       Other Acquisitions
                         -----------------------------------------------
                                                         For Nine Months
                                                           1/1 to 9/30   Total Other
                         Martiki Kindill Mid-Vol Leslie    Ikerd-Bandy   Acquisitions
                         ------- ------- ------- ------  --------------- ------------
                                                       
Operating Data:
Revenues................  $73.9   $58.7   $34.5  $88.0        $33.4         $288.5
Costs and expenses:
  Cost of operations....   67.3    49.5    25.0   80.0         31.2          253.0
  Depreciation,
   depletion and
   amortization.........    9.7     5.1     0.3    3.3          1.5           19.9
  Selling, general and
   administrative.......    3.0     2.0     0.5    3.0          0.8            9.3
                          -----   -----   -----  -----        -----         ------
    Total costs and
     expenses...........   80.0    56.6    25.8   86.3         33.5          282.2
                          -----   -----   -----  -----        -----         ------
  Income (loss) from
   operations...........   (6.1)    2.1     8.7    1.7         (0.1)           6.3
Interest and other
 income (expense)
  Interest expense......    --     (1.6)   (0.1)  (0.9)        (0.3)          (2.9)
  Gain (Loss) on sale of
   assets...............    --      --      --     2.3          0.1            2.4
  Other, net............    0.5     1.0     0.1    0.4          --             2.0
                          -----   -----   -----  -----        -----         ------
                            0.5    (0.6)    --     1.8         (0.2)           1.5
                          -----   -----   -----  -----        -----         ------
  Income (loss) before
   income taxes.........   (5.6)    1.5     8.7    3.5         (0.3)           7.8
Income tax provision
 (benefit)..............   (1.9)    0.5     --     1.0          --            (0.4)
                          -----   -----   -----  -----        -----         ------
    Net Income (loss)
     from continuing
     operations (Note
     E).................  $(3.7)  $ 1.0   $ 8.7  $ 2.5        $(0.3)        $  8.2
                          =====   =====   =====  =====        =====         ======
Other Data:
Adjusted EBITDA (Note
 F).....................  $ 4.1   $ 8.2   $ 9.1  $ 7.7        $ 1.5         $ 30.6
Capital expenditures....    1.1     4.6     0.1    4.3          0.4           10.5
Cash interest expense
 (Note G)...............    --      1.6     0.1    0.9          0.3            2.9

 
                                       38

 
Note D:
 
This column reflects the elimination of R&F's historical results of operations.
R&F was sold on December 21, 1998 for $7.6 million.
 
Note E:
 
Pro forma adjustments include purchase accounting, accounting policy conformity
and financing entries necessary to reflect the pre-acquisition periods for the
following acquisitions: Martiki (November 1998), Zeigler (September 1998),
Kindill (September 1998), Mid-Vol (July 1998), the Cyprus Subsidiaries (June
1998), Leslie Resources (January 1998) and Ikerd Bandy (October 1997) as well
as the debt related financing transactions. The following notes describe the
pro forma adjustments.
 
 1. Reflects the elimination of intercompany transactions involving contract
    mining and purchased coal among the Company and the acquired companies.
 
 2. Reflects the elimination of Cyprus Amax's retained activities, which
    consist primarily of the resale of purchased coal by the Cyprus
    Subsidiaries under a coal sales contract retained by Cyprus Amax.
 
 3. Reflects the elimination of amortized gain on a sale-leaseback transaction
    and deferred income related to a sales contract amendment where such
    proceeds were retained by Cyprus Amax.
 
 4. Reflects the elimination of revenues and direct expenses related to certain
    assets of Zeigler that are currently held for sale or subject to the
    Dispositions (i.e. Triton, the Docks, energy trading, and fuel technology).
 
 5. Reflects the decrease in operating expenses resulting from inventory
    adjustments to conform to the Company's inventory accounting policies. The
    Company defers the cost of removing overburden above coal seams, while the
    acquired companies expensed such cost as incurred. The information to
    reflect this accounting policy conformity item is not known for all periods
    for all acquired companies as the engineering estimates to perform the
    necessary calculations are not available. However, the following entries
    have been reflected based on the available information (NA = not
    available):
 


                                               Nine Months        Year Ended
                                            September 30, 1998 December 31, 1997
                                            ------------------ -----------------
                                                         
   Leslie Resources........................          NA              $0.7
   Ikerd-Bandy.............................          NA               1.8
   Cyprus Subsidiaries.....................        $0.2                NA
                                                   ----              ----
     Total.................................        $0.2              $2.5
                                                   ====              ====

 
 6. Reflects adjustments for changes to end-of-mine reclamation expense to
    conform to the Company's reclamation cost accounting policy. The Company
    records end of mine reclamation at the date of acquisition. Operating
    expenses of the acquired companies have been adjusted to eliminate the
    provision for end-of-mine reclamation expense.
 
 7. Reflects adjustments for changes in employee benefits expense resulting
    from the purchase accounting treatment of the Zeigler, Kindill and Cyprus
    Acquisitions. Operating expenses of these acquired companies have been
    adjusted to eliminate the expense impact of the amortization of
    unrecognized prior service costs and unrecognized net gains and losses in
    connection with defined benefit plans because the Company will not have any
    such unrecognized costs or gains and losses under purchase accounting.
 
 8. Reflects adjustments for change in accounting for liabilities under the
    Coal Retiree Health Benefit Act of 1992. The acquired companies expensed
    such costs on a pay as you go method and the Company records the present
    value of these obligations as a liability at the date of purchase.
    Operating expenses of the acquired companies have been adjusted to
    eliminate the cash payment and record the interest accretion.
 
 9. Reflects the elimination of operating lease and interest expense on assets
    controlled by Cyprus Amax and leased to the Cyprus Subsidiaries pursuant to
    operating and capital leases. The Company separately purchased these assets
    in connection with the Cyprus Acquisition and their depreciation is
    reflected in Note (E) 10.
 
                                       39

 
10. Reflects the increase in depreciation, depletion, and amortization expense
    from purchase accounting entries.
 
 
11. Reflects increased interest expense on the following indebtedness:
 


                                              Nine Months        Year Ended
                                           September 30, 1998 December 31, 1997
                                           ------------------ -----------------
                                                        
   $150 million Notes (at 11.5%).........        $12.9              $17.3
   $575 million Senior Credit Facility
    (at 8.47%)...........................         36.5               48.7
   Incremental interest increase in $200
    million Senior Notes (from 10% to
    10.5%)...............................          0.8                1.0
   Revolving line of credit ($43.5
    million at 8.63%)....................          2.8                3.8
   Senior Credit Facility Revolver Fees..          0.7                0.9
   Less interest on retired debt.........        (16.2)             (11.0)
                                                 -----              -----
     Total...............................        $37.5              $60.7
                                                 =====              =====

 
12. Reflects the increase in amortization expense resulting from the increase
    in deferred financing costs in conjunction with the Offering, offset by
    finance cost amortization on retired debt.
 
13. Reflects pro forma tax expense (benefit) estimated at 30% of pretax income
    (loss) for entities for which income tax expense (benefit) has not been
    determined historically (AEI Resources, Mid-Vol and Ikerd-Bandy during
    their S-Corporation periods and the Cyprus Subsidiaries) as well as the pro
    forma adjustments.
 
14. Reflects the reduction in operating expenses from the Cyprus and Zeigler
    Acquisitions. Such reduction resulted from non-acquired employees and
    related costs as well as costs associated with terminated redundant
    administrative employees and closed administrative offices.
 
15. Represents interest expense for pre-acquisition periods for Ikerd-Bandy and
    Leslie Resources.
 
16. Reflects the elimination of stock options and retention and special bonuses
    related to the Zeigler Acquisition.
 
17. Reflects the reduction in cost of operations for bonus paid to officer of
    Company for consummation of financing transactions and acquisitions.
 
Note F:
 
  Net Income (loss) from continuing operations is prior to any extraordinary
items.
 
Note G:
 
  Adjusted EBITDA as presented above and as used elsewhere in this Prospectus
  consists of earnings before interest, taxes, depletion, depreciation,
  amortization and other non-cash charges as adjusted to exclude certain
  unusual or nonrecurring charges, all in accordance with the term
  "Consolidated Cash Flow" as that term is used in the term "Fixed Charge
  Coverage Ratio" in the Indenture governing the Notes (the "Indenture"). See
  "Description of the Notes" for a complete presentation of the methodology
  employed in calculating Adjusted EBITDA. Adjusted EBITDA is presented
  because it is a widely accepted financial indicator of a company's ability
  to service indebtedness and because it is used in the Indenture to
  determine compliance with certain covenants. However, Adjusted EBITDA
  should not be considered as an alternative to income from operations or to
  cash flows from operating activities (as determined in accordance with
  generally accepted accounting principles) and should not be construed as an
  indication of a company's operating performance or as a measure of
  liquidity.
 
                                       40

 
Adjusted EBITDA is calculated as follows for each period:
 
                                    
Nine months ended September 30, 1998:




                                       Cyprus                Other      R&F Coal    Pro Forma     As
                          Holdings  Subsidiaries Zeigler  Acquisitions Disposition Adjustments Adjusted
                          --------  ------------ -------  ------------ ----------- ----------- --------
                                                                          
Net Income (loss) from
 continuing operations..  $  (7.7)    $  (3.5)   $ 15.7     $ (3.6)      $ (4.2)    $ (13.5)   $ (16.8)
Exclude gain or loss on
 asset sale.............     (1.0)        --        --          --          --           --       (1.0)
Less net income of
 equity method investees
 in excess of cash
 dividends..............      --          --        --         (0.2)        --           --       (0.2)
Plus provision for
 taxes..................     (0.9)        --        2.8        (3.9)       (0.8)        (8.9)    (11.7)
Plus interest expense...     29.8         0.2       8.0         3.7         --          44.7      86.4
Plus depreciation,
 depletion and
 amortization...........     28.2        18.7      43.5        11.7        (2.8)        31.4     130.7
Less EBITDA of
 unrestricted subs......      --          --       (1.0)        --          --           1.0       --
                          -------     -------    ------     -------      ------     --------   -------
Adjusted EBITDA.........  $  48.4     $  15.4    $ 69.0     $   7.7      $ (7.8)    $   54.7   $ 187.4
                          =======     =======    ======     =======      ======     ========   =======
Year ended December 31, 1997:

                                       Cyprus                Other      R&F Coal    Pro Forma     As
                          Holdings  Subsidiaries Zeigler  Acquisitions Disposition Adjustments Adjusted
                          --------  ------------ -------  ------------ ----------- ----------- --------
                                                                          
Net Income (loss) from
 continuing operations..  $ (20.9)    $ (99.1)   $ 58.6     $   8.2      $ (8.5)    $ (30.0)   $ (91.7)
Exclude gain or loss on
 asset sale.............      --          --        --          --          --           --        --
Less net income of
 Restricted Subsidiaries
 to extent dividends are
 legally restricted.....      --         (1.6)      --          --          --           --       (1.6)
Plus provision for
 taxes..................     17.5         --       10.4       (0.4)        (1.5)       (49.9)    (23.9)
Plus interest expense...      9.2         0.6      24.9         2.9         --          74.8     112.4
Plus depreciation,
 depletion and
 amortization...........     10.8        41.9      57.9        19.9        (2.8)        44.3     172.0
Plus other noncash
 expenses...............      --         92.1       --          --          --          (9.6)     82.5
Less EBITDA of
 unrestricted subs......      --          --       (1.2)        --          --           1.2       --
                          -------     -------    ------     -------      ------     --------   -------
Adjusted EBITDA.........  $  16.6     $  33.9    $150.6     $  30.6      $(12.8)    $   30.8   $ 249.7
                          =======     =======    ======     =======      ======     ========   =======

 
Note H:
 
  Cash interest expense is calculated as interest expense plus capitalized
  interest less interest accreted on discounted notes and amortization of
  deferred financing costs.
 
Note I:
 
  In calculating the ratio of earnings to fixed charges, earnings consist of
  income before income tax provision plus fixed charges (excluding
  capitalized interest). Fixed charges consist of interest incurred (which
  includes amortization of deferred financing cost) whether expensed or
  capitalized and one-third of rental expense, deemed representative of that
  portion of rental expense estimated to be attributable to interest. The
  Company's pro forma earnings were inadequate to cover fixed charges for the
  pro forma periods of the nine months ended September 30, 1998 and fiscal
  1997 by $36.7 million and $117.6 million, respectively.
 
                                       41

 
                SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
 
The selected consolidated financial data below as of and for the years ended
December 31, 1995, 1996 and 1997, have been derived from the Consolidated
Annual Financial Statements of AEI Holding, the Company's predecessor entity,
which have been audited by Arthur Andersen LLP, independent public accountants,
and are included elsewhere in this Prospectus. The selected consolidated
financial data as of and for the years ended December 31, 1993 and 1994 have
been derived from the unaudited Consolidated Financial Statements of the
Company's predecessor business and are not included elsewhere herein. The
selected financial data as of and for the nine-month periods ended September
30, 1997 and 1998, have been derived from AEI Resources Holding's Unaudited
Consolidated Financial Statements for those periods included elsewhere in the
Prospectus, and include, in the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of the results for the unaudited interim periods. Results for the nine months
ended September 30, 1998 are not necessarily indicative of the results that may
be expected for the entire year. The information presented below is qualified
in its entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company and related notes included
elsewhere in this Prospectus.
 
            AEI Resources Holding, Inc. (including its predecessors)
                   (Dollars in millions, except per ton data)
 


                                                                          Nine-Month
                                                                         Period Ended
                           For the Fiscal Year Ended December 31,        September 30,
                          --------------------------------------------  ----------------
                           1993     1994    1995(1)    1996     1997     1997     1998
                          -------  -------  -----------------  -------  ------  --------
                                                                          (unaudited)
                                                           
Operating Revenues and
 Expenses:
Revenues................  $ 107.7  $ 103.1  $ 112.3   $ 123.2  $ 175.3  $124.1  $  376.2
Cost of operations......    101.3     91.5     94.5      97.1    145.2   100.7     309.5
Depreciation, depletion
 and amortization.......      8.1      4.4      6.0       6.9     10.8     6.9      28.2
Selling, general and
 administrative.........      9.1      7.0      8.6       9.1     13.9     9.9      19.8
                          -------  -------  -------   -------  -------  ------  --------
Income from operations..    (10.8)     0.2      3.2      10.1      5.4     6.6      18.7
Interest expense........     (6.8)    (0.3)    (2.0)     (5.5)    (9.2)   (5.3)    (29.8)
Other income (expense),
 net(2).................      2.7      0.3     (0.5)      0.5      0.4    (0.6)      2.5
                          -------  -------  -------   -------  -------  ------  --------
Income (loss) before
 income tax provision
 and extraordinary
 item...................    (14.9)     0.2      0.7       5.1     (3.4)    0.7      (8.6)
Income tax provision
 (benefit)(3)...........     (4.7)     --      (0.4)      --      17.5     1.4      (0.9)
                          -------  -------  -------   -------  -------  ------  --------
Net Income (loss) before
 extraordinary item(4)..    (10.2)     0.2      1.1       5.1    (20.9)   (0.7)     (7.7)
Extraordinary loss from
 extinguishment of
 debt...................      --       --       --        --      (1.3)    --       (3.0)
                          -------  -------  -------   -------  -------  ------  --------
Net Income (loss).......  $ (10.2) $   0.2  $   1.1   $   5.1  $ (22.2) $ (0.7) $  (10.7)
                          -------  -------  -------   -------  -------  ------  --------
Other Data:
Adjusted EBITDA(5)......  $   --   $   4.9  $   8.7   $  17.5  $  16.6  $ 12.9  $   48.4
Cash flows from
 operating activities...       NA       NA     11.1       4.8    (10.2)   (8.0)    (30.1)
Cash flows from
 investing activities...       NA       NA    (11.0)    (12.5)   (38.3)  (18.2)   (907.0)
Cash flows from
 financing activities...       NA       NA      0.9       7.3    131.6    26.9     908.4
Capital expenditures....      8.7     11.5     12.6      14.1     32.2    18.3      33.3
Ratio of Adjusted EBITDA
 to interest
 expense(5).............      --      16.3x     4.4x      3.2x     1.8x    2.4x      1.6x
Ratio of total debt to
 Adjusted EBITDA(5).....      --       1.1x     6.0x      3.7x    13.1x    7.1x     29.5x
Ratio of earnings to
 fixed charges(6).......       *       1.0x     1.1x      1.6x      *      1.1x       *
Operating Data:
Proven and probable
 reserves (at period
 end, in million of
 tons)..................       NA       NA       NA        NA      166     168     2,446
Coal sales (millions of
 tons)..................      3.7      3.5      3.3       4.2      6.5     4.6      14.8
Average sales price per
 ton....................  $ 26.27  $ 26.61  $ 26.27   $ 24.84  $ 25.19  $24.43  $  24.99
Average cost per ton
 sold(7)................    29.04    25.22    24.20     21.32    22.08   22.00     22.30
Balance Sheet Data (end
 of period):
Working capital.........  $  (7.7) $  (2.6) $  (5.6)  $ (11.6) $  85.1  $ 12.7  $  (36.0)
Total assets............     56.2     69.7     92.3     106.9    265.4   141.5   2,843.1
Total debt (including
 current portion).......      0.5      5.6     52.4      64.1    217.0    91.6   1,425.8
Stockholders' equity
 (deficit)..............     30.2     31.1     (4.7)      0.3    (18.1)   (0.2)    (69.8)

NA=Not Available
 
                                       42

 
- --------
(1) The operations data for the year ended December 31, 1995 combine the
    audited results of operations for AEI Holding Company, Inc. (AEI Resources
    Holding, Inc.'s predecessor) for the period from January 1, 1995 through
    December 31, 1995 (see page F-5 of this Prospectus) and the results of
    Addington Coal Operations (the predecessor to AEI Holding Company, Inc.)
    for the period from January 1, 1995 through November 1, 1995 (see page F-49
    of this Prospectus). The operations data for the year ended December 31,
    1995 do not purport to represent what the Company's combined results of
    operations would have been if the predecessor businesses had actually been
    acquired as of January 1, 1995.
(2) Other income (expense), net reflects the inclusion of gain or loss on asset
    sales and minority interest.
(3) In April 1997, Bowie Resources Limited ("Bowie") changed its tax reporting
    status from an S-corporation to a C-corporation, resulting in an initial
    deferred tax liability of $1.6 million. In November 1997, the other
    subsidiaries of AEI Holding likewise changed from S-corporations to C-
    corporations, resulting in an initial deferred tax liability of $18.0
    million.
(4) Net income (loss) from continuing operations is prior to any extraordinary
    items.
(5) Adjusted EBITDA as presented above and as used elsewhere in this Prospectus
    consists of earnings before interest, taxes, depletion, depreciation,
    amortization and other non-cash charges as adjusted to exclude certain
    unusual or nonrecurring charges, all in accordance with the term
    "Consolidated Cash Flow" as that term is used in the term "Fixed Charge
    Coverage Ratio" in the Indenture. See "Description of the Notes" for a
    complete presentation of the methodology employed in calculating Adjusted
    EBITDA. Adjusted EBITDA is presented because it is a widely accepted
    financial indicator of a company's ability to service indebtedness and
    because it is used in the Indenture to determine compliance with certain
    covenants. However, Adjusted EBITDA should not be considered as an
    alternative to income from operations or to cash flows from operating
    activities (as determined in accordance with generally accepted accounting
    principles) and should not be construed as an indication of a company's
    operating performance or as a measure of liquidity.
(6) In calculating the ratio of earnings to fixed charges, earnings consist of
    income before income tax provision plus fixed charges (excluding
    capitalized interest). Fixed charges consist of interest incurred (which
    includes amortization of deferred financing costs) whether expensed or
    capitalized and one-third of rental expense, deemed representative of that
    portion of rental expense estimated to be attributable to interest.
    Earnings were inadequate to cover fixed charges for 1993, 1997, and the
    nine months ended September 30, 1998 by $14.9 million, $3.8 million and
    $14.7 million, respectively.
(7) Average cost per ton sold is calculated based on total coal operating costs
    included in cost of operations, plus depreciation costs related to mining,
    divided by coal sold.
 
                                       43

 
The selected consolidated financial data below as of and for the years ended
December 31, 1996 and 1997, and for the three years in the period ended
December 31, 1997, have been derived from the Consolidated Annual Financial
Statements of Zeigler which have been audited by Deloitte & Touche LLP,
independent auditors, and are included elsewhere in this Prospectus. The
selected consolidated financial data as of August 31, 1998 and for the eight-
month periods ended August 31, 1997 and 1998, have been derived from Zeigler's
Unaudited Consolidated Financial Statements for those periods included
elsewhere in the Prospectus and include, in the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the results for the unaudited interim periods. Results for the
eight months ended August 31, 1998 are not necessarily indicative of the
results that may be expected for the entire year. The information presented
below is qualified in its entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of Zeigler and related
notes included elsewhere in this Prospectus. Ziegler was acquired on September
2, 1998, and the following presents the respective preacquisition periods.
 
                                    Zeigler
                   (Dollars in millions, except per ton data)
 


                               For the Year Ended          Eight Months Ended
                                  December 31,                 August 31,
                          -------------------------------  --------------------
                            1995       1996       1997       1997       1998
                          ---------  ---------  ---------  ---------  ---------
                                                       
Operating Data:
Revenues................  $   783.1  $   731.6  $   800.8  $   524.3  $   533.4
Cost of operations(1)...      613.2      559.6      641.3      423.5      438.2
Depreciation, depletion
 and amortization(1)....       68.6       60.1       57.9       38.1       43.5
Selling, general and
 administrative(1)......       20.3       20.9       15.6       17.2        9.2
Writedowns and special
 items(2)...............      114.7        --         --         --        21.2
                          ---------  ---------  ---------  ---------  ---------
Income from operations..      (33.7)      91.0       86.0       45.5       21.3
Interest (expense)(3)...      (27.9)     (23.8)     (24.9)     (15.2)      (8.0)
Other income (expense),
 net....................       45.9        2.1        7.9        3.8        5.2
                          ---------  ---------  ---------  ---------  ---------
Income (loss) before
 income taxes...........      (15.7)      69.3       69.0       34.1       18.5
Income tax provision
 (benefit)..............       (4.5)      11.3       10.4        6.2        2.8
                          ---------  ---------  ---------  ---------  ---------
Net income (loss) from
 continuing
 operations(4)..........  $   (11.2) $    58.0  $    58.6  $    27.9  $    15.7
                          ---------  ---------  ---------  ---------  ---------
Other Data:
Adjusted EBITDA(5)......  $   184.3  $   142.8  $   150.6  $    85.5  $    69.0
Cash flows from
 operating activities...      160.3      131.9       79.8       18.1       44.1
Cash flows from
 investing activities...      (51.8)     (30.5)     (70.7)     (19.3)     (40.1)
Cash flows from
 financing activities...     (111.0)      (6.1)     (14.1)     (10.4)     (92.2)
Capital expenditures....       56.3       31.4       74.4       29.5       73.4
Ratio of Adjusted EBITDA
 to interest
 expense(5).............        6.6x       6.0x       6.0x       5.6x       8.6x
Ratio of total debt to
 Adjusted EBITDA(5).....        1.9x       2.4x       2.3x       3.4x       3.6x
Ratio of earnings to
 fixed charges(6).......          *        3.6x       3.4x       2.9x       2.4x
Operating Data:
Coal sales (million of
 tons)..................       36.9       34.6       33.1       21.8       23.0
Average sales price per
 ton....................  $   20.48  $   20.21  $   18.22  $   18.02  $   17.81
Average cost per ton
 sold(7)................      18.61      17.74      15.22      15.06      15.28
Balance Sheet Data (end
 of period):
Working capital.........  $    29.8  $    84.9  $    22.2  $   241.2  $    (5.1)
Total assets............    1,025.2    1,050.6    1,077.4    1,248.4    1,018.7
Total debt (including
 current portion).......      344.8      344.8      344.1      289.9      245.6
Stockholders' equity....       81.5      132.6      177.7      149.0      199.3

 
                                       44

 
- --------
(1) Depreciation, depletion and amortization is included in cost of operations
    and selling, general and administrative per the audited financials (set
    forth elsewhere herein). It is segregated here to conform with the
    presentation of the Company and the Cyprus Subsidiaries.
(2) Reflects acceleration of the accruals related to mine closing costs and
    pretax writedowns in certain asset carrying values, primarily in connection
    with the idling, closing, and projected closing of certain mines earlier
    than previously forecast.
(3) Interest expense is reported net of interest income per the audited
    financials (see F-Section). It is segregated here to conform with the
    presentation of the financial statements of the Company.
(4) Net income (loss) from continuing operations is prior to any extraordinary
    items.
(5) Adjusted EBITDA as presented above and as used elsewhere in this Prospectus
    consists of earnings before interest, taxes, depletion, depreciation,
    amortization and other non-cash charges as adjusted to exclude certain
    unusual or nonrecurring charges, all in accordance with the term
    "Consolidated Cash Flow" as that term is used in the term "Fixed Charge
    Coverage Ratio" in the Indenture. See "Description of the Notes" for a
    complete presentation of the methodology employed in calculating Adjusted
    EBITDA. Adjusted EBITDA is presented because it is a widely accepted
    financial indicator of a company's ability to service indebtedness and
    because it is used in the Indenture to determine compliance with certain
    covenants. However, Adjusted EBITDA should not be considered as an
    alternative to income from operations or to cash flows from operating
    activities (as determined in accordance with generally accepted accounting
    principles) and should not be construed as an indication of a company's
    operating performance or as a measure of liquidity.
(6) In calculating the ratio of earnings to fixed charges, earnings consist of
    income before income tax provision plus fixed charges (excluding
    capitalized interest). Fixed charges consist of interest incurred (which
    includes amortization of deferred financing costs) whether expensed or
    capitalized and one-third of rental expense, deemed representative of that
    portion of rental expense estimated to be attributable to interest.
    Earnings were inadequate to cover fixed charges for 1995 by $15.7 million.
(7) Average cost per ton sold is calculated based on total coal operating costs
    included in cost of operations, plus depreciation costs related to mining,
    divided by coal sold.
 
                                       45

 
The selected combined financial data below as of December 31, 1996 and 1997,
and for the three years in the period ending December 31, 1997, have been
derived from the Combined Annual Financial Statements of the Cyprus
Subsidiaries which have been audited by PricewaterhouseCoopers, LLP,
independent public accountants, and are included elsewhere in this Prospectus.
The selected financial data as of June 30, 1998 and for the six-month periods
ended June 30, 1997 and 1998, have been derived from the Cyprus Subsidiaries'
Unaudited Combined Financial Statements for those periods included elsewhere in
the Prospectus and include, in the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of the results for the unaudited interim periods. Results for the six months
ended June 30, 1998 are not necessarily indicative of the results that may be
expected for the entire year. The information presented below is qualified in
its entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Combined Financial Statements of the Cyprus Subsidiaries and related notes
included elsewhere in this Prospectus. The Cyprus Subsidiaries were acquired on
June 29, 1998 and following presents the respective preacquisition periods.
 
                            The Cyprus Subsidiaries
                   (Dollars in millions, except per ton data)
 


                                     For the Year Ended     Six Months Ended
                                        December 31,            June 30,
                                    ----------------------  ------------------
                                     1995    1996    1997     1997      1998
                                    ------  ------  ------  --------  --------
                                                       
Operating Data:
Revenues..........................  $426.7  $412.2  $422.9  $  193.8  $  201.8
Cost of operations................   342.9   360.3   377.9     165.8     180.5
Depreciation, depletion and
 amortization.....................    40.2    39.6    41.9      20.9      18.7
Selling, general and
 administrative...................    15.9    14.6    16.4       8.3       6.7
Writedowns and special items (1)..    98.1     1.8    92.1       1.1       --
                                    ------  ------  ------  --------  --------
Income (loss) from operations.....   (70.4)   (4.1) (105.4)     (2.3)     (4.1)
Interest (expense)................    (1.2)   (0.8)   (0.6)     (0.3)     (0.2)
Other income (expense), net (2)...     2.3     3.4     6.9       0.2       0.8
                                    ------  ------  ------  --------  --------
Income (loss) before income
 taxes............................   (69.3)   (1.5)  (99.1)     (2.4)     (3.5)
Income tax provision (benefit)
 (3)..............................     --      --      --        --        --
                                    ------  ------  ------  --------  --------
Net income (loss) from continuing
 operations.......................  $(69.3) $ (1.5) $(99.1) $   (2.4) $   (3.5)
                                    ------  ------  ------  --------  --------
Other Data:
Adjusted EBITDA (4)...............  $ 70.3  $ 40.6  $ 33.9  $   18.3  $   15.4
Cash flows from operating
 activities.......................    57.5    29.6     9.3     (12.3)     (4.8)
Cash flows from investing
 activities.......................   (18.4)  (31.2)  (15.7)    (13.4)     (2.2)
Cash flows from financing
 activities.......................   (40.0)    2.8     7.1      24.5       3.3
Capital Expenditures..............    16.7    35.0    24.5      15.0       3.3

                                                         
Ratio of Adjusted EBITDA to interest
 expense (4)..........................    58.6x   50.8x   56.5x   61.0x   77.0x
Ratio of total debt to Adjusted EBITDA
 (4)..................................     0.2x    0.3x    0.3x    0.6x    0.5x
Ratio of earnings to fixed charges
 (5)..................................       *       *       *       *       *
Operating Data:
Coal sales (million of tons)..........    13.3    14.8    15.8     7.2     7.6
Average sales price per ton...........  $27.88  $24.31  $24.31  $24.35  $24.45
Average cost per ton sold (6).........   23.85   23.18   21.77   22.69   23.01
Balance Sheet Data:
Working capital.......................  $ 32.9  $ 24.7  $ 28.5  $ 48.1  $ 32.0
Total assets..........................   393.9   379.4   299.9   389.2   275.2
Total debt (including current
 portion).............................    12.5    11.0     9.1    11.0     7.3
Parent Investment.....................   141.2   144.0    53.8   166.2    55.5


 
                                       46

 
- --------
(1) In 1995 and 1996, write downs and special items consist of the write down
    of mining properties (due to weak demand, transportation and coal quality
    disadvantages, and impending long-term contract expirations, among other
    factors) in accordance with SFAS 121, and the write down of supplies
    inventory to their net realizable value. In 1997, the Cyprus Subsidiaries
    recorded write downs and special items of $92.1 million. Such write downs
    and special items consist of: (i) charges of $35.8 million for the
    anticipated closure of the Armstrong Creek mine (which includes a $9.6
    million charge related to end-of-mine reclamation); (ii) $2.3 million
    charge to increase current reclamation accruals for the Chinook mine; (iii)
    charges of $6.9 million to write down land assets and prepaid royalties to
    net realizable value; and (iv) write downs of $33.5 million and $13.6
    million in asset values at the Cyprus Subsidiaries' West Virginia and
    Chinook mines, respectively, that resulted from updated mine and business
    plans that reflected the views of the Cyprus Subsidiaries' management
    regarding the domestic market for mid- to high-sulfur coal and updated
    reserve information.
(2) Other income (expense), net reflects the inclusion of minority interest and
    gain or loss on asset sales. In the audited financials (set forth elsewhere
    herein) gain on asset sales is included in revenues. It is included here to
    conform with the presentation of the financial statements of the Company.
(3) No income tax provision (benefit) has been allocated by Cyprus Amax to the
    Cyprus Subsidiaries.
(4) Adjusted EBITDA as presented above and as used elsewhere in this Prospectus
    consists of earnings before interest, taxes, depletion, depreciation,
    amortization and other non-cash charges as adjusted to exclude certain
    unusual or nonrecurring charges, including the writedowns and special
    charges taken in 1995, all in accordance with the term "Consolidated Cash
    Flow" as that term is used in the term "Fixed Charge Coverage Ratio" in the
    Indenture. See "Description of the Notes" for a complete presentation of
    the methodology employed in calculating Adjusted EBITDA. Adjusted EBITDA is
    presented because it is a widely accepted financial indicator of a
    company's ability to service indebtedness and because it is used in the
    Indenture to determine compliance with certain covenants. However, Adjusted
    EBITDA should not be considered as an alternative to income from operations
    or to cash flows from operating activities (as determined in accordance
    with generally accepted accounting principles) and should not be construed
    as an indication of a company's operating performance or as a measure of
    liquidity.
(5) In calculating the ratio of earnings to fixed charges, earnings consist of
    income before income tax provision plus fixed charges (excluding
    capitalized interest). Fixed charges consist of interest incurred (which
    includes amortization of deferred financing costs) whether expensed or
    capitalized and one-third of rental expense, deemed representative of that
    portion of rental expense estimated to be attributable to interest.
    Earnings were inadequate to cover fixed charges for 1995, 1996, 1997, the
    six months ended June 30, 1997, and the six months ended June 30, 1998 by
    $69.2 million, $1.5 million, $99.1 million, $2.4 million and $3.5 million,
    respectively.
(6) Average cost per ton sold is calculated based on total coal operating costs
    included in cost of operations, plus depreciation costs related to mining,
    divided by coal sold.
 
                                       47

 
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
 
The following discussion and analysis should be read in conjunction with
"Selected Historical Consolidated Financial Data" and the audited Consolidated
Financial Statements of the Company and the notes thereto included elsewhere in
this Prospectus.
 
General
 
The Company derives its revenues primarily from the sale of coal to electric
utilities and other industrial users under long-term sales contracts. The
Company sells a substantial portion of its coal under long-term sales contracts
and sells the remainder on the spot market. See "Business--Long-Term Coal
Contracts." Sales pursuant to long-term sales contracts would have accounted
for 74% of the Company's pro forma net sales during the nine-month period ended
September 30, 1998, with the remainder being accounted for by sales pursuant to
short-term contracts and on the spot market.
 
The principal components of the Company's expenses are costs relating to the
production and transportation of its coal, including labor expenses, royalty
and lease payments, reclamation expenditures and rail, barge and trucking
costs. Other expenses include depletion, depreciation, amortization, selling,
general and administrative and interest expenses.
 
Addington Enterprises commenced operations in November 1995 through the
acquisition of the coal mining operations of Addington Resources, which
operations comprised the Company's initial eastern Kentucky and Tennessee
mining operations and coal reserves. Bowie's operations, which comprise the
Company's Colorado operations, were acquired by purchase from Cyprus Orchard
Valley in 1994 and Coors Energy in January 1995. The acquisition by the Company
of Bowie and Addington Enterprises' coal mining operations is accounted for as
a transfer of net assets under common control with accounting similar to that
of a pooling-of-interests where the historical cost basis of the assets and
liabilities are carried over. Because the assets acquired pursuant to the MTI
Acquisition were acquired from a party under common control with the Company,
MTI's results of operations are included in the Company's historical financial
statements.
 
Certain Factors Affecting Current and Future Operating Results
 
The Company's current and future operating results will likely be affected by
the following events and factors:
 
Certain Contract Revenues. Under certain long-term sales contracts, in relation
to contract revenues from coal sales, the Company has been receiving additional
periodic payments with such payments included in revenues as coal shipments
occur, pursuant to contract terms. Such proceeds have amounted to $15.0 million
and $29.3 million in fiscal 1997 and the nine-month period ended September 30,
1998, respectively. The contracts call for $4.6 million and $44.3 million of
additional payments to be paid to the Company in the three-month period ended
December 31, 1998 and fiscal 1999, respectively. The contracts call for $91.0
million of additional payments over the following four years.
 
Recent Acquisitions. In connection with the Recent Acquisitions, the Company
expects to incur certain one-time acquisition charges aggregating approximately
$20.0 million. (Approximately $15.0 million has been paid as of September 30,
1998). The costs relate primarily to severance plan obligations and change of
control provisions contained in employment agreements assumed by the Company in
connection with the Zeigler Acquisition. The Company will also write off $18.5
million of deferred financing costs related to the bridge financing for the
Zeigler Acquisition. Other integration costs are expected to include closing
redundant facilities and relocating certain business processes of the
businesses acquired in the Recent Acquisitions.
 
Increased Interest Costs. As a result of increased indebtedness incurred by the
Company in connection with the Recent Acquisitions, the Company's interest
expense will increase substantially from 1998 to 1999. Interest costs will
increase further if the Company acquires additional coal companies or coal
reserves.
 
 
                                       48

 
Reclamation and Mine Accruals. Annually, the Company reviews its entire
reclamation liability and makes necessary adjustments, including mine plan and
permit changes and revisions to production levels to optimize mining
reclamation and efficiency. The financial impact of any such adjustment is
recorded to cost of coal sales. Although the Company's management believes it
is making adequate provisions for all expected reclamation and other costs
associated with mine closures, future operating results would be adversely
affected if such accruals were later determined to be insufficient.
 
Anticipated Cost Savings and Synergies
 
The unaudited Pro Forma Combined Financial Statements do not include the effect
of certain cost savings and synergies the Company believes are possible to
achieve as a result of the Transactions. On a pro forma basis, the Company
expects that it would have generated approximately $71 million in additional
cost savings over the twelve-month period ended December 31, 1997. Potential
cost-savings and synergies from these items include approximately $17 million
related to overhead and closure of unneeded offices, approximately $13 million
related to certain personnel reductions and benefit plan consolidations, and
approximately $41 million related to mining and material sourcing synergies.
The reduction in overhead and closure of unneeded offices are expected to
result from reduction in costs due to duplication of corporate management and
regional offices at Zeigler. The benefit plans of the various existing and
acquired companies will be consolidated into a company-wide plan. The mining
synergies are expected to include (i) sourcing coal supply contracts from lower
cost mines, (ii) mine plan changes at the Marrowbone and Armstrong Creek Mines,
and (iii) materials sourcing activities as the Company becomes a larger volume
customer of its suppliers. However, there can be no assurances that the Company
will be able to achieve such cost savings or synergies or, even if it is able
to achieve such cost savings or synergies, that it will be able to do so within
the time period currently anticipated. In the event such anticipated cost
savings and synergies are not achieved, the Company may encounter financing
constraints in its future operations. See "Risk Factors--Ability to Achieve
Anticipated Cost Savings and Synergies."
 
Results of Operations
 
AEI Resources Holding, Inc. (including its predecessor)
 
The following table sets forth, for the periods indicated, certain operating
and other data of AEI Resources Holding, Inc. including the Company's
predecessor AEI Holding Company, Inc., presented as a percent of revenues.
 


                                                         Nine Months Ended
                                                    ---------------------------
                                  Fiscal Year
                               -------------------  September 30, September 30,
                               1995   1996   1997       1997          1998
                               -----  -----  -----  ------------- -------------
                                                   
Operating Data:
Revenues.....................  100.0% 100.0% 100.0%     100.0%        100.0%
Cost of operations...........   84.1   78.8   82.8       81.1          82.2
Depreciation, depletion and
 amortization................    5.3    5.6    6.2        5.6           7.5
Selling, general and
 administrative..............    7.7    7.4    7.9        8.0           5.3
                               -----  -----  -----      -----         -----
Income from operations.......    2.9    8.2    3.1        5.3           5.0
Interest expense.............   (1.8)  (4.5)  (5.2)      (4.2)         (8.0)
Other income (expense), net..   (0.4)   0.4    0.2       (0.5)          0.7
                               -----  -----  -----      -----         -----
Income (loss) before income
 tax provision (benefit) ....    0.7    4.1   (1.9)       0.6          (2.3)
                               -----  -----  -----      -----         -----

 
                                       49

 
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September
30, 1997
 
Due to the completion of the Recent Acquisitions, the changes in results of
operations discussed below may not be illustrative of operations if the Company
had operated the businesses acquired in the Recent Acquisitions from January 1,
1998.
 
Revenues. Revenues were $376.2 million for the nine months ended September 30,
1998, compared to $124.1 million for the nine months ended September 30, 1997,
an increase of $252.1 million or 203%. The increase in revenues is attributable
to mining revenues from recently acquired businesses included in the results of
operations in the nine-months ended September 30, 1998, and not in the results
of operations in the nine-months ended September 30, 1997, including $22.0
million from Ikerd-Bandy generated by 0.8 million tons of production (nine
months); $65.2 million from Leslie Resources generated by 2.8 million tons of
production (nine months); $97.4 million from the Cyprus Subsidiaries generated
by 5.1 million tons of production (three months); $6.0 million from Mid-Vol
generated by 0.2 million tons of production (three months); $42.9 million from
Zeigler generated by 1.4 million tons of production (one month); and $6.2
million from Kindill generated by 0.3 million tons of production (one month).
Revenues exclusive of the acquirees increased from $124.1 million to $138.0
million ($13.9 million or 11%). The increase is due to increased tonnage
delivery (4.6 million tons to 5.4 million tons or 17%) offset by a decrease in
revenue per ton ($24.43 to $23.13 or 5%).
 
Cost of Operations. The cost of operations totaled $309.5 million for the nine
months ended September 30, 1998 compared to $100.7 million for the nine months
ended September 30, 1997, an increase of $208.8 million or 207%. The increase
is primarily attributable to acquirees included in 1998 and not in 1997
including Ikerd-Bandy ($16.7 million for nine months), Leslie Resources ($67.0
million for nine months), the Cyprus Subsidiaries ($82.5 for three months),
Mid-Vol ($1.6 million for three months), Zeigler ($28.7 million for one month)
and Kindill ($6.5 million for one month). Cost of operations exclusive of the
acquirees increased from $100.7 million to $105.9 million ($5.2 million or 5%).
This increase is due to increased sales offset by a 2% decrease in average cost
per ton sold (from $22.00 to $21.46).
 
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization for the nine months ended September 30, 1998 totaled $28.2 million
compared to $6.9 million for the nine months ended September 30, 1997, an
increase of $21.3 million or 309%. The increase in depreciation, depletion and
amortization resulted primarily from: (i) increase depreciation from the
acquired property and equipment for: Ikerd-Bandy ($1.2 million for nine
months), Leslie Resources ($3.1 million for nine months), the Cyprus
Subsidiaries ($6.4 million for three months), Zeigler ($6.9 million for one
month) and Kindill ($0.6 million for one month) and (ii) additional
depreciation and amortization from 1997 and 1998 capital expenditures.
 
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses for the nine months ended September 30, 1998 were $19.8
million compared to $9.9 million for the nine months ended September 30, 1997,
an increase of $9.9 million or 100%. The increase in such expenses primarily
resulted from acquirees included in 1998 and not in 1997 including Ikerd-Bandy
($0.5 million for nine months), Leslie Resources ($1.0 million for nine
months), the Cyprus Subsidiaries ($1.8 million for three months), Mid-Vol ($0.1
million for three months), Zeigler ($0.6 million for one month) and Kindill
($0.3 million for one month). Other increases related to expanding management
and administrative functions to support the anticipated growth.
 
Interest Expense. Interest expense for the nine months ended September 30, 1998
was $29.8 million compared to $5.3 million for the nine months ended September
30, 1997, an increase of $24.5 million or 462%. The increase resulted primarily
from interest associated with: (i) increased debt levels (including the $200
million of Old Notes, the bridge financing for the Cyprus Acquisition (the
"Cyprus Bridge Facility") ($160 million), the Bridge Facility ($600 million),
and the Senior Credit Facility ($400 million, a portion of the proceeds
refinanced the Cyprus Bridge Facility)) and (ii) the related amortization of
debt financing costs.
 
Other Income (Expense), Net. Other income (expense) increased due to additional
gains of $2.5 million on asset sales, caused primarily by the sale of an
aircraft, and an increase in interest income resulting from the investment of
excess proceeds from the Old Notes.
 
                                       50

 
Provision for Income Taxes. There was a $0.9 million benefit for income taxes
for the nine months ended September 30, 1998 as compared to $1.4 million
expense for the nine months ended September 30, 1997. During the nine months
ended September 30, 1997, the Company operated primarily under S Corporation
tax status. During April 1997, Bowie experienced a change in tax status from an
S corporation to a C corporation. In connection with this change in tax status,
an income tax provision to record deferred taxes was recorded in the amount of
$1.6 million. For 1998, a deferred tax benefit was not recorded due to
uncertainties in realization, until after the acquisition of Zeigler and
Kindill and the establishment of a deferred tax liability in September, 1998.
The 1998 income tax benefit relates to post-August losses.
 
Extraordinary Loss From Debt Refinancing. For the nine months ended September
30, 1998, the Company incurred an extraordinary loss of $3.0 million compared
to no such loss for the nine months ended September 30, 1997. During the nine
months ended September 30, 1998, the Company restructured its old $25 million
credit facility and extinguished the Cyprus Bridge Facility. All unamortized
debt issuance costs associated with the retired facilities were written off.
 
Net Loss (Income). For the nine months ended September 30, 1998, the Company
had a net loss of $10.7 million compared to a net loss of $0.7 million for the
nine months ended September 30, 1997, an increase of $10.0 million. The
increase primarily was due to increased depreciation associated with the
acquisitions and increased interest expense associated with financing the
acquisitions.
 
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
 
Revenues. Revenues were $175.3 million for the year ended December 31, 1997,
compared to $123.2 million for the year ended December 31, 1996, an increase of
$52.1 million or 42%. The increase in revenues is attributable to a 56%
increase in coal mining revenues (up $59.2 million from $104.8 million to
$164.0 million), partially offset by a 49% decrease in equipment sales, rental
and repair (down $7.9 million from $16.0 million to $8.1 million). Coal sales
tonnage increased 55% from 4.2 million tons for the year ended December 31,
1996 to 6.5 million tons for the year ended December 31, 1997. This increased
volume resulted primarily from increased sales from the eastern Kentucky
operations. Revenue per ton also increased $0.35 or 1% (from $24.84 for the
year ended December 31, 1996 to $25.19 for the year ended December 31, 1997).
This increase in revenues per ton is attributable to the expiration of lower
priced contracts and the inclusion of new higher priced contracts. Equipment
sales, rental and repair declined in 1997 from 1996 due to (i) revenues from
highwall miner equipment repair and sales to Mining Technologies Australia, Pty
Ltd ("MTA"). (an Australian entity formerly majority owned by Larry Addington)
in 1996 exceeding 1997 revenues by $3.2 million due to decreased operations in
Australia in 1997 and (ii) rental of four separate highwall miner systems from
MTI and Bowie (totaling $5.4 million in revenue) during 1996 which were instead
deployed to internal jobs in 1997.
 
Cost of Operations. The cost of operations totaled $145.2 million for the year
ended December 31, 1997 compared to $97.1 million for the year ended December
31, 1996, an increase of $48.1 million or 50%. The increase was primarily due
to the increase in tons produced from 4.2 million in 1996 to 6.3 million in
1997. The average cost per ton sold for the Company was $22.08 per ton for the
year ended December 31, 1997 compared to $21.32 per ton for the year ended
December 31, 1996, an increase of $0.76 per ton or 4%. This increase was
attributable primarily to an increase in adverse mining conditions.
 
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization for the year ended December 31, 1997 totaled $10.8 million
compared to $6.9 million for the year ended December 31, 1996, an increase of
$3.9 million or 57%, which is consistent with the increase in cost of
operations. The increase in depreciation, depletion and amortization primarily
resulted from the use of an Addcar highwall mining system and the amortization
of mine development costs.
 
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1997 were $13.9 million
compared to $9.1 million for the year ended December 31, 1996, an
 
                                       51

 
increase of $4.8 million or 53%. The increase in such expenses primarily
resulted from increased costs associated with organizational growth, the 1997
employee bonus and other selling related costs.
 
Interest Expense. Interest expense for the year ended December 31, 1997 was
$9.2 million compared to $5.5 million for the year ended December 31, 1996, an
increase of $3.7 million or 67%. This increase resulted primarily from interest
associated with the Old Notes and increased stockholder loans used to fund the
development of the Company's operations.
 
Provision for Income Taxes. The provision for income taxes for the year ended
December 31, 1997 was $17.5 million compared to no provision for the year ended
December 31, 1996. The increase in the provision for income taxes is due
primarily to the provision for deferred income taxes resulting from the change
in tax status from an S corporation to a C corporation.
 
Net Income (Loss). For the year ended December 31, 1997, the Company had a net
loss of $20.9 million compared to net income of $5.1 million for the year ended
December 31, 1996, a decrease of $26.0 million or 510%. The decrease primarily
resulted from increased tax expenses caused by the change in tax status from an
S corporation to a C corporation in 1997 and the increase in selling, general
and administrative and interest expense.
 
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
 
Revenues. Revenues were $123.2 million for 1996 compared to $112.3 million for
1995, an increase of $10.9 million or 10%. The increase in revenues is
attributable to a 150% increase in equipment sales, rental and repair (up $9.6
million from $6.4 million to $16.0 million) and a 335% increase in coal mining
revenues (up $80.7 million from $24.1 million to $104.8 million). Equipment
sales, rental and repairs increased in 1996 due to (i) revenues from highwall
miner equipment repair and sales to MTA in 1996 exceeding 1995 revenues by $9.7
million as operations in Australia accelerated in 1996, (ii) equipment rental
income in 1996 exceeded 1995 revenues by $3.6 million due to equipment deployed
to internal jobs in 1995 being leased to third parties in 1996 offset by a $6.0
million sale of an Addcar highwall mining system in 1995 for which there was no
comparable sale in 1996. Coal mining revenue increase is due to a 27% increase
in tonnage sold (up 0.9 million tons from 3.3 million tons to 4.2 million tons)
offset by a 5% decrease in revenue per ton (down $1.43 from $26.27 to $24.84).
Tonnage increased due to opening new mines while the revenue per ton decrease
is due to the expiration of higher than average contracts and the inclusion of
lower priced contracts.
 
Cost of Operations. The cost of operations totaled $97.1 million for 1996
compared to $94.5 million for 1995, an increase of $2.6 million or 3%. The
increase primarily resulted from an increase in total production from 3.3
million tons in 1995 to 4.2 million tons in 1996 partially offset by a decrease
in average cost per ton sold of $2.88 or 12% (from $24.20 in 1995 to $21.32 in
1996). The cost per ton decrease is due to the use of Addcar highwall mining
systems. The cost of operations also declined in 1996 as a result of decreased
contract mining and increased equipment leasing.
 
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization for 1996 totaled $6.9 million compared to $6.0 million for 1995,
an increase of $0.9 million or 15%. The increase in depreciation, depletion and
amortization primarily resulted from an increase in amortization associated
with additional equipment purchased for the Company's Colorado mining
operations.
 
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 1996 were $9.1 million compared to $8.6 million for
1995, an increase of $0.5 million or 6%. The increase in selling, general and
administrative expenses was attributable to expanded operations.
 
Interest Expense. Interest expense for 1996 was $5.5 million compared to $2.0
million for 1995, an increase of $3.5 million or 175%. The primary reason for
the increase was the incurrence of debt by Addington Enterprises in connection
with the purchase of the subsidiaries from Addington Resources.
 
                                       52

 
Provision for Income Taxes. There was no income tax provision for 1996 compared
to a benefit of $0.4 million for 1995, a decrease in the benefit of $0.4
million due to a change in the corporate tax status.
 
Net Income. For 1996, the Company had net income of $5.1 million compared to
net income of $1.1 million for 1995, an increase of $4.0 million or 364%. The
increase primarily resulted from a higher margin on coal sales, increased
equipment sales and increased equipment rental partially offset by higher
depreciation and interest expense in 1996.
 
AEI Holding Company, Inc.
 
Through June 30, 1998, AEI Holding Company, Inc. (and its predecessors) was the
predecessor to AEI Resources, Inc. and AEI Resources Holding, Inc. Accordingly,
the Results of Operations for periods prior to June 30, 1998 for AEI Holding
Company, Inc. are discussed in the preceding section headed AEI Resources
Holding, Inc. After June 30, 1998, AEI Holding Company, Inc. functioned as
subsidiary operations within the Company. Accordingly, the September 30, 1998
results of operations of AEI Holding Company, Inc. are discussed below.
 
Nine Months Ended September 30, 1998 Compared with Nine Months Ended September
30, 1997.
 


                                                        Nine Months Ended
                                                   ---------------------------
                                                   September 30, September 30,
                                                       1997          1998
                                                   ------------- -------------
                                                           
Operating Data:
Revenues..........................................     100.0%        100.0%
Cost of operations................................      81.1          85.4
Depreciation, depletion and amortization..........       5.6           6.3
Selling, general and administrative...............       8.0           6.1
                                                       -----         -----
Income from operations............................       5.3           2.2
Interest expense..................................      (4.2)         (7.5)
Other income (expense), net.......................      (0.5)          0.9
                                                       -----         -----
Income (loss) before income tax provision
 (benefit) and extraordinary item.................       0.6          (4.4)
                                                       -----         -----

 
Revenues. Revenues were $225.8 million for the period ending September 30,
1998, compared to $124.1 million for the period ending September 30, 1997, an
increase of $101.7 million or 82%. The increase in revenues is primarily
attributable to a 94% increase in coal mining revenues up $107.4 million from
$114.3 million to $221.7 million, offset by a decrease in equipment sales,
rental and repair and a decrease in other revenue. Coal tonnage sales increased
by 4.4 million tons or 96% from 4.6 million tons for the period ending
September 30, 1997 to 9.0 million tons for the period ending September 30,
1998. This increased volume resulted primarily from the additions of Leslie
Resources and Ikerd-Bandy. During the first three quarters of 1998 these
companies sold a combined 3.6 million tons. Equipment sales, rental and repair
has declined in 1998 from 1997 due to reduced sales to a related party in 1998.
Other revenue declined due to recognition of approximately $1.6 million in 1997
relating to fees paid when a related party cancelled a mining arrangement with
AEI Holding.
 
Cost of Operations. The cost of operations totaled $193.0 million for the
period ending September 30, 1998, compared to $100.7 million for the period
ending September 30, 1997, an increase of $92.3 million or 92%. Coal tonnage
produced increased 4.3 million tons or 96% from 4.5 million tons for the period
ending September 30, 1997 to 8.8 million tons for the period ending September
30, 1998. The increase in tonnage is mainly attributed to the additions of
Leslie Resources and Ikerd-Bandy. During the first nine months of 1998 these
companies produced a combined 4.2 million tons. The production cost of
operations for AEI Holding was $17.39 per ton shipped for the period ending
September 30, 1998 compared to $18.43 per ton for the period ending September
30, 1997, a decrease of $1.04 per ton or 6%. This decrease was attributable
primarily to lower cost mining operations at Ikerd-Bandy and Leslie Resources.
 
                                       53

 
Depreciation, Depletion, and Amortization. Depreciation, depletion, and
amortization for the period ending September 30, 1998 totaled $14.3 million
compared to $6.9 million for the period ending September 30, 1997, an increase
of $7.4 million or 107%, which is consistent with the increase in cost of
operations. The increase in depreciation, depletion and amortization resulted
primarily from the following factors: (1) the additions of Ikerd-Bandy and
Leslie Resources, which totaled a combined $4.3 million through September 30,
1998 and (2) additional depreciation and amortization from 1997 capital
expenditures.
 
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses for the period ending September 30, 1998 were $13.7
million compared to $9.9 million for the period ending September 30, 1997, an
increase of $3.8 million or 38%. The increase in such expenses primarily
resulted from increased costs associated with organizational growth, including
such items as executive and other compensation and benefits, professional fees,
etc.
 
Interest Expense. Interest expense for the period ending September 30, 1998 was
$16.9 million compared to $5.3 million for the period ending September 30,
1997, an increase of $11.6 million or 219%. This increase resulted primarily
from interest associated with the issuance of the Old Notes in November 1997.
 
Provision (Benefit) for Income Taxes. The provision (benefit) for income taxes
for the periods ending September 30, 1998 and 1997 was ($0.2 million) and $1.4
million, respectively. During the period ended September 30, 1997, AEI Holding
operated primarily under S corporation status. During April 1997, Bowie
experienced a change in tax status from S corporation to C corporation. In
connection with this change in tax status, an income tax provision to record
deferred taxes was recorded in the amount of $1.6 million. For the period ended
September 30, 1998, a deferred tax benefit was partially recorded based upon an
allocation from the Company.
 
Extraordinary Loss From Debt Extinguishment. For the period ending September
30, 1998, AEI Holding incurred an extraordinary loss of $0.6 million compared
to no such loss for the period ending September 30, 1997. During the period
ending September 30, 1998, AEI Holding replaced its former credit facility and
expensed all unamortized costs associated with the Cyprus Bridge Facility.
 
Net Loss. For the period ending September 30, 1998, the Company had a net loss
of $10.3 million compared to a net loss of $0.7 million for the period ending
September 30, 1997. The loss increase primarily resulted from the increase in
interest expense and extraordinary loss offset by the gain on sale of assets
and increase in interest income (included in other, net). The increase in
interest income resulted from the investment of excess proceeds from the
issuance of the Old Notes. The increase in gain on sale of assets primarily
resulted from the sale of an aircraft.
 
Zeigler
 
The following table sets forth, for the pre-acquisition periods indicated,
certain operating and other data of Zeigler presented as a percent of revenues.


                                                          Eight Months Ended
                                                         ---------------------
                                       Fiscal Year
                                    -------------------  August 31, August 31,
                                    1995   1996   1997      1997       1998
                                    -----  -----  -----  ---------- ----------
                                                     
Operating Data:
Revenues........................... 100.0% 100.0% 100.0%   100.0%     100.0%
Cost of operations.................  78.3   76.5   80.1     80.8       82.1
Depreciation, depletion and
 amortization......................   8.8    8.2    7.2      7.2        8.2
Selling, general and
 administrative....................   2.6    2.9    2.0      3.3        1.7
Writedowns and special items.......  14.6    --     --       --         4.0
                                    -----  -----  -----    -----      -----
Income (loss) from operations......  (4.3)  12.4   10.7      8.7        4.0
Interest expense...................  (3.6)  (3.2)  (3.1)    (2.9)      (1.5)
Other income (expense), net........   5.9    0.3    1.0      0.7        1.0
                                    -----  -----  -----    -----      -----
Income (loss) before income tax
 provision (benefit)...............  (2.0)   9.5    8.6      6.5        3.5
                                    -----  -----  -----    -----      -----
                                    -----  -----  -----    -----      -----

 
 
                                       54

 
Eight Months Ended August 31, 1998 Compared to Eight Months Ended August 31,
1997
 
Because the Zeigler Acquisition was consummated on September 2, 1998, the
results of operations for September 1998 are included in the Company's results
of operations.
 
Revenues. Revenues were $533.4 million for the eight months ended August 31,
1998, compared to $524.3 million for the eight months ended August 31, 1997, an
increase of $9.1 million or 2%. The increase in revenues resulted primarily
from increased coal revenues of $16.7 million, partially offset by lower energy
trading revenue of $6.2 million reflecting a management decision to reduce
electricity and gas trading during the second quarter of 1998. Increased coal
sales primarily resulted from higher volumes at Pike County from the start-up
of the new Matrix Mining operations ($19.4 million), and increased revenues of
$5.3 million at Evergreen mine due to higher production, partially offset by
decreased revenues of $7.6 million in the Midwest due to the expiration of a
contract and lower spot volume primarily due to the closure of Old Ben Coal
Company's ("Old Ben") Spartan mine in the fourth quarter of 1997.
 
Cost of Operations. The cost of operations totaled $438.2 million for the eight
months ended August 31, 1998 compared to $423.5 million for the eight months
ended August 31, 1997, an increase of $14.7 million or 4%. The increase
primarily reflects a $13.0 million increase related to 1997 revisions in mine
closing estimates and employee benefit obligations, higher production costs at
Marrowbone due to lower yield caused by continued geologic problems ($6.4
million) and higher expenses associated with the increased sales volumes at
Pike County and Evergreen mine as discussed above. These increases were
partially offset by $7.6 million of lower energy trading expense as discussed
above, and $3.9 million of lower expense associated with Zeigler's clean coal
demonstration plant.
 
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization for the eight months ended August 31, 1998 totaled $43.5 million
compared to $38.1 million for the eight months ended August 31,
1997, an increase of $5.4 million or 14%. The increase in depreciation,
depletion and amortization primarily resulted from depreciation in 1998 for the
full nine-month period on 1997 capital expenditures and a revision in certain
asset lives.
 
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the eight months ended August 31, 1998 were $9.2
million compared to $17.2 million for the eight months ended August 31, 1997, a
decrease of $8.0 million or 47%. The decrease in such expenses primarily
resulted from lower incentive compensation and consulting costs.
 
Write Downs and Special Items. Write downs and special items of $21.2 million
for the eight months ended August 31, 1998 consist of charges related to the
sale of Zeigler to the Company, including professional sales fees, and
retention and special bonuses.
 
Interest Expense. Interest expense for the eight months ended August 31, 1998
was $8.0 million compared to $15.2 million for the eight months ended August
31, 1997, a decrease of $7.2 million or 47%. This decrease reflects the
prepayment in January 1998 of Zeigler's 8.61% senior secured notes.
 
Other Income (Expense), Net. In the second quarter of 1998, Zeigler received a
$5.2 million distribution of surplus funds from Old Ben's investment in a
reciprocal insurance association. The distribution was offset by a decrease in
interest income due to decreased levels of excess cash.
 
Provision for Income Taxes. The provision for income taxes for the eight months
ended August 31, 1998 was $2.8 million compared to $6.2 million for the eight
months ended August 31, 1997. The decrease in the provision for income taxes is
due to a decrease of pretax income of $15.6 million or 46%.
 
Net Income. For the eight months ended August 31, 1998, Zeigler had net income
of $15.7 million compared to net income of $27.9 million for the eight months
ended August 31, 1997, a decrease of $12.2 million or
 
                                       55

 
44%. The decrease is due of $18.0 million of expense associated with the sale
of the Company in September 1998, the 1997 nonrecurring benefits from changes
in mine closing estimates, employee benefit obligations, and lost cost claims
totaling $14.4 million, and higher production costs at Marrowbone of $5.4
million. These items were partially offset by lower selling, general and
administrative expenses of $3.9 million, higher margins from purchased coal of
$4.2 million, lower expense at Zeigler's clean coal demonstration plant of $3.7
million, lower interest expense of $3.6 million, distribution of surplus funds
from an investment in a reciprocal insurance association of $3.2 million,
improved productivity at Pike County of $2.9 million and lower property taxes
at Old Ben of $1.6 million.
 
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
 
Revenues. Revenues were $800.8 million for the year ended December 31, 1997,
compared to $731.6 million for the year ended December 31, 1996, an increase of
$69.2 million or 10%. EnerZ Corporation's ("EnerZ") energy trading and
marketing activities commenced in January 1997. Approximately 80% of EnerZ's
fiscal 1997 revenues of $166.5 million were generated from electricity
transactions with the remainder attributable to natural gas trading. Coal sales
declined $95.0 million in fiscal 1997 compared to 1996, of which $80.2 million
reflected the 1996 closures of Old Ben Mine #24 and Old Ben Mine #26, $30.5
million reflected the 1996 closure of Old Ben Mine #20, and $20.4 million
reflected the 1996 expiration of Triton's contract with Western Farmers
Electric Cooperative ("WFEC"). These decreases were partially offset by a $14.3
million increase in revenues related to the reactivation of Old Ben Mine #11
and other small sales increases. Other revenues include throughput fees of
$19.3 million at Zeigler's two east coast transloading terminals; farm, timber,
coal trucking, and ash disposal income; royalty and rental income from land and
mineral interests; and gains from sales of surplus properties. The fiscal 1997
revenue decline was mainly due to lower revenue from third-party coal leases
and timber sales.
 
Cost of Operations. The cost of operations totaled $641.3 million for the year
ended December 31, 1997 compared to $559.6 million for the year ended December
31, 1996, an increase of $81.7 million or 15%. The increase was primarily due
to higher trading costs of $173.2 million reflecting the first year of
operations for EnerZ, a $16.3 million 1996 curtailment gain resulting from a
reduction in Zeigler's recorded obligation to provide retiree medical benefits
to certain former midwestern mining employees as a result of their re-
employment or termination prior to vesting, and higher costs for operating the
Encoal Corporation ("Encoal") plant after the 1996 expiration of Department of
Energy co-funding. Partially offsetting these increases was a decrease in cost
of coal sales primarily reflecting the impact of 1996 mine closings and
reductions in certain recorded liabilities. During 1997, Zeigler also reduced
accrued mine closing costs by approximately $23.4 million, including decreases
in the Old Ben reclamation obligations and contingent claims liabilities. In
addition, actuarially-based liability reductions reducing cost of operations
included $8.2 million for accrued pneumoconiosis benefits, $3.2 million for
postemployment benefits and $2.4 million for postretirement benefits. Various
other estimated liabilities were reevaluated and reduced cost of operations in
total by $4.5 million.
 
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization for the year ended December 31, 1997 totaled $57.9 million
compared to $60.1 million for the year ended December 31, 1996, a decrease of
$2.2 million or 4%. The decrease in depreciation, depletion and amortization
primarily resulted from the 1995 closing of Old Ben Mine #1 and the 1996
closing of Old Ben Mine #24.
 
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1997 were $15.6 million
compared to $20.9 million for the year ended December 31, 1996, a decrease of
$5.3 million or 25%. Lower 1997 expenses were mainly the result of lower stock
appreciation unit and compensation-related charges and the timing of other
expenses.
 
Interest Expense. Interest expense for the year ended December 31, 1997 was
$24.9 million compared to $23.8 million for the year ended December 31, 1996, a
decrease of $1.1 million or 5%. The higher expense in fiscal 1997 primarily
resulted from increased average borrowings.
 
 
                                       56

 
Other Income (Expense), Net. Other Income (expense), net for the year ended
December 31, 1997 was $7.9 million compared to $2.1 million for the year ended
December 31, 1996, an increase of $5.8 million or 276%. The increase primarily
reflects higher interest income earned due to larger cash investments.
 
Provision for Income Taxes. The provision for income taxes for the year ended
December 31, 1997 was $10.4 million compared to $11.3 million for the year
ended December 31, 1996. The decrease in the provision for income taxes is due
to the slightly lower pretax income and lower tax rate. Zeigler's effective tax
rate was 15.0% in 1997 versus 16.3% in 1996. The 1997 rate improvement was
mainly due to the benefits of tax loss carryforwards. The valuation allowance
on deferred tax assets decreased $10.5 million from 1996 to 1997. This
valuation allowance primarily relates to alternative minimum tax ("AMT") credit
carryforwards. Although management believes that it is unlikely to realize all
of its AMT credit carryforward under existing law and company structure, AMT
credit carryforward is recognized to reduce the deferred tax liability from the
amount of regular tax on temporary differences to the amount of tentative
minimum tax on AMT temporary differences.
 
Net Income. For the year ended December 31, 1997, Zeigler had net income of
$58.6 million compared to $58.0 million for the year ended December 31, 1996,
an increase of $0.6 million or 1%. The increase primarily resulted from a $9.0
million positive change in customer claims expense representing reversal in
1997 of a $4.5 million contingent claims liability accrued in 1996, reduced
1997 estimates of Old Ben reclamation liabilities totaling $8.2 million, a $6.2
million actuarially-based reduction in the accrued liability for black lung
benefits, an unusually large $8.2 million increase in accrued workers'
compensation expense in 1996, and a $3.9 million reduction in net interest
expense. These factors were substantially offset after taxes by a $16.4 million
reduction in net earnings attributable to the 1996 closings of Old Ben Mine #24
and Old Ben Mine #26, a $16.3 million nonrecurring gain in 1996 on curtailment
of postretirement benefits, a $6.8 million net earnings decrease related to the
December 1996 expiration of Triton's contract with WFEC, a $5.6 million net
loss at EnerZ, and a $4.2 million increase in the net loss at Zeigler's
technology unit.
 
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
 
Revenues. Revenues were $731.6 million for the year ended December 31, 1996,
compared to $783.1 million for the year ended December 31, 1995, a decrease of
$51.5 million or 7%. A $56.5 million decline in 1996 coal sales compared to
1995 was largely due to a $42.7 million decrease related to the three mine
closures described above and the 1995 closure of Old Ben Mine #1, and $13.6
million was related to price reductions on two major long-term coal supply
contracts. These decreases were partially offset by payments totaling $45.5
million in 1995 in connection with the settlement of litigation concerning a
contract with Southern Indiana Gas and Electric Company. Other revenues include
throughput fees at Zeigler's two east coast transloading terminals; farm,
timber, coal trucking, and ash disposal income; royalty and rental income from
land and mineral interests; and gains from sales of surplus properties.
 
Cost of Operations. The cost of operations totaled $559.6 million for the year
ended December 31, 1996 compared to $613.2 million for the year ended December
31, 1995, a decrease of $53.6 million or 8.7%. The decrease primarily resulted
from a decrease in cost of coal sales from 1995 to 1996 which principally
reflects significantly reduced sales from the closed mines and savings from
idling Wolf Creek and outsourcing coal formerly supplied by the idled mine.
Cost of operations also decreased in 1996 due to a $16.3 million gain on
curtailment of postretirement benefits representing a reduction in Zeigler's
recorded obligation to provide retiree medical benefits to certain former
midwestern mining employees as a result of their re-employment or termination
prior to vesting. Partially offsetting these decreases was a $23.3 million 1995
reduction in accrued pneumoconiosis benefits based on updated actuarial
estimates that recognized positive trends in claims experience.
 
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization for the year ended December 31, 1996 totaled $60.1 million
compared to $68.6 million for the year ended December 31, 1995, a
 
                                       57

 
decrease of $8.5 million or 12%. The decrease in depreciation, depletion and
amortization primarily resulted from the 1996 mine closings of Old Ben Mine #24
and #26 in Illinois and Old Ben Mine #20 in West Virginia, and the 1995 closing
of Old Ben Mine #1 in Indiana.
 
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1996 were $20.9 million
compared to $20.3 million for the year ended December 31, 1995, an increase of
$0.6 million or 3%. The increase in such expenses primarily resulted from
expanded business development activities.
 
Interest Expense. Net interest expense for the year ended December 31, 1996 was
$23.8 million compared to $27.9 million for the year ended December 31, 1995, a
decrease of $4.1 million or 15%. This decrease resulted primarily from lower
average borrowings.
 
Provision for Income Taxes. The provision for income taxes for the year ended
December 31, 1996 was $11.3 million compared to a benefit of $4.5 million for
the year ended December 31, 1995. Higher pretax income was responsible for the
increase in income taxes from 1995 to 1996. Zeigler's effective tax rate was
16.3% in 1996 as compared to 28.6% in 1995. The 1996 rate improvement was
mainly due to the benefits of tax loss carryforwards.
 
The valuation allowance on the deferred tax asset decreased $8.9 million from
1995 to 1996, mainly because of reduced deductible temporary differences
(mostly reclamation liabilities), use of net operating loss carryforwards, and
a partially offsetting increase in AMT credit carryforwards.
 
Net Income. For the year ended December 31, 1996, Zeigler had net income of
$58.0 million compared to a loss of $11.2 million for the year ended December
31, 1995, an increase of $69.2 million or 618%. The increase primarily resulted
from nonrecurring provisions in 1995 for asset impairments and accelerated mine
closings of $114.7 million, lower 1996 mining costs and higher productivity of
$18.8 million, and the 1996 $16.3 million curtailment gain on postretirement
benefits. These increases were partially offset by nonrecurring 1995 proceeds
from a contract settlement of $45.5 million, a 1996 reduction in the
pneumoconiosis benefit obligation of $23.3 million, and lower sales volume and
sales prices mainly related to the 1996 mine closings of $11.3 million.
 
The Cyprus Subsidiaries
 
The following table sets forth, for the preacquisition periods indicated,
certain operating and other data of the Cyprus Subsidiaries presented as a
percent of revenues.
 


                                                             Six Months Ended
                                           Fiscal Year       -----------------
                                        -------------------  June 30, June 30,
                                        1995   1996   1997     1997     1998
                                        -----  -----  -----  -------- --------
                                                       
Operating Data:
Revenues............................... 100.0% 100.0% 100.0%  100.0%   100.0%
Cost of operations.....................  80.4   87.4   89.4    85.6     89.4
Depreciation, depletion and
 amortization..........................   9.4    9.6    9.9    10.8      9.3
Selling, general and administrative....   3.7    3.5    3.8     4.3      3.3
Writedowns and special items...........  23.0    0.5   21.8     0.5      --
                                        -----  -----  -----   -----    -----
Income (loss) from operations.......... (16.5)  (1.0) (24.9)   (1.2)    (2.0)
Interest expense.......................  (0.3)  (0.2)  (0.1)   (0.2)    (0.1)
Other income (expense), net............   0.6    0.8    1.6     0.2      0.4
                                        -----  -----  -----   -----    -----
Income (loss) before income tax
 provision (benefits).................. (16.2)  (0.4) (23.4)   (1.2)    (1.7)
                                        -----  -----  -----   -----    -----

 
 
                                       58

 
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
 
Because the Cyprus Acquisition was consummated on June 29, 1998, the results of
operations for the three-month period ended September 30, 1998, are included in
the Company's results of operations.
 
Revenues. Revenues were $201.8 million for the six months ended June 30, 1998,
compared to $193.8 million for the six months ended June 30, 1997, an increase
of $8.0 million or 4%. The increase in revenues resulted primarily from
increased sales from the Straight Creek deep mine, which began mining
operations in July 1997, and the Straight Creek surface mine, which were
partially offset by reduced sales from other mines. The increased sales were
the result of a new contract for 1.2 million tons per year.
 
Cost of Operations. The cost of operations totaled $180.5 million for the six
months ended June 30, 1998 compared to $165.8 million for the six months ended
June 30, 1997, an increase of $14.7 million or 9%. The increase was primarily
due to increased coal production to provide for the increased coal sales and
increased production costs of approximately $1.50 per ton at the Cyprus
Subsidiaries' West Virginia mines, which were primarily due to operating
inefficiencies arising from adverse weather conditions and reduced production
volumes.
 
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization for the six months ended June 30, 1998 totaled $18.7 million
compared to $20.9 million for the six months ended June 30, 1997, a decrease of
$2.2 million or 11%. The decrease was primarily the result of the write down of
assets at the Armstrong Creek mine in December 1997 when the mine's economic
life was shortened.
 
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended June 30, 1998 were $6.7
million compared to $8.3 million for the six months ended June 30, 1997, a
decrease of $1.6 million or 19%. The decrease in such expenses primarily
resulted from a decrease in consulting and other third party administrative
charges.
 
Interest Expense. Interest expense for the six months ended June 30, 1998 was
$0.2 million compared to $0.3 million for the six months ended June 30, 1997, a
decrease of $0.1 million or 33%. This decrease was primarily the result of
decreased capital lease obligations.
 
Pre-tax Net Income. For the six months ended June 30, 1998, the Cyprus
Subsidiaries had a pre-tax net loss of $3.5 million compared to a pre-tax net
loss of $2.4 million for the six months ended June 30, 1997, an increase of
$1.1 million or 46%. The increase primarily resulted from the increased
production costs at the West Virginia mines which were partially offset by
decreases in depreciation, depletion and amortization and selling, general and
administrative expenses.
 
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
 
Revenues. Revenues were $422.9 million for the year ended December 31, 1997,
compared to $412.2 million for the year ended December 31, 1996, an increase of
$10.7 million or 3%. The increase in revenues resulted primarily from increased
coal sales from the Cyprus Subsidiaries' Kentucky mines. The increased sales
were the result of shipments under new contracts providing for 2.2 million tons
per year.
 
Cost of Operations. The cost of operations totaled $377.9 million for the year
ended December 31, 1997 compared to $360.3 million for the year ended December
31, 1996, an increase of $17.6 million or 5%. The increase was primarily due to
the increase in production coupled with increased production costs of
approximately $2.50 per ton and $2.00 per ton at the Cyprus Subsidiaries'
Kentucky and Tennessee mines, respectively, which were primarily due to roof
control problems at the Straight Creek deep mine and increased stripping ratios
at the Skyline mine.
 
 
                                       59

 
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization for the year ended December 31, 1997 totaled $41.9 million
compared to $39.6 million for the year ended December 31, 1996, an increase of
$2.3 million or 6%. The increase in depreciation, depletion and amortization
primarily resulted from accelerated depletion of the Cyprus Subsidiaries' West
Virginia coal reserves due to the economic lives of the West Virginia mines
being shortened and increased amortization of purchase price allocated to
various coal contracts acquired in a previous merger, which resulted from
increased sales under such contracts.
 
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1997 were $16.4 million
compared to $14.6 million for the year ended December 31, 1996, an increase of
$1.8 million or 12%. The increase in such expenses primarily resulted from
increased administrative costs driven by increased sales.
 
Interest Expense. Interest expense for the year ended December 31, 1997 was
$0.6 million compared to $0.8 million for the year ended December 31, 1996, a
decrease of $0.2 million or 25%. This decrease was primarily the result of
decreased capital lease obligations.
 
Pre-tax Net Income. For the year ended December 31, 1997, the Cyprus
Subsidiaries had a pre-tax net loss of $99.1 million compared to a pre-tax net
loss of $1.5 million for the year ended December 31, 1996, a decrease of
$97.6 million. The decrease primarily resulted from the special charge of $92.1
million taken in 1997, which provided for the shortened economic lives of the
Armstrong Creek and Chinook mines and the write down of a portion of the
purchase price allocated to the coal contracts acquired in a previous merger,
the increased production costs at the Kentucky and Tennessee mines and
increased depreciation, depletion and amortization, selling, general and
administrative expenses.
 
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
 
Revenues. Revenues were $412.2 million for the year ended December 31, 1996,
compared to $426.7 million for the year ended December 31, 1995, a decrease of
$14.5 million or 4%. The decrease in revenues resulted primarily from the
expiration in 1995 of a contract which provided for annual shipments of 2.8
million tons and a reduction for a contract which provided for annual shipments
of 1.5 million tons in 1995 in return for an increase in contract tonnage of
0.5 million tons per year.
 
Cost of Operations. The cost of operations totaled $360.3 million for the year
ended December 31, 1996 compared to $342.9 million for the year ended December
31, 1995, an increase of $17.4 million or 5%. The increase was primarily due to
increased coal production, the increased coal sales and increased production
costs of approximately $1.50 per ton at the Armstrong Creek and Stockton mines,
which was due to an increase in equipment leasing costs and increased
preparation plants costs, related to repairs and upgrades. Those increases were
partially offset by decreased production costs of approximately $1.00 per ton
at the Star Fire mine and the closure of the Lost Mountain mine.
 
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization for the year ended December 31, 1996 totaled $39.6 million
compared to $40.2 million for the year ended December 31, 1995, a decrease of
$0.6 million or 2%. The decrease in depreciation, depletion and amortization
primarily resulted from the shutdown of the Lost Mountain mine in 1995, which
was partially offset by increased amortization of purchase price allocated to
various coal contracts acquired in a previous merger, which resulted from
increased sales volume under such contracts.
 
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1996 were $14.6 million
compared to $15.9 million for the year ended December 31, 1995, a decrease of
$1.3 million or 8%. The decrease is attributable to decreased administrative
costs driven by decreased sales.
 
Interest Expense. Interest expense for the year ended December 31, 1996 was
$0.8 million compared to $1.2 million for the year ended December 31, 1995, a
decrease of $0.4 million or 33%. This decrease resulted primarily from
decreased capital lease obligations.
 
                                       60

 
Pre-tax Net Loss. For the year ended December 31, 1996, the Cyprus Subsidiaries
had a pre-tax net loss of $1.5 million compared to a pre-tax loss of $69.2
million for the year ended December 31, 1995, a decrease of $67.7 million. The
improvement was primarily attributable to the absence of the $98.1 million
special charge recorded in 1995, decreased production costs at the Star Fire
mine and decreased interest, depreciation, depletion, amortization, selling,
general and administrative expenses. The absence of the $98.1 million special
charge and the decrease in other expenses were partially offset by the
expiration of a long-term sales contract, the reduction of a long-term sales
contract price and the increased production costs at the Armstrong Creek and
Stockton mines.
 
Liquidity
 
Historical
 
Cash flow from operations was $11.1 million, $4.8 million, ($10.2 million) and
($30.1 million) for the years ended December 31, 1995, 1996 and 1997 and the
nine-month period ended September 30, 1998 (cash flows from operations includes
adjustments for non-cash items of $4.7 million for 1995 relating to the
predecessor's non-cash property additions and reclamation accrual adjustments).
During the year ended December 31, 1997, AEI Holding had a net loss of $22.2
million compared to net income of $5.1 million for the year ended December 31,
1996 and net income of $1.1 million for the year ended December 31, 1995.
During the year ended December 31, 1995, cash flow from operations was
increased due to a decrease in accounts receivable of $3.3 million, a decrease
in other non-current assets of $2.8 million, and an increase in accrued
expenses and other of $4.3 million, which was more than offset by an increase
in inventories of $2.3 million, an increase in prepaid expenses and other of
$2.2 million and a decrease in other non-current liabilities of $1.6 million.
During the year ended December 31, 1996, cash flow from operations was
decreased by an increase in accounts receivable of $6.1 million, an increase in
inventories of $3.1 million, a decrease in other non-current liabilities of
$5.7 million which was partially offset by an increase in accounts payable of
$9.5 million and depreciation of $6.9 million. During the year ended December
31, 1997, cash flow from operations was decreased due to an increase in
accounts receivable of $8.0 million, an increase in inventories of $6.2
million, an increase in other non-current assets of $2.2 million and a decrease
in other non-current liabilities of $2.7 million which was more than offset by
a provision for deferred income tax of $16.6 million, prepayment penalties on
debt refinancing of $1.6 million, depreciation of $10.8 million and an increase
in accounts payable of $4.2 million.
 
Cash flow used in operations was ($8.0 million) for the nine months ended
September 30, 1997 compared to ($30.1 million) for the nine months ended
September 30, 1998. For the nine months ended September 30, 1998 net loss was
$10.7 million which included $28.2 million in non-cash depreciation, depletion
and amortization. Cash flow from operations decreased due to an increase in
inventories of $6.6 million, as the Company increased coal reserves, a decrease
in accrued expenses and other of $35.4 million, an increase in prepaid expenses
and other of $4.6 million and a decrease in other non-current liabilities of
$3.7 million.
 
For the nine months ended September 30, 1997 net loss was $0.7 million which
included $6.9 million in non-cash depreciation, depletion and amortization.
Cash flow from operations decreased due to an increase in receivables of $11.3
million, an increase in inventories of $6.5 million and a decrease in other
non-current liabilities of $3.2 million. Cash flow from operations increased
due to an increase in accounts payable of $4.9 million and an increase in
accrued expenses and other of $3.4 million.
 
At various times during the first nine months of 1998, events of default
existed under the prior $25 million credit facility of AEI Holding as a result
of non-compliance with certain financial covenants contained therein and under
the Indenture governing the Notes retired in the Senior Note Exchange (the "Old
Indenture") as a result of cross default provisions. In addition, a default
existed under the Old Credit Facility and the Old Indenture because AEI Holding
failed to timely provide certain required notices, reports and certificates.
AEI Holding has remedied its non-compliance by obtaining a waiver and amendment
to the Old Credit Facility, providing the required information and curing the
other defaults under the Old Indenture.
 
                                       61

 
Pro Forma
 
The Company has substantial indebtedness and significant debt service
obligations. As of September 30, 1998, on a pro forma basis after giving effect
to the Transactions, the Company would have had total long-term indebtedness,
including current maturities, aggregating $1,127.8 million. Such borrowing was
more than offset by cash on the balance sheet as of the date of such borrowing.
The Indenture will permit the Company to incur substantial additional
indebtedness in the future, including secured indebtedness, subject to certain
limitations. Such limitations will include certain covenants that, among other
things: (i) limit the incurrence by the Company of additional indebtedness and
the issuance of certain preferred stock; (ii) restrict the ability of the
Company to make dividends and other restricted payments (including
investments); (iii) limit transactions by the Company with affiliates; (iv)
limit the ability of the Company to make asset sales; (v) limit the ability of
the Company to incur certain liens; (vi) limit the ability of the Company to
consolidate or merge with or into, or to transfer all or substantially all of
its assets to, another person and (vii) limit the ability of the Company to
engage in other lines of business. The Senior Credit Facility will contain
additional and more restrictive covenants as compared to the Indenture and will
require the Company to maintain specified financial ratios and satisfy certain
tests relating to its financial condition. See "Capitalization," "Description
of the Notes--Certain Covenants," "Description of Other Indebtedness--The New
Senior Notes" and "--The Senior Credit Facility."
 
The Company may continue to engage in evaluating potential strategic
acquisitions. The Company expects that funding for any such future acquisitions
may come from a variety of sources, depending on the size and nature of such
acquisition. Potential sources of capital include cash generated from
operations, proceeds from the Offering, borrowings under the Senior Credit
Facility, or other external debt or equity financings. There can be no
assurance that such additional capital sources will be available to the Company
on commercially reasonable terms or at all.
 
In connection with the Offering, the Company expects to amend and restate the
Senior Credit Facility, which will provide for aggregate borrowings of up to
$875.0 million. As of September 30, 1998, on a pro forma basis after giving
effect to outstanding letters of credit, the Company would have had
approximately $73.5 million of borrowings available under the Revolving Credit
Facility (after giving effect to approximately $183.0 million of outstanding
letters of credit and borrowings to fund the Martiki Acquisition). Interest
rates on the revolving loans under the Senior Credit Facility will be based, at
the Company's option, on the Base Rate (as defined therein) or LIBOR (as
defined therein). The Revolving Credit Facility will mature five years after
the Closing Date (as defined therein). The Senior Credit Facility will contain
certain restrictions and limitations, including financial covenants that will
require the Company to maintain and achieve certain levels of financial
performance and limit the payment of cash dividends and similar restricted
payments. See "Description of Other Indebtedness--The Senior Credit Facility."
 
The Company made capital expenditures of $79.1 million, $89.5 million, and
$113.8 million for the years ended December 31, 1995, 1996 and 1997,
respectively, and $55.5 million for the nine months ended September 30, 1998.
The Company estimates that for the year ending December 31, 1998, it will make
capital expenditures of $80.2 million, of which $42.1 million will be for
replacement capital expenditures and $38.1 million will be for expanding
capacity and developing new mines. The Company currently anticipates a total of
$108.0 million of capital expenditures in the year ending December 31, 1999,
$38.0 million for replacement of and improvements to equipment and facilities,
$22.0 million for expansion at Mid-Vol, $38.0 million for expansion at Bowie,
$6.0 million for the manufacture of an additional Addcar highwall mining system
and $4.0 million for expansion at Zeigler's facilities.
 
Since the Senior Note Exchange, the Company's principal liquidity requirements
have been for debt service requirements under the Notes, the Subordinated Notes
the Senior Credit Facility, other outstanding indebtedness, and for working
capital needs and capital expenditures, including future acquisitions. The
 
                                       62

 
Company's ability to make scheduled payments of principal of, or to pay the
interest or Liquidated Damages, if any, on, or to refinance, their indebtedness
(including each issue of the Notes and the New Senior Notes), or to fund
planned capital expenditures will depend on its future performance, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond their control. Based
upon the current level of operations and anticipated cost savings and operating
improvements, the Company believes that cash flow from operations and available
cash, together with available borrowings under the Senior Credit Facility, will
be adequate to meet the Company's liquidity needs for the reasonably
foreseeable future. However, the Senior Credit Facility and the New Senior
Notes will mature prior to the maturity of the Notes. The Company will likely
need to refinance such indebtedness upon or prior to their respective
maturities as well as all or a portion of the principal of the Notes on or
prior to maturity. There can be no assurance that the Company's business will
generate sufficient cash flow from operations, that anticipated cost savings
and operating improvements will be realized or that future borrowings will be
available under the Senior Credit Facility in an amount sufficient to enable
the Company to service its indebtedness, including the Notes and the New Senior
Notes, or to fund its other liquidity needs. In addition, there can be no
assurance that the Company will be able to effect any such refinancing on
commercially reasonable terms or at all. See "Risk Factors."
 
Hedging Policy
 
The Company has not historically purchased or sold coal future contracts or
engaged in financial hedging transactions to any material extent, although it
may do so in the future. A subsidiary of Zeigler was actively engaged in
financial hedging transactions through June 2, 1998, however, that subsidiary
is currently being held for sale. The Company may from time to time enter into
contracts to supply coal to utilities or other customers prior to acquiring the
coal reserves necessary to meet all of its obligations under these contracts
but it does not expect this practice to impact its results of operations
materially in the near term. See "Risk Factors--Reliance on Long-Term Coal
Supply Contracts."
 
Inflation
 
Due to the capital-intensive nature of the Company's activities, inflation may
have an impact on the development or acquisition of mining operations, or the
future costs of final mine reclamation and the satisfaction of other long-term
liabilities, such as health care or pneumoconiosis (black lung) benefits.
However, inflation in the United States has not had a significant effect on the
Company's operations in recent years.
 
Recent Accounting Pronouncements
 
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was issued which
establishes new rules for the reporting and display of comprehensive income and
its components. This statement had no impact on the Company as the Company
currently has no transactions which give rise to differences between net income
and comprehensive income.
 
Also in June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information" ("SFAS 131") was issued which establishes standards
for disclosure about operating segments in annual financial statements and
selected information in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. This statement supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." The new standard becomes
effective for the Company's 1998 fiscal year-end and requires comparative
information from earlier years be restated to conform to requirements of this
standard. The Company is evaluating the requirements of SFAS No.131 and the
effects, if any, on the Company's current reporting and disclosures.
 
In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits" was issued which improves and standardizes
disclosures by eliminating certain existing reporting requirements and adding
new disclosures. The statement addresses disclosure issues only and does not
change the measurement of recognition provisions specified in previous
statements. The statement supersedes SFAS No. 87, "Employers' Accounting for
Pensions," SFAS No. 88, "Accounting for Settlements and Curtailments of
 
                                       63

 
Defined Benefit Pension Plans and for Termination Benefits" and SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." The
Company intends to adopt this statement for its 1998 fiscal year-end.
 
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133") was issued which establishes accounting and reporting
standards for derivative instruments and for hedging activities. This Statement
amends FASB Statement No. 52, Foreign Currency Translation, to permit special
accounting for a hedge of a foreign currency forecasted transaction with a
derivative. It supersedes FASB Statements No. 80, Accounting for Future
Contracts, No. 105, Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, and No. 119, Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments. It amends FASB Statement No. 107, Disclosures
about Fair Value of Financial Instruments, to include in Statement No. 107 the
disclosure provisions about concentrations of credit risk from FASB Statement
No. 105. This Statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company is evaluating the requirements of
SFAS No. 133 and the effect, if any, on the Company's current reporting and
disclosures.
 
Effective January 1, 1999, the Company will adopt Statement of Position (SOP)
98-5 Reporting on the Costs of Start-Up Activities. The new statement requires
that the costs of start-up activities be expensed as incurred. The Company has
not yet evaluated the impact of this statement on the results of operations or
financial position.
 
Impact of Year 2000 Issue
 
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations and the ability to
engage in normal business activities. Based on the Company's ongoing assessment
of its business information systems, the Company determined that its key
business systems are substantially compliant with year 2000 requirements. The
Company is currently in the process of deploying a new company wide management
and accounting system which is expected to be functional in March 1998. This
system is year 2000 compliant and is being installed due to additional
functionality needed due to the growth of the Company. Non-information
technology components could have an impact on the Company. Management is
currently in the process of reviewing all non-information technology components
including embedded technology, equipment related hardware and software, as well
as communication systems with such review expected to be completed by March
1999. Any necessary upgrades or replacements are expected to be completed by
May 1999. The Company is not materially reliant on third party systems (e.g.
electronic data interchange) to conduct business.
 
The Company presently believes that the year 2000 issue will not pose
significant operational problems for its business systems. However, if any
needed modifications and conversions were not made, or were not completed
timely, the year 2000 issue would likely have a material impact on the
operations of the Company. The Company's total year 2000 project cost is not
expected to be material, based on presently available information. However,
there can be no guarantee that the systems of other companies on which the
Company's systems rely will be timely converted and would not have an adverse
effect on the Company's systems. The Company has determined it has no exposure
to contingencies related to the year 2000 issue for the majority of the
products it has sold. If any of the Company's suppliers or customers do not, or
if the Company itself does not, successfully deal with the year 2000 issue, the
Company could experience delays in receiving or shipping coal and equipment
that would increase its costs and that could cause the Company to lose revenues
and even customers and could subject the Company to claims for damages.
Customer problems with the year 2000 issue could also result in delays in the
Company invoicing its customers or in the Company receiving payments from them
that would affect the Company's liquidity. Problems with the year 2000 issue
could affect the activities of
 
                                       64

 
the Company's customers to the point that their demand for the Company's
products is reduced. The severity of these possible problems would depend on
the nature of the problem and how quickly it could be corrected or an
alternative implemented, which is unknown at this time. In the extreme such
problems could bring the Company to a standstill.
 
The Company, based on its normal interaction with its customers and suppliers
and the wide attention the year 2000 issue has received, believes that its
suppliers and customers will be prepared for the year 2000 issue. There can,
however, be no assurance that this will be so. In February 1999 the Company
requested from all our major customers and suppliers written assurances as to
their year 2000 compliance. Some risks of the year 2000 issue are beyond the
control of the Company and its suppliers and customers. For example, the
Company does not believe that it can develop a contingency plan which will
protect the Company from a downturn in economic activity caused by the possible
ripple effect throughout the entire economy that could be caused by problems of
others with the year 2000 issue.
 
The Company will utilize both internal and external resources to test its
business systems for year 2000 compliance. The Company anticipates completing
its year 2000 testing within one year, which is prior to any anticipated impact
on its operating systems. For 1999 the Company has budgeted $0.1 million for
assessment and testing of year 2000 compliance by outside service providers.
Information technology costs specifically for the year 2000 issue in excess of
normal operations to cover assessment, remediation and testing are not expected
to exceed $0.5 million and will be expensed as incurred. The Company has not
yet seen any need for contingency plans for the year 2000 issue, but this need
will be continuously monitored as the Company acquires more information.
 
The costs of the project and the date on which the Company believes it will
complete the year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
third party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the ability to locate and
correct all relevant computer codes, the ability to successfully integrate the
business systems of newly acquired entities and similar uncertainties. See
"Risk Factors--Impact of Year 2000 Issue."
 
                                       65

 
                               THE COAL INDUSTRY
 
General
 
According to data compiled by the Energy Information Administration of the U.S.
Department of Energy, U.S. coal production totaled 1.09 billion tons in 1997, a
2.8% increase from the 1.06 billion tons produced in 1996 and a record high.
The increase in 1997 coal production levels was driven by: (i) the lower cost
of generating electricity with coal compared to oil; (ii) decreased reliance on
nuclear powered generation; (iii) volatile natural gas prices; and (iv) strong
economic growth. Total U.S. coal consumption reached 1.06 billion tons in 1997,
a 2.1% increase from 1996. Approximately 89.0% of the coal consumed in the
United States is used by utilities for the generation of electricity, and coal
continues to be the principal energy source for U.S. utilities, with its share
of total electricity generation rising from 56.0% in 1996 to 57.0% in 1997, as
compared with 20.1% from nuclear, 10.8% from hydroelectric and 9.1% from gas-
fired facilities in 1997. In the last three years, coal prices under long-term
sales contracts have generally remained steady; however, spot market coal
prices have experienced greater fluctuation due to seasonal variations in
supply and demand caused by weather. Despite the increased consumption and the
many inefficient mines that have closed in the last 10 years, coal mining
companies with improving productivity have filled the increasing demand without
price increases. Increased competition in the generation of electricity is
forcing utility buyers to purchase coal more selectively. This heightened
fiscal responsibility has led to lower stockpiles, increased spot market
activity and shorter contract terms, which may create greater price volatility
than has been experienced in the past.
 
According to statistics compiled by the federal government, the number of
operating mines has declined 47.3% from 1987 through 1997, even though
production during that same time has increased 21.2%. Productivity gains have
contributed to the stability of coal prices in recent years. Recently there has
been significant consolidation of coal producers in the United States. The 10
largest coal producers in 1987 accounted for 36.4% of total domestic coal
production. After giving pro forma effect to the Recent Acquisitions, the 10
largest coal companies accounted for 62% of total domestic coal production in
1997.
 
According to a recent report by Energy Ventures Analysis, Inc. ("EVA"), the
demand for steam coal and the demand for coal by electric utilities in the
United States generally is expected to increase steadily over the next 13
years. In addition, clean air concerns and legislation have increased
consumption of low-sulfur products mined in Central Appalachia and the western
United States. The following table highlights the increases in coal demand as
projected by EVA:
 


                                                     Coal Demand Forecast
                                                 -------------------------------
                                                 1995   1997   2000  2005  2010
                                                 -----  -----  ----- ----- -----
                                                     (in millions of tons)
                                                     ---------------------
                                                            
Domestic
 Utility........................................   828    885    979 1,057 1,112
 Metallurgical..................................    33     32     30    29    27
 Industrial/Other...............................    81     77     78    81    79
                                                 -----  -----  ----- ----- -----
    Total Domestic..............................   942    994  1,087 1,167 1,218
Export
 Steam..........................................    40     31     31    30    31
 Metallurgical..................................    50     52     45    40    36
                                                 -----  -----  ----- ----- -----
    Total Export................................    90     83     76    70    67
                                                 -----  -----  ----- ----- -----
Total Demand.................................... 1,032  1,077  1,163 1,237 1,285
Consumers Stock Change..........................    (2)   (16)   --    --    --
                                                 -----  -----  ----- ----- -----
Total Consumption............................... 1,030  1,061  1,163 1,237 1,285
                                                 -----  -----  ----- ----- -----

 
Coal Types
 
In general, coal is classified by Btu content and sulfur content. In ascending
order of heat values, the four basic types of coal are lignite, subbituminous,
bituminous and anthracite. Coal of all geological composition is characterized
by end use as steam coal. Certain bituminous coals may be classified as
metallurgical coal.
 
                                       66

 
  Lignite Coal. Lignite coal is a brownish-black coal with a Btu content that
  generally ranges from 3,500 to 8,300 Btus per pound. Major lignite
  operations are located in Texas, North Dakota, Montana and Louisiana.
  Lignite coal is used almost exclusively in power plants located adjacent to
  such mines because any transportation costs, coupled with the mining costs,
  would exceed the price a customer would pay for such low-Btu coal.
 
  Subbituminous Coal. Subbituminous coal is a black coal with a Btu content
  that ranges from approximately 8,300 to 11,500 Btus per pound. Most
  subbituminous reserves are located in Montana, Wyoming, Colorado, New
  Mexico, Washington and Alaska. Subbituminous coal is used almost
  exclusively by electric utilities and some industrial consumers.
 
  Bituminous Coal. Bituminous coal is a "soft" black coal with a Btu content
  that ranges from 10,500 to 14,000 Btus per pound. This coal is located
  primarily in Appalachia, the Midwest, Colorado and Utah, and is the type
  most commonly used for electric power generation in the United States.
  Bituminous coal is used for utility and industrial steam purposes, and as a
  feedstock for metallurgical purposes, which is used in steel production.
  Coal used in metallurgical processes has higher expansion/contraction
  characteristics than steam coal.
 
  Anthracite Coal. Anthracite coal is a "hard" coal with a Btu content that
  can be as high as 15,000 Btus per pound. Anthracite deposits are located
  primarily in the eastern region of Pennsylvania, and are used primarily for
  utility, industrial and home heating purposes.
 
Coal Qualities
 
Steam Coal
 
The primary factors considered in determining the value and marketability of
steam coal are the Btu content, the sulfur content and the percentage of ash
(small particles of inert material), moisture and volatile matter. The Btu
content provides the basis for satisfying the heating requirements of boilers.
Coal having a lower Btu content frequently must be blended with coal having a
higher Btu content to allow the consumer to utilize the coal efficiently in its
operations. Due to the restrictive environmental regulations regarding sulfur
dioxide emissions, coal is commonly described with reference to its sulfur
content. Coal that emits no more than 1.6 pounds of SO/2//MMBtu when burned is
considered low-sulfur coal. Coal that emits no more than 1.2 pounds of
SO/2//MMBtu is considered compliance coal. Coal that emits no more than 0.8
pounds of SO/2//MMBtu is called super-compliance coal. Super-compliance and
compliance coal exceed the current requirements of Phase I of the Clean Air Act
Amendments of 1990 (the "Clean Air Act Amendments") and meet or exceeds the
prospective requirements of Phase II of that legislation. Since super-
compliance and compliance coal exceed the Phase I requirements, consumers using
such coal can either earn sulfur emission credits, which can be sold to other
coal consumers, or blend the coal with higher sulfur coal to lower the overall
sulfur emissions without having to install expensive sulfur-reduction
technology (e.g., scrubbers, etc.). Super-compliance coal is desirable because
utilities can burn it without blending and earn sulfur emission credits or
blend it with higher-sulfur non-compliance coal even under Phase II of the
Clean Air Act Amendments. Generally, coal with 2.5 pounds or less of SO/2/ /MM
Btu is near low-sulfur and can be burned without scrubbing, by utilizing
blending with super-compliance coal or purchasing reasonable quantities of
emission credits to comply with Phase II of the Clean Air Amendments.
 
The non-combustible nature of ash diminishes the heating value of the coal
(i.e., the higher the percentage of ash, the lower the heating value). For
electric utilities, the percentage of ash is important not only for its effect
on heating value, but also because it affects the amount of combustion by-
products. Electric utilities typically require coal with an ash content ranging
from 6% to 15%, depending on individual power plant specifications. Ash
standards for metallurgical coal are more stringent than ash standards for
steam coal, typically requiring less than 8% ash. The percentage of moisture is
important because the higher the moisture, the lower the heating value or Btus
per pound. Also, if the percentage of moisture is too high, customers may
experience handling problems with the coal. Moisture concerns are principally
related to coal from the Powder River Basin. Volatile matter is the percentage
of combustible matter which is easily vaporized in the combustion process, and
is important for electric utilities because power plant boilers are designed to
burn coal having a particular volatile matter. Most utility power plants are
designed to burn medium- to high-volatile coal.
 
                                       67

 
Metallurgical Coal
 
Sulfur content, ash content, volatility, carbon content and certain other
coking characteristics are especially important for determining the value and
marketability of metallurgical coal. Metallurgical coal is fed into a coke oven
where it is heated in an oxygen deficient environment, producing a high carbon
content, porous coke which is used to fuel blast furnaces. It is important in
the coking process to create a stable and high strength coke. This is done by
the careful blending of low volatile and high volatile met coals to create the
proper coke characteristics. The lower the volatile characteristics and
percentage of ash in coal, the higher the yield and carbon content of the coke.
However, too much low volatility coal may cause coke to stick in the coke oven
if it is an expanding coal.
 
Coal Regions
 
The majority of U.S. coal production is generated from six regions: Northern
Appalachia, Central Appalachia, Southern Appalachia, the Illinois Basin, the
Rocky Mountains, and the Powder River Basin. The geographic areas that comprise
the six regions and characteristics of the coal in those regions are as
follows:
 
  Northern Appalachia. Northern Appalachia consists of northern West
  Virginia, Pennsylvania and Ohio. This coal is generally high in Btu content
  (12,000-13,000 Btus per pound of coal). However, the sulfur content in this
  coal (1.5%-2.5%) generally does not meet the Phase II standards of the
  Clean Air Act Amendments.
 
  Central Appalachia. Central Appalachia consists of southern West Virginia,
  eastern Kentucky and Virginia. The coal in this region is generally low in
  sulfur (0.7%-1.5%) and high in Btu content (12,000-13,500 Btus per pound of
  coal). The majority of this coal complies with Phase I of the Clean Air Act
  Amendments and, after the implementation of Phase II of that legislation,
  this coal is expected to be in high demand. Central Appalachia sources
  provide most of the U.S.'s overseas export coal.
 
  Southern Appalachia. Southern Appalachia consists of Tennessee and Alabama.
  Coal from this region also has a low sulfur content (0.7%-1.5%), which is
  generally acceptable for Phase I of the Clean Air Act Amendments, and a
  high Btu content (12,000-13,000 Btus per pound of coal). While productivity
  is impaired by the region's highly variable thin seams, readily accessible
  waterways and proximity to southern utility plants help to reduce delivery
  costs of coal from this region to utility customers.
 
  The Illinois Basin. The Illinois Basin consists of western Kentucky,
  Illinois and Indiana. Coal from this region varies in Btu content (10,000-
  12,000 Btus per pound of coal) and has a high sulfur content (2.5%-3.5%).
  Although there are exceptions, generally no unwashed Illinois Basin coal
  satisfies the Phase I or Phase II standards of the Clean Air Act
  Amendments. However, Illinois Basin coal is burned in plants equipped with
  scrubbers, blended with low-sulfur coal or burned by plants with SO/2/
  emission credits.
 
  The Rocky Mountains. The Rocky Mountain region consists of Utah and
  Colorado. The coal in this region is low in sulfur content (0.4%-0.5%) and
  varies in Btu content (10,500-12,800 Btus per pound of coal). This coal
  complies with Phase I and Phase II of the Clean Air Act Amendments. A
  portion of U.S. coal exports come from this region.
 
  The Powder River Basin. The Powder River Basin consists mainly of
  northeastern Wyoming and southeastern Montana. This coal is very low in
  sulfur content (0.25% to 0.65%), low in Btu content (8,000-9,200 Btus per
  pound of coal) and very high in moisture content (20%-35%). All of this
  coal complies with Phase I and Phase II of the Clean Air Act Amendments,
  but many utilities cannot burn it without derating their plants, unless it
  is blended with higher Btu coal.
 
Mining Methods
 
Coal is mined using either surface or underground methods. The method utilized
depends upon several factors, including the proximity of the target coal seam
to the earth's surface, and the geology of the surrounding area. Surface
techniques generally are employed when there are favorable stripping ratios,
and underground techniques are used for deeper seams. In 1996, surface mining
accounted for approximately 62% of total U.S. coal production, with underground
mining accounting for the balance of production. Surface mining generally
 
                                       68

 
is less expensive and has a higher recovery percentage than underground mining,
with surface mining typically resulting in the recovery of 80% to 90%, and
underground mining resulting in the recovery of 50% to 60%, of the total coal
from a particular deposit.
 
Surface Mining Methods
 
Mountaintop Removal Mining. Mountaintop removal mining is a surface mining
method in which all material above the coal seam is removed prior to removal of
the coal, leaving a relatively level plateau in place of the hilltop after
mining. A more complete recovery of the coal is accomplished through this
method; however, its feasibility depends on the amount of overlying material in
relation to the coal to be removed.
 
Area Mining. Area mining is essentially a large-scale moving trench. The
initial overburden is removed from a trench which progresses forward over the
coal seam. As the trench moves forward, the stripped overburden is moved to the
back side of the trench. Area mining is usually performed with draglines, truck
and shovel units and large dozers.
 
Contour Mining. Contour mining is a surface mining method conducted on coal
seams where mountaintop removal is not feasible because of the high overburden
ratios. Mining proceeds laterally around a hillside, at essentially the same
elevation, assuming the seam is fairly flat. The contour cut in a coal seam
provides a flat surface that can be used to facilitate highwall mining or the
less efficient auger mining (both discussed below). This is a common surface
mining method in the steeper slopes of the Appalachian coalfields.
 
Auger Mining. Auger mining is a surface mining method in which miners remain
outside of the mine and a large, corkscrew-like machine (the "auger") bores
into the side of a hill and extracts coal by "twisting" it out. This method is
less efficient than highwall mining, but is used by many of the Company's
competitors. Auger mining generally permits the extraction of coal to depths of
only 300 feet or less.
 
Highwall Mining. Highwall mining is an innovative mining method that uses the
patented Addcar highwall mining system developed by Addington Resources under
the guidance of Larry Addington. The Addcar mining system bores into the face
of a coal seam using a continuous miner and transports coal to the mine opening
using cascading conveyor belts with wheels on a series of cars connected to the
continuous miner. The Addcar mining system is remote-controlled by an employee
in a climate-controlled enclosure on the launch vehicle (a mobile structure
containing power supply, operating controls, and alignment sensors for remotely
controlling the underground portion of the Addcar system), which is located at
the mine entrance on the surface. Trench, box, open-pit or contour cuts allow
the highwall mining equipment to be utilized as the primary production machine
for projects requiring large volumes of coal production. The Addcar system
allows the Company to reduce operating costs and extract coal profitably from
reserves that would otherwise have been uneconomical to mine. The Addcar system
allows the Company to drive down stripping ratios, causing the extraction cost
per ton to decrease significantly.
 
Deep Mining Methods
 
Room and Pillar Mining. Room and pillar mining is a method of deep mining which
uses remote-controlled continuous miners that cut a network of interconnected
20-foot wide passages as high as the coal seam. Roof bolters stabilize the mine
roof and pillars are left to provide overall roof support. Significant
technological advances have enabled this mining method to be the most common
method of deep mining. Room and pillar mining is used as a primary recovery
method in smaller mines and for developing a network of panels for longwall
mining.
 
Longwall Mining. Longwall mining is a deep mining method that uses powerful
hydraulic jacks, varying from four feet to 12 feet in height, to support the
roof of the mine while mobile shearing machines extract the coal. High capacity
chain conveyors then move the coal to a high capacity mine belt system for
delivery to the surface. The longwall machine generally cuts blocks of coal,
referred to as longwall panels, that have a width of approximately 900 feet and
a length ranging from 9,000 to 11,000 feet. Longwall mining is a low-cost,
high-output method of deep mining that results in the recovery of approximately
60% of coal reserves. In addition,
 
                                       69

 
longwall mining is a much faster method of mining coal than room and pillar
mining. After a longwall panel is cut, the longwall machine must be
disassembled and moved to the next panel location, a process which generally
takes one to two weeks.
 
Coal Preparation and Blending
 
Depending on coal quality and customer requirements, raw coal may be shipped
directly from the mine to the customer. Generally, raw coal from mountaintop
removal, contour and strip mines can be shipped in this manner. However, most
raw coal is not of adequate quality to be shipped directly to the customer, and
must be processed in a preparation plant. Preparation plants separate the coal
from the impurities. Processing the coal in a preparation plant upgrades the
quality and heating value of the coal by removing or reducing sulfur and ash-
producing materials, but entails additional expense and results in some loss of
coal. Coal blending or mixing of various sulfur and ash contents is often
performed at a preparation plant or loading facility to meet the specific
combustion and environmental needs of customers. Coal blending is important for
increasing profits because blending minimizes the cost of meeting the quality
requirements of specific customer contracts, thereby optimizing contract
revenue.
 
Customers
 
Over the last 10 years, coal consumption in the United States has generally
experienced steady annual growth, reaching a record level of 1.06 billion tons
in 1997. This steady growth in coal consumption is attributable to similar
growth in the demand for electricity over the same period, as the electric
utility industry accounts for 87% of domestic coal consumption. In 1997, coal-
fired utilities generated approximately 57% of the nation's electricity,
followed by nuclear (20.1%), hydroelectric (10.8%) and gas-fired (9.1%)
utilities. According to EVA and other industry sources, over the next several
years, electricity usage is expected to increase at an average annual rate of
1.4% to 1.9%. Because coal is one of the least expensive and most abundant
resources for the production of electricity, and imports of coal historically
have not exceeded 1.0% of domestic coal consumption, domestically produced coal
is expected to continue to play a significant role in the production of
electricity in the future.
 
 
                                       70

 
                       Electricity Generation Fuel Type 
 
                           [PIE CHART APPEARS HERE]

                              Coal       (57.0%)
                              Nuclear   (20.1.%)
                              Hydro      (10.8%)
                              Gas         (9.1%)
                              Other*      (3.0%)
 
Electricity can be generated less expensively using coal than natural gas, oil
or nuclear energy. The delivered cost of coal for utilities averaged
$1.273/MMBtu in 1997 compared to $2.761/MMBtu for natural gas and $2.879/MMBtu
for oil. Although the cash operating costs of nuclear and hydroelectric energy
are less expensive than coal, no new nuclear plant permits have been issued
since 1978, and many existing plants are near the end of their useful lives.
Additionally, the availability of hydroelectricity is limited. Oil and all
other petroleum by-products accounted for less than 2.5% of all utility fuel
consumption in both 1990 and 1997. The table below illustrates the relative
cost advantage of coal over certain other power generation sources:
 
                       Average Total Generating Costs(1)
 


                                                                 1990(2) 1997(3)
                                                                 ------- -------
                                                                   
   Coal......................................................... $20.06  $17.24
   Nuclear......................................................  22.36   18.98
   Hydroelectricity.............................................   3.04    5.86
   Natural Gas..................................................  28.84   35.12

- --------
(1) Average annual generating costs per Mwh produced for all U.S. power plants;
    costs are all-in and include the cost of fuel, depreciation of plant, and
    overhead and maintenance.
(2) Source: RDI Power Data 1996. FERC Form 1 Data.
(3) Source: Monthly operating data from RDI, 1998 from FERC reports.
 
                                       71

 
Utility Deregulation
 
Since 1935, domestic electric utilities have operated in a regulated
environment, with prices and return on investment being determined by state
utility and power commissions. In April 1996, the Federal Energy Regulatory
Commission ("FERC") established rules providing for open access to electricity
transmission systems, thereby initiating consumer choice in electricity
purchasing and encouraging competition in the generation of electricity. It is
anticipated that the FERC rules will create a national market for the sale of
wholesale electricity where competition will primarily focus on price. Within
the electric utility industry, the low-cost producers of electricity should
benefit most due to the increased focus on price. Among the eastern states,
Kentucky, South Carolina, West Virginia, Indiana, Virginia, Ohio and Georgia
are in the top half of low cost electricity producers. Competition will likely
benefit the coal industry generally because coal is a relatively low-cost
source of electricity generation. Within the coal industry, companies with
customers that are low-cost producers and have excess capacity are likely to
see the greatest increase in coal demand. The Company's primary customers are
low-cost electricity producers located in the eastern half of the United
States.
 
The Company's primary marketing focus is on states east of the Mississippi
River. The following table highlights the states east of the Mississippi River
where the Company sells significant quantities of coal. The Company currently
sells coal to utility customers who generally have low industrial electricity
prices. Since utilities are currently regulated, the Company believes that the
sales price of their electricity is a reasonable proxy for the relative
generation costs within those states. Management believes that the Company is
positioned as a low cost coal supplier to those utilities which are relatively
low cost and that those low cost utilities will benefit from deregulation.
Consequently, management believes that the Company is well positioned to
benefit from electric utility deregulation.
 


                         1996 Industrial
Eastern States            Electric Rate
- --------------           ---------------
                         (cents per kWh)
                      
Kentucky*...............      2.92
Wisconsin...............      3.66
South Carolina*.........      3.89
Alabama.................      3.90
West Virginia*..........      3.91
Indiana*................      3.93
Virginia*...............      3.99
Maryland................      4.15
Ohio*...................      4.21
Georgia*................      4.29
Mississippi.............      4.41
Tennessee*..............      4.52
Delaware................      4.68
North Carolina*.........      4.79
Michigan................      5.08
Florida.................      5.11
Illinois*...............      5.24
New York................      5.62
Pennsylvania............      5.93
Maine...................      6.26
Vermont.................      7.58
Connecticut.............      7.86
New Jersey..............      8.15
Massachusetts...........      8.43
Rhode Island............      8.51
New Hampshire...........      9.16



                         1996 Industrial
Western States            Electric Rate
- --------------           ---------------
                         (cents per kWh)
                      
Idaho...................      2.68
Washington..............      2.85
Montana.................      3.30
Oregon..................      3.41
Wyoming.................      3.45
Nebraska................      3.68
Utah....................      3.70
Oklahoma................      3.78
Iowa....................      3.91
Texas...................      4.03
Minnesota...............      4.26
Louisiana...............      4.32
Colorado................      4.35
New Mexico..............      4.35
Missouri................      4.44
North Dakota............      4.44
South Dakota............      4.45
Arkansas................      4.47
Kansas..................      4.70
Nevada..................      4.90
Arizona.................      5.19
California..............      6.97

- --------
An asterisk indicates States where the Company has significant customers.
SOURCE: Department of Energy/Energy Information Administration, Electric Sales
and Revenue, 1996.
 
                                       72

 
Environmental Laws
 
Various federal, state and local environmental laws have had, and will continue
to have, a significant effect on the domestic coal industry. These laws govern
matters such as employee health and safety, limitations on land use, permitting
and licensing requirements, air quality standards, water pollution, plant and
wildlife protection, reclamation and restoration of mining properties after
mining is completed, discharge of materials into the environment, surface
subsidence from underground mining and the effects of mining on groundwater
quality and availability. In addition, the electric utility industry is subject
to extensive regulation regarding the environmental impact of electricity
generation activities which could affect demand for coal. New legislation or
regulations could be adopted that may have a significant impact on coal mining
operations or the ability of coal customers to use coal. See "Risk Factors--
Government Regulation of the Mining Industry" and "Government Regulation--
Environmental Laws."
 
                                       73

 
                                    BUSINESS
 
Overview
 
The Company is one of the largest coal producers in the United States. After
giving pro forma effect to the Transactions, for 1997 the Company would have
been (i) the fourth largest steam coal company in the United States as measured
by revenues, (ii) the second largest steam coal producer in the Central
Appalachian coal region as measured by production, (iii) the largest steam coal
producer in eastern Kentucky as measured by production, and (iv) among the top
25% of coal producers in productivity in eastern Kentucky as measured by tons
per manhour. By integrating the businesses acquired in the Recent Acquisitions,
the Company intends to strengthen its market position while realizing the
benefits of consolidation. The Company believes that the Recent Acquisitions
provide the Company with an opportunity to reduce costs by (i) allowing the
Company to source its customers' coal purchases from multiple mines, thereby
decreasing transportation costs and production costs (ii) increasing
productivity by applying more efficient, lower-cost mining methods and (iii)
eliminating certain corporate overhead expenses by integrating the businesses
acquired in the Recent Acquisitions.
 
The Company mines and markets primarily steam coal at its 49 mines in Kentucky,
West Virginia, Tennessee, Indiana, Illinois, Ohio and Colorado. According to
the reserve studies prepared by Marshall Miller, SESI, Weir, and Norwest, on a
pro forma basis, the Company would have approximately 1.1 billion tons of
proven and probable coal reserves assigned to mining projects. Management
believes that approximately 0.4 billion tons, or 36%, of the Company's assigned
coal reserves constitute low-sulfur coal. A total of 0.8 billion tons, or 73%,
of the Company's reserves are Near Low-Sulfur Coal. Near Low-Sulfur Coal means
coal with less than 2.5 pounds of So/2/ per million Btus. In addition, 1.3
billion tons of unassigned reserves increase the Company reserve total to 2.4
billion tons.
 
The Company's primary customers are low-cost electric utility companies located
in the eastern half of the United States. After giving pro forma effect to the
Transactions for the nine-month period ended September 30, 1998, the Company
generated 74% of its revenues under 51 long-term sales contracts (contracts
having an original term of more than one year) for sale of steam coal to
domestic electric utilities. As of September 30, 1998, on a pro forma basis,
the Company's portfolio of long-term sales contracts had a volume-weighted
average remaining term of 5.4 years (excluding option periods). The remainder
of the Company's steam coal is sold under short-term sales contracts and on the
spot market. By realizing the transportation, mining method and corporate
efficiencies of the Recent Acquisitions, the Company believes that it is well-
positioned to maintain and increase its base of long-term sales contracts with
these customers. The Company also supplies premium-quality, mid- and low-
volatility metallurgical coal to certain integrated steel producers. After
giving pro forma effect to the Transactions, for the nine months ended
September 30, 1998, the Company sold 41.4 million tons of steam coal and 0.7
million tons of metallurgical coal and generated $1.03 billion of revenues and
$187.4 million of Adjusted EBITDA.
 
The Company believes that it is well-positioned to benefit from the growth in
demand for coal anticipated by EVA. According to data compiled by the Energy
Information Administration of the U.S. Department of Energy, total U.S. coal
production reached 1.09 billion tons in 1997, an increase of 2.8% from 1996.
Electric utilities accounted for more than 87% of domestic coal consumption in
1997, and coal-fired facilities generated approximately 57% of the nation's
electricity in 1997. The increase in coal production levels has been driven by:
(i) the lower cost of generating electricity with coal compared to oil, natural
gas and nuclear power; (ii) decreased reliance on nuclear powered electricity
generation; (iii) volatile natural gas prices; and (iv) strong economic growth,
although there can be no assurance as to future demand. Based on studies by
Hill and Associates, Resource Data International and EVA, the Company believes
that the demand for coal will continue to increase among low-cost producers of
electricity with excess capacity in Kentucky, Tennessee, Indiana, Ohio, South
Carolina and West Virginia.
 
                                       74

 
Competitive Strengths
 
The Company believes that it possesses the following competitive strengths:
 
  Regional Market Focus. The Company has focused its recent growth on the
  Central Appalachian and Illinois Basin coal regions. With its 46 mines in
  those regions, the Company can provide its principal customers with
  multiple delivery sources, reduce transportation expense for both the
  Company and its customers and maximize production at lower-cost mines.
  After giving pro forma effect to the Transactions, the Company believes it
  would have been the second and third largest steam coal producer in the
  Central Appalachian and Illinois Basin coal regions, respectively, in 1997.
  Approximately 51% of the Company's reserves in the Central Appalachian coal
  region are comprised primarily of low-sulfur and compliance coal, which the
  Company believes will give it a competitive advantage because of the more
  stringent air quality requirements under Phase II of the Clean Air Act
  Amendments. These amendments are currently scheduled to go into effect in
  2000. The majority of the Company's higher sulfur coal reserves are located
  in the Illinois Basin. After giving pro forma effect to the Transactions,
  78% of the Company's production from the Illinois Basin in the twelve-month
  period ended September 30, 1998 would have been sold under long-term sales
  contracts to electric utilities that operate "scrubbed" facilities.
 
  Portfolio of Long-Term Sales Contracts. As of September 30, 1998, after
  giving pro forma effect to the Transactions, the Company had 51 long-term
  sales contracts with utilities, such as the TVA, Carolina Power & Light
  ("CP&L"), Georgia Power, American Electric Power ("AEP"), Cincinnati Gas &
  Electric and Dayton Power & Light, as well as with industrial customers.
  The Company's pro forma portfolio of long-term contracts had a volume-
  weighted average remaining term of approximately 5.4 years (excluding
  option periods) as of that date. After giving pro forma effect to the
  Transactions, during the nine-month period ended September 30, 1998, the
  Company generated more than 74% of its revenues from long-term sales
  contracts, with the remainder being derived from sales pursuant to short-
  term contracts and on the spot market.
 
  Low-Cost Operations. The Company believes its production costs are below
  those of its primary competitors. The Company attributes its ability to
  maintain low-cost operations to: (i) its patented Addcar highwall mining
  system, which allows the Company to recover coal at a lower cost (up to 30%
  less cost), or mine coal otherwise unprofitable due to its high stripping
  ratios; (ii) its substantial use of mountaintop removal mining; (iii) its
  tailored cast blasting techniques reduce the cost of overburden removal;
  (iv) the close proximity of its coal reserves to customers and the
  resulting transportation efficiencies; and (v) maximization of blending raw
  coals to minimize costs and optimize revenues. The Company believes it can
  apply these competitive advantages to many of the properties acquired in
  the Recent Acquisitions.
 
  Successful Integration of Acquisitions. Since November 1995, the Company
  expanded its operations through a series of acquisitions, growing from
  annual production of approximately 3 million tons in fiscal 1995 to
  approximately 53 million tons during the twelve months ended September 30,
  1998 on a pro forma basis. The Company has demonstrated its ability to
  integrate acquired properties and companies successfully. This success is
  attributable to: (i) reducing operating costs through the implementation of
  better mining methods, including use of the Addcar highwall mining system;
  (ii) shifting production to lower-cost operations; and (iii) reducing
  corporate overhead expense through headcount reduction. The Company
  believes that similar opportunities exist to improve the operating
  performance of its more recently acquired businesses.
 
  Addcar Highwall Mining System. The Company's patented Addcar highwall
  mining system gives the Company both a proprietary low-cost mining method
  and a source of revenue from the lease of Addcar systems to non-competing
  third parties. The Addcar system allows the Company to drive down effective
  stripping ratios, resulting in a significant decrease in the extraction
  cost per ton of coal. In addition, the Addcar system allows the Company to
  reduce operating costs and to extract coal profitably from reserves that
  may otherwise have been uneconomical to mine. The Company plans to expand
  its use of the Addcar highwall mining system to the businesses acquired in
  the Recent Acquisitions.
 
                                       75

 
  Experienced Management. The Company's senior management team has an average
  of 20 years of experience in the coal industry. This management team has a
  proven record of developing innovative, low-cost operations, maintaining
  strong customer relationships and making strategic, opportunistic
  acquisitions.
 
Business Strategy
 
The Company has adopted a business strategy of consolidating regionally. This
involves integrating the businesses acquired in the Recent Acquisitions and
acquiring complementary reserves while continuing to focus on its existing
customer base. To implement this strategy, the Company will seek to:
 
  Continue Reducing Costs. The Company continues to focus on cost reductions
  at its current and recently acquired operations. By increasing production
  at the Company's most efficient mines and shifting production to sites that
  are nearest to its customers' facilities, the Company believes that it can
  improve its operating margins. The Company will concentrate its cost
  reduction efforts on maximizing the benefits of low-cost mining methods,
  reducing transportation costs by sourcing coal from multiple mines and
  eliminating certain redundant corporate expenses. The Company believes that
  prudent capital investment in new production technologies, such as the
  Addcar highwall mining system, will further enable it to increase
  productivity. The regional focus on production and reserves will allow the
  Company to shift production for some long-term sales contracts to mines
  closer to the customer, thereby allowing the Company to eliminate
  incremental transportation costs. Streamlining of the Company's selling and
  administrative functions will further reduce expenses.
 
  Expand Use of Addcar Systems. The Company believes its Addcar highwall
  mining systems provide it with significant competitive advantages. The
  Company intends to expand the use of the Addcar systems to its recently
  acquired reserves to reduce operating costs and to mine coal reserves that
  its competitors cannot economically mine. For example, the Company plans to
  use the Addcar systems in its West Virginia and eastern Kentucky
  operations, which the Company believes will allow it to increase coal
  production and reduce costs. The Company is leasing three Addcar systems to
  a third party and negotiates the leasing of additional Addcar systems from
  time to time. The Company intends to increase its revenue stream from the
  Addcar system by pursuing additional leasing opportunities.
 
  Focus on Key Electric Utility Customers. The Company intends to focus on
  maintaining and increasing its portfolio of long-term sales contracts with
  customers. Except for certain customers served by the Company's Rocky
  Mountain mine, all of such customers are located in the eastern half of the
  United States. More than 35% of the Company's pro forma sales for the nine-
  month period ended September 30, 1998, were made to operating divisions of
  the TVA, AEP, the Southern Company and CP&L. Through the Recent
  Acquisitions, the Company has increased the number of its electric utility
  customers and expanded the volume of coal sold to these customers.
 
  Focus on Complementary Acquisitions. The Recent Acquisitions enhanced the
  Company's position as a leader in low-cost coal production in the Central
  Appalachian and Illinois Basin coal regions. The Company will seek to
  enhance its regional market position by making complementary acquisitions
  on an opportunistic basis. In the Central Appalachian region, the Company
  plans to expand its low-cost operations further by acquiring complementary
  coal reserves or operations.
 
  Develop Growth Opportunities. The Company believes that its metallurgical
  coal business acquired in the Mid-Vol Acquisition and its super-compliance,
  high Btu coal operations at its Colorado mine present niche opportunities
  for incremental revenue growth. The Company believes that Mid-Vol's
  metallurgical coal production can be enhanced and costs reduced by using
  more advanced mining methods, thereby maximizing sales at this high-margin
  operation. In addition, in order to provide its key customers with super-
  compliance coals that can be blended with the Company's eastern coals to
  produce a very low-sulfur-burn, the Company has developed its reserves in
  Colorado. The Company believes that expanding its low-cost operations in
  Colorado will position it to capture a greater share of the coal market as
  demand for high-Btu, compliance coal increases.
 
 
                                       76

 
Coal Production
 
The Company currently conducts mining operations at a total of 32 surface mines
and 17 deep mines in five regions: Northern Appalachia, Central Appalachia,
Southern Appalachia, the Illinois Basin and the Rocky Mountains. Historically,
approximately 69% of the Company's production has originated from its surface
mines, and the remaining production has originated from its deep mines. The
following table presents each mining region's production, in millions of tons,
for each of the years 1996 and 1997:
 


                                                              1996       1997
                                                           ---------- ----------
                                                           (in millions of tons)
                                                                
Mining Region
  Northern Appalachia.....................................      142.4      149.5
  Central Appalachia......................................      277.3      287.9
  Southern Appalachia.....................................       24.9       24.3
  Illinois Basin..........................................      112.6      110.7
  Rocky Mountains.........................................       70.6       72.7
                                                           ---------- ----------
    Total.................................................      627.8      645.1
                                                           ========== ==========

 
The Company uses mountaintop removal mining wherever possible because it
results in the recovery of more tons of coal per acre and facilitates the
permitting of larger projects, allowing for mining activities over a longer
period of time than would be the case using other mining methods. The Company
also uses other surface mining techniques, including contour mining, to the
extent practicable. The Company currently conducts its highwall mining through
the use of six Addcar highwall mining systems. The Company believes the Addcar
systems allow it to mine coal more cost-effectively than traditional mining
methods in areas where such systems are operable.
 
As part of its strategy to expand its low-cost operations, the Company is
developing longwall panels at its Bowie mine for installation of a longwall
mining system in the fourth quarter of 1999. The longwall mining system will
provide a low-cost, high-volume source of high-quality coal production that
will allow the Company to support a newly acquired TVA contract and to acquire
additional long-term sales contracts. [Disclose that this can't be done without
new lease?]
 
 
                                       77

 
Mining Operations
 
The following table sets forth (in millions of tons) estimated proven and
probable coal reserves for the Company's mining operations as of September 30,
1998, and is derived from reserve studies prepared by Marshall Miller, SESI,
Weir and Norwest.


                                Number Proven and             Average
                                  of    Probable    Average   Percent  Mining
       Mining Operation         Mines   Reserves  Btu Content Sulfur  Method(2)
       ----------------         ------ ---------- ----------- ------- ---------
                                                 (in millions
                                                   of tons)
                                                       
I. NORTHERN APPALACHIA
Evergreen mine.................    1        23      12,300      0.9%     SM
Unassigned Reserves(1).........   --       152
                                 ---     -----
  Subtotal.....................    1     175
II. CENTRAL APPALACHIA
Kentucky
Addington Mining...............    4        52      12,300      0.9      SM*
Crockett.......................    1        14      12,000      1.6      DM
Ikerd-Bandy....................    2        30      12,500      1.1      SM*
Leslie Resources...............    5        46      12,000      1.1      SM
Pike County Coal ..............    7        50      12,700      1.1     DM/SM
Pine Mountain..................    2         8      12,800      1.2      DM
Star Fire......................    1        44      12,800      1.1      SM*
Cyprus Arcland HWM.............    0        20      12,000      1.4    SM/HWM
Wolf Creek.....................    0        17      12,500      1.1      DM
Straight Creek.................    4         7      12,800      1.0     DM/SM
Martiki........................    1        24      12,500      1.0      SM
West Virginia
Battle Ridge...................    2        32      12,300      0.7      SM
Kanawha River Operations.......    4        18      12,300      0.9     DM/SM
Marrowbone.....................    3        25      12,000      0.6     DM/SM
Zeigler Heritage...............    0        54          --      0.6    HWM/SM
Mid-Vol........................    3        51          --      0.6      SM
Unassigned Reserves(1).........   --        55
                                 ---     -----
  Subtotal.....................  39      547
III. SOUTHERN APPALACHIA
Skyline........................    1        12      12,300      1.0      SM
Unassigned Reserves(1).........   --        49      12,200      2.2    DM/SM*
                                 ---     -----
  Subtotal.....................    1        61
IV. ILLINOIS BASIN
Illinois
Elkhart Mine...................    1        70      10,500      3.2      DM
Mine #11.......................    1        17      11,075      3.1      DM
Indiana
Chinook........................    1         7      10,750      3.8      SM
Kindill #1.....................    1        33      11,500      3.8     DM/SM
Kindill #2.....................    1        21      11,600      3.8      SM
Kindill #3.....................    1        45      10,800      1.2      SM
Sycamore.......................    1         8      10,900      2.0      SM
Unassigned Reserves(1).........   --       962
                                 ---     -----
  Subtotal.....................    7     1,163

 
 
                                       78

 


                             Number  Proven and              Average
                               of     Probable     Average   Percent  Mining
      Mining Operation       Mines    Reserves   Btu Content Sulfur  Method(2)
      ----------------       ------ ------------ ----------- ------- ---------
                                    (in millions
                                      of tons)
                                                      
V. ROCKY MOUNTAINS
Bowie.......................    1         63       12,800      0.4      DM
VI. OTHER UNASSIGNED
 RESERVES(1)
Milam ......................    0        242        6,700      1.0      SM
                              ---      -----
Other Unassigned
 Reserves(1)................    0        150
Total Other Unassigned
 Reserves...................    0        392
                              ---      -----
VII. TOTAL RESERVES.........   49      2,401
                              ===      =====

- --------
(1) Assigned Proven and Probable Reserves are those reserves to be mined by
    currently active mining programs. Unassigned Reserves are those reserves
    which are not yet developed.
(2) DM = Deep Mining and SM = Surface Mining. An asterisk indicates locations
    where Addcar highwall mining systems are currently being used.
 
Potential investors should be aware that reserve studies are estimates based on
an evaluation of available data, and actual reserves may vary substantially
from the estimates. Estimated minimum recoverable reserves are comprised of
coal that is considered to be merchantable and economically recoverable by
using mining practices and techniques prevalent in the coal industry at the
time of the reserve study and based upon then-current prevailing market prices
for coal. The Company uses the mining method that it believes will be most
profitable with respect to particular reserves. The Company believes its
current reserves exceed its contractual requirements. Although the reserves
shown in the table above include a variety of qualities of coal, the Company
presently blends coal of different qualities to meet contract specifications.
The Company has blended coal to meet contract specifications for many years.
See "Risk Factors--Reliance on Estimates of Proven and Probable Reserves."
 
The following discussion provides a description of the operating
characteristics of the principal mines and reserves of each of the Company's
mining units.
 
Northern Appalachia Region
 
This region includes all of the Company's mining operations in Ohio and
northern West Virginia. The Company owns and operates 1 surface mine in this
region which produced 2.0 million tons of coal in the twelve-month period ended
September 30, 1998, or approximately 1% of the total coal production in the
region. As of September 30, 1998, the Company had 124 union-free employees in
this region. In the twelve-month period ended September 30, 1998, the Company's
coal production in this region accounted for approximately 4% of the total coal
produced by the Company.
 
Evergreen
 
The Evergreen mine is located in Webster County, West Virginia. The Company
uses the mountaintop removal method to mine five seams of coal at this mine.
Production from this mine in the twelve-month period ended September 30, 1998
was approximately 2.0 million tons, which had an average sulfur content of
0.9%, an average ash content of 12.7% and an average Btu content of 12,300. The
Company employs 124 union-free employees at this mine. Transportation of coal
from this mine is by rail to the Company's loadout. The Company estimates this
mine contains 23 million tons of proven and probable reserves. The Company owns
and operates a preparation plant and a unit train loading facility in
connection with this mine.
 
 
                                       79

 
Central Appalachia Region
 
This region includes all of the Company's mining operations in southern West
Virginia, and eastern Kentucky. The Company owns and operates 39 surface and
deep mines in this region which produced 37.2 million tons of coal in the
twelve-month period ended September 30, 1998, or approximately 13% of the total
coal production in the region. As of September 30, 1998, the Company had 1,017
union and 1,553 union-free employees in this region. In the twelve-month period
ended September 30, 1998, the Company's coal production in this region
accounted for approximately 72% of the total coal produced by the Company.
 
Kentucky
 
Addington Mining
 
Addington Mining's four mines are located in Pike and Breathitt Counties in
eastern Kentucky. The Company uses the mountaintop removal method along with
its patented Addcar highwall mining system to mine four seams of coal at these
mines. Production from these mines in the twelve-month period ended September
30, 1998, was approximately 4.6 million tons, which had an average sulfur
content of 0.9%, an average ash content of 10% and an average Btu content of
12,300. The Company employs 391 union-free employees at these mines. Coal from
these mines is trucked to river and rail loadout facilities. The Company
estimates these mines contain approximately 52 million tons of proven and
probable reserves. The Company owns and operates a storage facility, a
preparation plant and a unit train loadout facility in connection with these
mines.
 
Crockett
 
Crockett's mine is located in Bell County, Kentucky. The Company uses room and
pillar mining to mine 1 seam of coal at this mine. Production from this mine in
the twelve-month period ended September 30, 1998, was approximately 0.5 million
tons, which had an average sulfur content of 1.6%, an average ash content of 8%
and an average Btu content of 12,800. The Company employs 19 union-free
employees at this mine. Transportation of coal from this mine is by truck to a
preparation plant. The Company estimates this mine contains 14 million tons of
proven and probable reserves. The Company owns and operates a preparation plant
and a unit train loading facility in connection with this mine.
 
Ikerd-Bandy
 
Ikerd-Bandy's two mines are located in Perry and Bell counties in eastern
Kentucky. The Company uses surface and highwall mining methods to mine 6 seams
of coal at these mines. Production from these mines in the twelve-month period
ended September 30, 1998, was approximately 1.3 million tons, which had an
average sulfur content of 1.1%, an average ash content of 10% and an average
Btu content of 12,500. The Company employs 104 union-free employees at these
mines. Transportation of coal from these mines is by rail either to a barge or
directly to the customer. The Company estimates these mines contain 30 million
tons of proven and probable reserves. The Company owns and operates a storage
facility, a preparation plant and a loadout facility at each of these mines.
 
Leslie Resources
 
The Leslie Resources mines are located in Perry, Knott and Leslie Counties in
eastern Kentucky. The Company uses mountaintop removal mining and contour
mining to mine 12 seams of coal at these mines. Production from these mines in
the twelve-month period ended September 30, 1998, was approximately 4.7 million
tons, which had an average sulfur content of 1.1%, an average ash content of
12% and an average Btu content of 12,000. The Company employs 446 union-free
employees at these mines. Transportation of coal from these mines is by truck
to barge loadout on the Big Sandy River and a unit train loading facility. The
Company estimates these mines contain 46 million tons of proven and probable
reserves. The Company owns and operates a preparation plant, a coal blending
facility and a unit train loading facility in connection with these mines.
 
 
                                       80

 
Pike County Coal--Clark Elkhorn
 
The Company operates the Ratcliffe Elkhorn #111 and Sunset #2 mines at its Pike
County Coal--Clark Elkhorn operations located in Pike County, Kentucky. The
Company uses the mountaintop removal method to mine 8 to 10 seams of coal at
these mines. Production from these mines in the twelve-month period ended
September 30, 1998, was approximately 1.7 million tons, which had an average
sulfur content of 1.1%, an average ash content of 9.0% and an average Btu
content of 12,700. The Company employs 131 union-free employees at these mines.
Transportation of coal from these mines is by truck to barge loading facilities
located on the Big Sandy River to one of two nearby processing and loading
facilities. The Company estimates these mines contain 16 million tons of proven
and probable reserves.
 
Pike County Coal--Knott County
 
The Company owns and operates the Holly Bush mine and the Brimstone mine at its
Knott County operations located in eastern Knott County, Kentucky. The Company
uses the room and pillar method to mine two seams of coal at these mines.
Production from these mines in the twelve-month period ended September 30,
1998, was approximately 1.3 million tons, which had an average sulfur content
of 1.1%, an average ash content of 9% and an average Btu content of 12,700. The
Company employs 135 union-free employees at these mines. Transportation of coal
from these mines is by truck to the Bates Branch processing complex. The
Company estimates these mines contain 15 million tons of proven and probable
reserves. The Company owns and operates a preparation plant, a coal blending
facility and a unit train loading facility in connection with these mines.
 
Pike County Coal--Matrix Coal
 
The Company owns and operates the Shop Branch mine and Tuscarora mine at its
Pike County Coal--Matrix Coal operations located in Pike County, Kentucky. The
Company uses the mountaintop removal mining method to mine three seams of coal
at the Shop Branch mine and room and pillar mining to mine one seam of coal at
Tuscarora. Production from these mines in the twelve-month period ended
September 30, 1998, was approximately 1.4 million tons, which had an average
sulfur content of 1.1%, an average ash content of 9% and an average Btu content
of 12,700. The Company employs 42 union-free employees at these mines.
Transportation of coal from these mines is by truck to either the Big Sandy
River docks or a rail loadout. The Company estimates these mines contain 19
million tons of proven and probable reserves. The Company owns and operates a
preparation plant in connection with these mines.
 
Pine Mountain
 
The Pine Mountain mines are located in Bell and Harlan Counties, Kentucky. The
Company uses the room and pillar mining method to mine two seams of coal at
these mines. Production from these mines in the twelve-month period ended
September 30, 1998, was approximately 1.7 million tons, which had an average
sulfur content of 1.2%, an average ash content of 8% and an average Btu content
of 12,800. The Company employs 15 union-free employees at these mines.
Transportation of coal from these mines is by truck to a unit train loading
facility. The Company estimates these mines contain 8 million tons of proven
and probable reserves. The Company owns and operates a preparation plant and a
truck loading facility in connection with these mines.
 
Star Fire
 
The Star Fire mine is located near Perry and Knott Counties in eastern
Kentucky. The Company uses mountaintop removal, highwall mining and contour
mining to mine five seams of coal at this mine. Production from this mine in
the twelve-month period ended September 30, 1998, was approximately 3.1 million
tons, which had an average sulfur content of 1.1%, an average ash content of
13% and an average Btu content of 11,800. The Company employs 88 union and
20 union-free employees at this mine. Transportation of coal from this mine is
by rail. The Company estimates this mine contains 44 million tons of proven and
probable reserves. The Company owns and operates a preparation plant, a coal
blending facility and a unit train loading facility in connection with this
mine.
 
                                       81

 
Straight Creek
 
The Straight Creek mines are located in Bell County, Kentucky. The Company uses
room and pillar mining and mountaintop removal mining to mine four seams of
coal at these mines. Production from these mines in the twelve-month period
ended September 30, 1998, was approximately 2.2 million tons, which had an
average sulfur content of 1.0%, an average ash content of 8% and an average Btu
content of 12,800. The Company employs 35 union-free employees at these mines.
Transportation of coal from these mines is by truck to a unit train loading
facility. The Company estimates these mines contain 7 million tons of proven
and probable reserves. The Company owns and operates a preparation plant, a
coal blending facility and a unit train loading facility in connection with
these mines.
 
Martiki
 
The Martiki mine is located in Martin County, Kentucky. The Company uses
mountain top removal and contour mining to produce coal from three seams.
Production from this mine totaled 3.0 million tons for the twelve-month period
ended September 30, 1998. Coal quality averaged 1.0% sulfur, 10% ash and 12,500
Btus per pound. Martiki has 24 million tons of proven and probable reserves.
The workforce is currently being restructured but the Company expects to have
about 125 union-free employees at this mine. The Company owns and operates a
1000 ton per hour preparation plant and a unit train loading facility.
 
West Virginia
 
Battle Ridge
 
The Company owns the former the Battle Ridge mines located in Kanawha and Boone
Counties, West Virginia. The Company uses the mountaintop method to mine 11
seams of coal. Production from these mines in the twelve-month period ended
September 30, 1998, was approximately 0.7 million tons, which had an average
sulfur content of 0.8%, an average ash content of 13% and an average Btu
content of 12,200. These mines are currently idle. The Company anticipates
restarting the operations in the first quarter of 1999. Transportation from
these mines is by truck. The Company estimates these mines contain 32 million
tons of proven and probable reserves. The Company owns two river dock
facilities on the Kanawha River and one on the Big Sandy River.
 
Kanawha River Operations
 
The Company owns and operates the Dunn, Armstrong Creek, Stockton and Cannelton
#165 mines at its Kanawha River operations. These mines are located in Kanawha
County, West Virginia. The Company uses the mountaintop removal method to mine
10 seams of coal at Dunn and Armstrong Creek, and room and pillar mining at
Stockton and Cannelton #165 to mine one seam of coal. Production from these
mines in the twelve-month period ended September 30, 1998, was approximately
5.9 million tons, which had an average sulfur content of 0.9%, an average ash
content of 11% and an average Btu content of 12,300. The Company employs 514
union and 73 union-free employees at these mines. Transportation of coal from
these mines is by truck and conveyor to the coal blending yard. The Company
estimates these mines contain 18 million tons of proven and probable reserves.
The Company owns and operates a preparation plant in connection with these
mines.
 
Marrowbone Operations
 
The Company owns and operates the Marrowbone Creek mine, the Northern Mingo #2
mine and the Triad mine at its Marrowbone operations located in Mingo County,
West Virginia. The Company uses the room and pillar method to mine one seam of
coal at the Marrowbone Creek mine and the Northern Mingo #2 mine, and the
mountaintop removal mining method to mine three seams of coal at the Triad
mine. Production from these mines in the twelve-month period ended September
30, 1998, was approximately 4.1 million tons, which had an average sulfur
content of 0.6%, an average ash content of 12% and an average Btu content of
12,000. The Company employs 415 union and 91 union-free employees at these
mines. Transportation of coal from these
 
                                       82

 
mines is by conveyor or truck to a preparation plant. The Company estimates
these mines contain 25 million tons of proven and probable reserves. The
Company owns and operates the Tug Valley processing plant and a unit train
loading facility in connection with these mines.
 
Mid-Vol
 
The Mid-Vol mines are located in McDowell County, West Virginia. The Company
uses mountaintop removal and contour mining to mine 5 seams of coal at these
mines. Production from these mines in the twelve-month period ended September
30, 1998, was approximately 1.1 million tons, which had an average sulfur
content of 0.6%, an average ash content of 5%. The Company employs 47 union-
free employees at these mines. Transportation of coal from these mines is by
truck to rail on the Norfolk Southern rail line. The Company estimates these
mines contains 51 million tons of proven and probable reserves. The Company
owns and operates a preparation plant, a coal blending facility and a rail
loading facility in connection with these mines.
 
Southern Appalachia Region
 
This region includes all of the Company's mining operations in eastern
Tennessee. The Company owns and operated two surface mines in this region, one
of which was closed in August of 1998, which produced approximately 1.0 million
tons of coal in the twelve-month period ended September 30, 1998, or
approximately 4% of the total coal production in the region. As of September
30, 1998, the Company had 85 union-free employees in this region. In the
twelve-month period ended September 30, 1998, the Company's coal production in
this region accounted for approximately 3% of the total coal produced by the
Company.
 
Cumberland
 
The Cumberland mine is located in Campbell County, Tennessee. The Company used
surface, highwall and deep mining methods to mine one seam of coal at this
mine. Production from this mine in the twelve-month period ended September 30,
1998, was approximately 0.5 million tons, which had an average sulfur content
of 2.2%, an average ash content of 17% and an average Btu content of 12,200.
The Company employs 19 union-free employees at this mine. Transportation of
coal from this mine is by truck directly to the customer. The Company estimates
this mine contains 49 million tons of proven and probable reserves. The mine
was closed in August of 1998.
 
Skyline
 
The Skyline mine is located in Sequatchie County in eastern Tennessee. The
Company uses the area mining method to mine one seam of coal at this mine.
Production from this mine in the twelve-month period ended September 30, 1998,
was approximately 0.5 million tons, which had an average sulfur content of
1.0%, an average ash content of 14% and an average Btu content of 12,300. The
Company employs 66 union-free employees at this mine. Transportation of coal
from this mine is by truck directly to the customers. The Company estimates
this mine contains 12 million tons of proven and probable reserves. The Company
owns and operates a coal blending yard at this mine.
 
Illinois Basin Region
 
This region includes all of the Company's mining operations in Illinois and
Indiana. The Company owns and operates 7 surface and deep mines in this region
which produced 11.2 million tons of coal in the twelve-month period ended
September 30, 1998, or approximately 10% of the total coal production in the
region. As of September 30, 1998, the Company had 717 union and 428 union-free
employees in this region. In the twelve-month period ended September 30, 1998,
the Company's coal production in this region accounted for approximately 19% of
the total coal produced by the Company.
 
                                       83

 
Illinois
 
Elkhart Mine
 
The Elkhart mine is located approximately 20 miles northeast of Springfield,
Illinois. The Company uses the room and pillar mining method to mine one seam
of coal at this mine. Production from this mine in the twelve-month period
ended September 30, 1998, was approximately 2.3 million tons, which had an
average sulfur content of 3.2%, an average ash content of 9.0% and an average
Btu content of 10,500. The Company employs 245 union-free employees at this
mine. Transportation of coal from this mine is by truck directly to the
customers. The Company estimates this mine contains 70 million tons of proven
and probable reserves. The Company owns and operates a preparation plant in
connection with this mine.
 
Mine #11
 
Mine No. 11 is located in Randolph County, Illinois. The Company uses the room
and pillar mining method to mine one seam of coal at this mine. Production from
this mine in the twelve-month period ended September 30, 1998, was
approximately 2.4 million tons, which had an average sulfur content of 3.1%, an
average ash content of 9.5% and an average Btu content of 11,075. The Company
employs 214 union and 56 union-free employees at this mine. Transportation of
coal from this mine is by truck or rail. The Company estimates this mine
contains 17 million tons of proven and probable reserves. The Company owns and
operates a preparation plant and a unit train loading facility in connection
with this mine.
 
Indiana
 
Chinook
 
The Chinook mine is located in Clay and Vigo Counties. The Company uses the
area mining method to mine three seams of coal at this mine. Production from
this mine in the twelve-month period ended September 30, 1998, was
approximately 1.6 million tons, which had an average sulfur content of 3.8%, an
average ash content of 10% and an average Btu content of 11,000. The Company
employs 131 union and 27 union-free employees at this mine. Transportation of
coal from this mine is by rail. The Company estimates this mine contains 7
million tons of proven and probable reserves. The Company owns and operates a
preparation plant and a unit train loading facility in connection with this
mine.
 
Kindill #1
 
The Kindill #1 mine is located in Davies County, Indiana. The Company uses the
area mining method to mine one seam of coal at this mine. Production from this
mine in the twelve-month period ended September 30, 1998, was approximately 1.8
million tons, which had an average sulfur content of 3.9%, an average ash
content of 8% and an average Btu content of 11,500. The Company employs 129
union and 39 union-free employees at this mine. Transportation of coal from
this mine is by rail. The Company estimates this mine contains 33 million tons
of proven and probable reserves. The Company owns and operates a preparation
plant and a unit train loading facility in connection with this mine.
 
Kindill #2
 
The Kindill #2 mine is located in Davies County, Indiana. The Company uses the
area mining method to mine one seam of coal at this mine. Production from this
mine in the twelve-month period ended September 30, 1998, was approximately 0.8
million tons. The Company employs 99 union and 23 union-free employees at this
mine. Transportation of coal from this mine is by rail. The Company estimates
this mine contains 21 million tons of proven and probable reserves. The Company
owns and operates a preparation plant and a unit train loading facility in
connection with this mine.
 
Kindill #3
 
The Kindill #3 mine is located in Sullivan County, Indiana. The Company uses
the area mining method to mine three seams of coal at this mine. Production
from this mine in the twelve-month period ended September 30,
 
                                       84

 
1998, was approximately 1.7 million tons, which had an average sulfur content
of 1.2%, an average ash content of 8% and an average Btu content of 10,900. The
Company employs 107 union and 20 union-free employees at this mine.
Transportation of coal from this mine is by rail. The Company estimates this
mine contains 45 million tons of proven and probable reserves. The Company owns
and operates a preparation plant and a unit train loading facility in
connection with this mine.
 
Sycamore
 
The Sycamore mine is located in Knox County, Indiana. The Company uses the area
mining method to mine three seams of coal at this mine. Production from this
mine in the twelve-month period ended September 30, 1998, was approximately 0.6
million tons, which had an average sulfur content of 2.4%, an average ash
content of 12% and an average Btu content of 11,000. The Company employs 44
union and 11 union-free employees at this mine. Transportation of coal from
this mine is by truck. The Company estimates this mine contains 8 million tons
of proven and probable reserves. The Company owns and operates a preparation
plant and a coal blending facility in connection with this mine.
 
Rocky Mountain Region
 
This region includes all of the Company's mining operation in Colorado. The
Company owns and operates one deep mine in this region which produced
approximately 1.0 million tons of coal in the twelve-month period ended
September 30, 1998, or approximately 1% of the total coal production in the
region. The Company has 136 union-free employees in this region. In the twelve-
month period ended September 30, 1998, the Company's coal production in this
region accounted for approximately 2% of the total coal produced by the
Company.
 
Bowie
 
The Bowie mine is located in Delta County, Colorado. The Company uses the room
and pillar mining method to mine one seam of coal at this mine. Production from
Bowie in the twelve-month period ended September 30, 1998, was approximately
1.0 million tons, which had an average sulfur content of 0.4%, an average ash
content of 8% and an average Btu content of 12,800. The Company employs 136
union-free employees at Bowie. Transportation of coal from Bowie is by rail.
The Company estimates Bowie contains 63 million tons of proven and probable
reserves. The Company owns and operates a unit train loading facility at Bowie.
 
Bowie has filed for a lease for Federal lands adjacent to its current reserves.
The U.S. Department of the Interior's Bureau of Land Management ("BLM") is
planning to prepare an environmental impact statement to study the effects of
existing and potential coal development in this area. This study is expected to
be completed by August 2000. At such time, the BLM will determine whether the
Federal lands are suitable for mining. If the BLM determines that the land is
suitable for mining, the BLM should grant the lease within 90 days. If the
Company receives the new lease, the Company plans to increase production at
Bowie by installing a longwall mining system. These additional reserves are
critical for the installation of a longwall mining system at Bowie. The Company
believes that if the BLM determines that the land is suitable for mining, it
will be awarded the lease because the Company's current reserves are more
strategic for this reserve than any other potential competitor. [This schedule
will not impede the timely installation of a longwall mining system in Bowie.]
In the [unlikely] event that the Company is not successful in obtaining this
lease, the Company believes it can still meet its contractual commitments.
[disclose that decision to award lease was vacated?]
 
Coal Reserves
 
Existing Reserves
 
The vast majority of the Company's reserves are bituminous and subbituminous
coal. According to studies of reserves assigned to existing operations,
prepared by Marshall Miller, SESI, Weir and Norwest, approximately 6% of the
Company's coal reserves is super compliance coal, approximately 24% of such
reserves meets compliance coal requirements, and approximately 33% meet or
exceed low-sulfur coal. 75% of the Company's reserves are Near Low-Sulfur Coal
or lower. This high percentage of super compliance, compliance, low sulfur and
near low sulfur gives the Company a competitive advantage for the long term as
more stringent air quality requirements under Phase II of the Clean Air Act
Amendments are implemented. According to EVA, 94% of the utilities that
 
                                       85

 
will be affected by Phase II and that have made a decision on their compliance
strategy have indicated they will switch to compliance coal, whereas only 5% of
those utilities have indicated they will use scrubbers.
 
A substantial part of the reserves currently available to the Company are
represented by leases which expire after a term, usually less than five years,
and, in most cases, less than two years. Most of the leases contain an option
to renew on the part of the Company, with exercise of the option usually
subject to the condition that mining shall have commenced on (or, as specified
in some leases, near) the leased property. Most of the leases require the
payment of an advance royalty or delay rental (payments to keep the lease in
force if mining has not commenced) on a periodic basis during each year if
mining has not begun on the property. After mining commences, the leases
generally require the payment of a royalty based on the tonnage mined and sold.
 
The Company believes that it has conducted mining activities and made payments
to obtain renewal rights with regard to leased properties covering reserves
which, when added to reserves owned in fee by the Company, are sufficient to
satisfy its current requirements under long-term sales contracts. However, the
availability of reserves on other leased property at the present time does not
assure the Company that the reserves will be available at the time the Company
may wish to mine such reserves. Moreover, the availability of reserves on
leased property is often subject to uncertainties relating to such matters as
the title of the lessor to the coal and precise boundaries.
 
The extent to which the Company's coal reserves will be mined will depend upon
factors over which it has no control, such as future economic conditions, the
price and demand for coal of the quality and type controlled by the Company,
the price and supply of alternative fuels and future mining practices and
regulation. The ability of the Company to mine in areas covered by the reserve
studies depends upon the ability of the Company to maintain control of the
reserves (other than the properties owned in fee) through extensions or
renewals of the leases or other agreements and the ability of the Company to
obtain new leases or agreements for other reserves.
 
Because of the short-term nature of its leases and the expense involved, the
Company does not have all titles to the leases reviewed by qualified title
examiners. Title examinations, however, are performed by qualified title
examiners on properties owned by the Company. As to properties the Company
leases, a limited title investigation and, to the extent possible, a
determination of the precise boundaries of a property is made in most cases
only as a part of the process of securing a mining permit shortly before
commencement of mining operations. Title to property is verified prior to the
time the Company begins mining operations. The Company believes that its
practices of investigating title and determining boundaries, to the properties
it owns, leases or otherwise controls are consistent with customary industry
practices in the region in which the reserves are located and that such
practices are adequate to enable it to acquire the right to mine such
properties.
 
In Colorado, the Company currently is a party to multiple federal leases of
coal reserves with the BLM and has applied for an additional federal coal lease
at the Bowie mine. The BLM is planning to prepare an environmental impact
statement, which will take approximately 12 to 18 months, to study the effects
of existing and potential coal developments in this area. The Company's failure
to obtain such coal base is likely to have a material adverse effect on Bowie's
prospects, but the Company believes that such failure would not have a material
adverse effect on the business of the Company and its subsidiaries, taken as a
whole. As discussed in more detail in "Government Regulation--Regulations
Affecting Coal Mining Operations," the U.S. Government is the largest owner of
coal reserves in the nation, and a majority of its reserves are located in the
western United States. Approval from the BLM (which exercises primary authority
over the U.S. government's reserves) typically takes approximately one year
after a complete application has been submitted.
 
Acquisition of Additional Reserves
 
The Company intends to continue expanding its coal reserves by acquiring
reserves that will allow it to: (i) minimize production and delivery costs;
(ii) improve its reserves of low-sulfur, compliance and super-compliance coal;
(iii) utilize its technological advantages; (iv) increase market share in a
geographic area; and (v) satisfy the quality requirements of its existing and
future coal contracts. To maintain its position as a low-cost operator, the
Company will continue to focus on acquiring reserves that are suitable for low-
cost mining
 
                                       86

 
methods and are located in close proximity to its customers, existing
operations or efficient transportation facilities. The Company will continue to
add to its low-sulfur and compliance coal reserves because it believes these
reserves are more likely to yield a premium as environmental regulations become
more stringent. The Company will seek to utilize the competitive advantage that
it has in the Addcar systems by acquiring, at below-market rates, reserves that
its competitors cannot economically mine. The Company will also seek to
increase its market share in geographic areas in which it currently has
operations by acquiring additional coal reserves in those areas. Further
reserve acquisitions will be made as necessary to insure the Company can meet
the coal quality requirements under its current and future contracts.
 
Coal Transportation
 
The Company's coal is transported to its customers by rail, barge and truck.
Depending on the proximity of the customer to the mine and the transportation
available for delivering coal to that customer, transportation costs can range
from 10% to 90% of the mine cost of a customer's coal. The Company generally
pays truck charges to deliver coal to a barge or rail loadout facility, and
customers typically pay the transportation costs from the loadout facilities to
the customer's plant. Consequently, the availability and cost of transportation
constitute important factors for the marketability of coal.
 
In 1997, approximately 75% of the Company's tonnage traveled by rail on Norfolk
Southern, CSX Corporation and Union Pacific Railroad Company trains, with the
remaining 25% traveling by truck to either the customer's plant or designated
barge loading facility. The practices of and rates set by the railroad serving
a particular mine might affect, either adversely or favorably, the Company's
marketing efforts with respect to coal produced from the relevant mine. See
"Risk Factors--Transportation." Approximately 50% of the Company's production
has access to alternative transportation sources.
 
Mining Permits and Approvals
 
Before commencing mining on a particular property, the Company must obtain
mining permits and approval by state regulatory authorities of a reclamation
plan for restoring upon the completion of mining the mined property to its
prior condition, productive use or other permitted condition. The Company
typically commences actions to obtain permits between 18 and 24 months before
the Company plans to mine a specific area. In the Company's experience, permits
generally are approved within 12 months after a completed application is
submitted. The Company has not experienced difficulties in obtaining mining
permits in the areas where its reserves are currently located, and has already
begun the process involved in obtaining such permits. However, there can be no
assurances that the Company will not experience difficulty in the future in
obtaining mining permits in any area where its reserves are located.
 
In conjunction with mining the property, the Company reclaims and restores the
mined areas by grading, shaping and preparing the soil for seeding. Upon
completion of mining, reclamation generally is completed by seeding with
grasses or planting trees for use as pasture or timberland, as specified in the
approved reclamation plan. The Company believes it has all material permits
required to carry on its mining operations and believes that it is in
compliance in all material respects with applicable regulations relating to
reclamation. Over the past 10 years, the Company has received several
reclamation awards, including (i) the Kentucky Outstanding Reclamation Award,
(ii) the Ohio Greening of the Lands Award, (iii) the Kentucky Department for
Surface Mining Reclamation & Enforcement Reclamation Award and (iv) the
Governor's Conference on the Environment Outstanding Reclamation Award. In
addition, the Company was nominated for the Kentucky Natural Resources and
Environmental Protection Cabinet's 1997 Mining Reclamation (Eastern Kentucky)
Award.
 
Long-Term Coal Contracts
 
General
 
The Company has a large portfolio of long-term sales contracts. For the nine-
month period ended September 30, 1998, 74% of the Company's revenues were made
under long-term sales contracts. As of September 30, 1998,
 
                                       87

 
the Company had long-term sales contracts for more than 208.4 million tons of
coal. At September 30, 1998, the Company's long-term sales contracts had terms
ranging from one to 12 years, with an average volume-weighted remaining term of
5.4 years. Typically, customers enter into long-term sales contracts to secure
reliable sources of coal at predictable prices, while the Company seeks stable
sources of revenue to support the investments required to open, expand,
maintain or improve productivity at mines needed to supply such contracts. Such
contracts are negotiated in the ordinary course of business.
 
Contract Terms
 
The terms of long-term sales contracts result from bidding and extensive
negotiations with customers. Consequently, the terms of such contracts
typically vary significantly in many respects, including price adjustment
features, price reopener terms, coal quality requirements, quantity parameters,
flexibility and adjustment mechanics, permitted sources of supply, treatment of
environmental constraints, options to extend and force majeure, termination and
assignment provisions.
 
Price reopeners are present in most of the recently negotiated contracts over
three years in duration and usually occur midway through a contract or every
two to three years, depending upon the length of the contract. Reopeners allow
the contract price to be renegotiated in order to be in line with the market
price prevailing at the time. In some circumstances, the utilities have an
option to terminate the contract if prices have increased by over 10% from the
price at the commencement of the contract or if the parties do not agree on a
new price.
 
Base prices are set at the start of a contract and are then adjusted at
intervals for changes due to inflation and, in many cases, changes in costs
such as taxes, reclamation fees, black lung charges and royalties. The
inflation adjustments are measured by public indices, the most common of which
is the implicit price deflator for the gross domestic product as published by
the U.S. Department of Commerce. The base price is then adjusted to a
negotiated market price when there is a price reopener.
 
Quality and volumes for the coal are stipulated in long-term sales contracts,
although buyers normally have the option to vary volume by up to 10% if
necessary. Variations to the quality and volumes of coal may lead to
adjustments in the contract price. Long-term sales contracts typically
stipulate procedures for quality control, sampling and weighing.
 
Contract provisions in some cases set out how coal volumes will be made up upon
the occurrence of an event of force majeure, including such events as strikes,
adverse mining conditions or serious transportation problems. More recent
contracts stipulate that this tonnage can be made up by mutual agreement or at
the discretion of the buyer. Buyers often insert similar clauses covering
changes in environmental laws. The Company has negotiated the right to supply
coal that complies with any new environmental requirements rather than allowing
the contract to terminate if the customer claims that the coal type supplied
previously may no longer be used. Long-term sales contracts typically contain
termination clauses if either party fails to comply with the terms and
conditions of the contract.
 
In certain contracts, the Company has a right of substitution, allowing it to
provide coal from different mines as long as it is of a certain specified
quality and will be sold at the same delivered cost.
 
The terms set out above are common to most contracts. There are certain
contracting terms that differ between a standard "eastern U.S." contract and a
standard "western U.S." contract. One difference relates to the sampling
locations: in the eastern U.S. region, approximately 50% of customers require
that the coal is sampled and weighed at the destination, whereas in the western
United States all samples are taken at source. Also, historically, the duration
of contracts has been shorter in eastern U.S. regions; they are now more of a
similar length, although a larger percentage of eastern U.S. coal is purchased
on the spot market compared to western U.S. coal. Traditionally, the eastern
U.S. market is a short-term market as there are a larger number of smaller
mining operations in the eastern U.S. coal market and customers can therefore
negotiate new contracts more frequently in order to obtain a better price. This
has also led to a larger number of spot market transactions in eastern U.S.
 
                                       88

 
regions. Western U.S. contracts normally stipulate that certain production
taxes and coal royalties are reimbursed in full by the buyer rather than being
a pricing component within the contract. These items are a significant portion
of the western U.S. coal price while they are a less material portion of the
eastern U.S. coal price.
 
Historically, long-term sales contracts were priced above the spot prices for
coal. However, in the past several years the price of coal has been very
competitive, with new contracts being priced at or near existing spot rates.
 
The term of sales contracts has decreased significantly over the last two
decades as competition in the coal industry has increased and, more recently,
as the electricity generators have prepared themselves for the Clean Air Act
Amendments and the impending deregulation of their industry. The Company
believes that the average term of long-term sales contracts was 20 years in the
1970s and 10 years in the 1980s but it decreased to two to five years in the
early 1990s. However, in the last three years, there has been a return to
longer term contracts of five to ten years in duration, but customers have
insisted on price reopeners every two or three years, which provide them with
the security of having coal under contract and knowing that the price will not
significantly exceed market. The Company's portfolio of utility coal sales is
more heavily weighted towards contract sales. These long-term sales contracts
tend to limit the Company's exposure to any fluctuation in spot market prices
and the uncertainty of marketing its production capacity.
 
Contract Expirations
 
As of September 30, 1998, on a pro forma basis, the Company's long-term sales
contracts had an average volume-weighted remaining term of 5.4 years. As the
Company's long-term sales contracts expire, the Company intends to negotiate
new contracts in order to maintain its high percentage of volume sold through
long-term sales contracts. When a coal company's contracts expire without being
replaced, that company is exposed to the risk of having to sell coal into the
spot market, which may be subject to lower and more volatile prices.
 
The total sales commitments corresponding to such contracts are approximately
208.4 million tons of coal, assuming all the contracts run through to their
expiration date. This tonnage commitment may vary depending on future
performance, buyer contractual elections and other contractual provisions.
 
The Company's profits could decline as its major contracts are repriced from
the existing prices to market rates at the contract reopener or expiration
dates. The Company believes that its volume of coal sales will remain unchanged
and that it will enter into new coal sales contracts as current contracts
expire. The challenge for the Company is to negotiate prices at above-spot
rates to lessen the potential loss of profits. No assurance can be given that
the Company will be successful in carrying out this strategy.
 
Highwall Mining Business
 
MTI
 
On January 2, 1998, the Company acquired the Highwall Mining Assets through the
MTI Acquisition. The Highwall Mining Assets are currently held by MTI, a wholly
owned subsidiary of the Company. The Highwall Mining Assets included 13 U.S.
patents, one registered trademark in North America relating to the Addcar
highwall mining system, certain mobile mining equipment, spare parts,
continuous mining machines and an 80,000 square foot manufacturing and
warehousing facility. The issued patents acquired from Addington Enterprises
will expire between December 10, 2010 and November 20, 2015, and the registered
trademark acquired from Addington Enterprises will expire September 28, 2013.
The Highwall Mining Assets also include the equipment and facility for
manufacturing Addcar highwall mining systems, as well as six existing, operable
Addcar highwall mining systems. The Company operates or leases seven Addcar
highwall mining systems and will build additional systems as required.
 
Addcar System Description
 
The Addcar highwall mining system is an innovative efficient mining system,
capable of producing more than 300,000 tons of raw coal per month. This equates
to more than twenty miles of tunnel or 7 million cubic feet of
 
                                       89

 
excavation in a single month. The system is often deployed at reserves which
can not be economically mined with surface methods.
 
The main elements of the Addcar system are: (i) a continuous miner, (ii)
conveyor cars (the Addcars), (iii) a launch vehicle, (iv) an elevating
stacker/conveyor, and (v) a wheel-loader with a forklift attachment.
 
The continuous miner is located at the front of the Addcar system, and its
primary role is to mine coal and convey it to the first Addcar. The miner forms
a rectangular opening in the coal seam at the highwall and continues to cut a
roadway into the seam, approximately 10 feet wide. The cutting end of the miner
is hydraulically raised and lowered as it rotates, allowing the machine to mine
a variety of seam thicknesses and follow the contours of the seam. A gathering
head loads the cut coal onto a chain conveyor, and the coal is passed on to the
first Addcar.
 
The Addcars form a modular conveyor system that transports the coal to the
surface. The cars are added individually behind the miner (as it cuts into the
seam) in a manner which does not interrupt the flow of coal. The continuous
nature of this operation is a key feature of the Addcar system, which, in the
Company's view, adds significantly to its overall productivity and efficiency.
The mined coal is transferred from one car to the next until it is delivered to
the launch vehicle on the surface. Each Addcar weighs approximately 12 tons,
and is approximately 40 feet long.
 
The launch vehicle is a two-deck steel structure, which is located on the floor
of the pit at the base of the highwall. The launch vehicle serves as a stable
work platform, propulsion unit, and utility supply center for the equipment in
the highwall entry. It contains an electric powered distribution center, a
control cabin where a person operates the entire system by remote control, two
separate hydraulic power systems, and cable and hose reels for electrical
power, coaxial cable, dust suppression, water, and, when required, either inert
gas or compressed air, for ventilation at the cutting face.
 
The elevating stacker/conveyor receives the coal from the belt on the launch
vehicle, and pours it into a pile, from where it can be loaded by the wheel-
loader into trucks, or onto a conveyor. The stacker/conveyor is wheel-mounted
and easy to move with the launch vehicle.
 
The highwall mining system weighs over 450 tons and has more than 2,000
horsepower.
 
The wheel-loader transports the Addcars by removing the bucket and adding a
forklift attachment. The wheel-loader operator positions the forklift under the
Addcars and transports them to and from the launch vehicle during the mining
cycle.
 
The Highwall Mining Process
 
The highwall mining process can be segregated into the following steps:
 
Step One: Geological Analysis. Prior to commencing mining, substantial analysis
of each coal seam is required. Such analysis includes geological surveys and,
in some instances, test mining. The mine operator also may be able to provide
details of the seam geology based on such operator's mining experience and
previous exploration.
 
Step Two: Geotechnical Design. Before mining commences, a coal extraction
pattern for the target mine must be designed. The primary design parameters
include the thickness of the seam, the strength of the coal, the thickness of
the overburden, the nature of the intermediate roof and the identification and
configuration of any joints and weaknesses in roof and floor strata.
 
Step Three: Positioning the Launch Vehicle. To start the mining cycle, the
launch vehicle is moved into position in accordance with the survey stations
established prior to mining.
 
                                       90

 
Step Four: Initiating Mining. The miner starts cutting with only the lead
Addcar behind it. The launch vehicle assists the mining by applying continuous
hydraulic pressure to the continuous miner.
 
Step Five: Adding Addcars. As the miner and Addcars move forward, the loader
collects and places another Addcar on the work platform, holding it in position
while it is connected to the cable. The newly added Addcar is then lowered into
position and secured. This process is completed without halting the continuous
flow of coal.
 
Step Six: On-Line Maintenance. While each Addcar is on the launch vehicle, the
mining crew has access to it for about 15 minutes until it moves into the
entry. This time period gives the crew an opportunity to service the Addcar and
check its functions before it goes underground. Each 1,200-foot entry will take
approximately 12 hours to complete.
 
Step Seven: Remote Operation. The remote control system is connected by coaxial
cable to a receiver on the miner. The coaxial cable carries signals from a
diagnostics package which monitors equipment performance, methane and other gas
levels, and other mining parameters. The cable also provides a visual link for
the operator through 3 video cameras mounted in strategic locations on the
miner and the first Addcar.
 
Step Eight: System Retreat. When the highwall mining entry has been completed,
removal of the Addcar system involves a simple reverse operation. The
combination of the miner pushing from the front and the hydraulic cylinders
pulling from the rear allows efficient recovery of the Addcar system so that it
can be relocated quickly and mining can resume without significant delay.
 
Step Nine: General Maintenance. After the Addcar system has been removed from
the mine, routine maintenance is performed while the system is being relocated
to the next entry. Under normal circumstances, the time interval between the
withdrawal from one entry and the commencement of mining in the next entry is
between 45 and 60 minutes.
 
Step Ten: Relocation. Once maintenance is complete, a hydraulic skid propulsion
system on the launch vehicle assists the system in relocating quickly and
efficiently to the next entry.
 
Manufacturing Facilities
 
The Company's manufacturing facilities are located in Ashland, Kentucky. The
facilities include the fabrication shop, where launch vehicles and continuous
miners are constructed, and the car shop, where Addcars are manufactured.
Skilled subcontractors perform machining, heat treating, electric motor repair,
and other aspects of manufacturing and repairing of the Addcar systems at the
fabrication shop. The car shop has a complete set of jigs, which have been
built for the efficient manufacture of Addcars. These jigs significantly reduce
the cost associated with the manufacturing process, while improving the quality
control of the finished product. Both the fabrication shop and the car shop
also perform major repairs and rebuilds on a routine basis. The rebuilds range
from minor repairs on Addcars as part of routine maintenance, to a fullscale
overhaul of a continuous miner or launch vehicle. The Company has capacity to
manufacture eight Addcar systems per year to accommodate expanding its highwall
mining operations and lease, sell or license Addcar systems to other coal
companies.
 
Non-Coal Businesses
 
Zeigler Non-Coal Businesses
 
In addition to its coal operations, Zeigler also operated several non-coal
businesses including a technology segment, a power segment, an environmental
services segment, an import/export services segment and a property development
segment. Most of these businesses are being classified by the Company as assets
held for sale. The power segment has not executed a power contract since June
2, 1998. Zeigler's technology segment, headed by its wholly owned subsidiary,
Encoal, focuses on producing two new clean burning, high heating fuels from
subbituminous coal. Both fuels are developed by a process known as "liquids
from coal," which is
 
                                       91

 
owned by the TEK-KOL Partnership ("TEK-KOL"). Zeigler's power segment, operated
through Zenergy, Inc. and EnerZ, has been in the process of securing the assets
of Cajun Electric Power Co-operative, Inc., a low cost power generator
currently in bankruptcy. EnerZ is an energy marketing company. The
environmental services segment provides Zeigler with its own in-house support
for mining construction activities as well as reclamation of closed mines. The
asset management segment is responsible for managing Zeigler's two
import/export terminals on the east coast. The terminals provide Zeigler with
the opportunity to transport coal from one mode of transportation to another.
Zeigler is currently restructuring its product base so as to maximize the
facilities' output capacity. The property development segment focuses on
Zeigler's expertise in land management through the development of real estate
trust quality assets.
 
Administrative Offices
 
The Company maintains administrative offices in Ashland, Kentucky; Hazard,
Kentucky; Pineville, Kentucky; Charleston, West Virginia; Owensboro, Kentucky;
Evansville, Indiana; and Lexington, Kentucky. The Company is currently
evaluating elimination of certain duplicative or unnecessary administrative
facilities.
 
Certain Liabilities
 
The Company's long-term liabilities for pensions, retiree health care, work-
related injuries and illnesses, and mine reclamation reflect the Company's
commitment to its employees and to environmental stewardship. The total amount
of these liabilities reflects the size, diversity and changing nature of the
Company. The majority of these liabilities relate to the purchase of operating
subsidiaries, which results in a greater number of employees and mines today in
the Company following the Recent Acquisitions.
 
All U.S. coal companies are subject to laws and regulations governing mine
reclamation and other environmental liabilities for work-related injuries and
illnesses. In addition, labor contracts with the UMWA include long-term
benefits, notably health care coverage for retirees and their dependents. These
obligations fall into four principal categories: reclamation, workers'
compensation (including black lung), pensions and retiree health care.
 
Reclamation. All coal mining companies must return the land on which they mine
to its original state or to an alternative productive use, as applicable.
Reclamation liabilities primarily represent the future costs to restore the
lands as required by SMCRA. Short-term ongoing reclamation activities are
undertaken as areas are disturbed in the mining process. Long-term reclamation
and mine closing costs are projected and, upon commencement of mining, accrued
for during the mine life. The end of mine reclamation and mine-closing costs
accruals totaled approximately $363.4 million on the Company's pro forma
balance sheet as of September 30, 1998, of which $28.4 million is a current
liability. The amount that is included as an operating expense for the pro
forma nine-month period ended September 30, 1998, was $2.4 million, while the
related cash expense for such liability was $13.6 million. See "Risk Factors--
Government Regulation of the Mining Industry."
 
Workers' Compensation. These liabilities represent the actuarial estimates for
compensable, work-related injuries (traumatic claims) and occupational disease,
primarily black lung disease (pneumoconiosis). The Federal Black Lung Revenue
Act of 1977 requires employers to pay black lung awards to former employees who
filed claims after July 1, 1973. Prior claims are paid from the federal black
lung trust fund, which is supported by an excise tax on all U.S. coal
production. On a pro forma basis, these liabilities will be discounted at
7.25%. These liabilities totaled approximately $119.8 million on the Company's
pro forma balance sheet as of September 30, 1998, $26.9 million of which is a
current liability. The amount that was included as an operating expense for the
pro forma nine-month period ended September 30, 1998, was $19.9 million, while
the related cash expense for such liability was $21.4 million.
 
Pension Related Provisions. These costs represent the unfunded actuarially-
estimated cost of paying pension benefits to current active employees when they
retire. Provisions for active employees reflect their service to
 
                                       92

 
date and additional amounts are provided so that the total liability is accrued
when the employee actually retires. Annual contributions to the pension plans
are determined by consulting actuaries based on ERISA minimum funding
standards. On a pro forma basis, these liabilities will be discounted at 7.25%.
The pension liability totaled approximately $1.5 million on the Company's pro
forma balance sheet as of September 30, 1998, none of which is current. The
amount that was included as an operating expense for the pro forma nine-month
period ended September 30, 1997, was $1.5 million, with no related cash expense
for such benefits.
 
Post Employment Benefits. These liabilities represent actuarial estimates of
various benefits to be provided to former or inactive employees after
employment but before retirement. Examples of such benefits are severance
benefits and disability-related benefits. Consistent with SFAS 112, the Company
shall accrue postemployment benefits over the working life of the employee if
(1) the obligation relates to services already rendered; (2) employee's rights
to those benefits accumulate; (3) compensation payments are probable; and (4)
the amount can be reasonably estimated. If only the payments are probable (3)
and amount is reasonably estimated (4), the Company shall accrue the obligation
when the triggering event occurs.
 
On a pro forma basis, these liabilities are discounted at an average rate of
7.25%. These liabilities totaled approximately $16.0 million on the Company's
pro forma balance sheet as of September 30, 1998, $2.0 million of which is a
current liability. The amount that was included as an operation expense for the
pro forma nine-month period ended September 30, 1998 was $3.3 million while the
related cash expense for such liability was $1.9 million.
 
Retiree Health Care. Consistent with SFAS 106, the Company records a liability
representing the estimated cost of providing retiree health care benefits to
current retirees and active employees who will retire in the future. Provisions
for active employees represent the amount recognized to date, based on their
service to date; additional amounts are provided periodically so that the total
liability is accrued when the employee retires. On a pro forma basis, these
liabilities are discounted at 7.25%.
 
A second category of retiree health care obligations represents the liability
for future contributions to the Combined Fund (as defined). This multi-employer
fund provides health care benefits to a closed group of former employees who
retired prior to 1977; no new retirees will be added to this group unless the
Social Security Administration assigns new retirees to the Company. The
liability is subject to increases or decreases in per capita health care costs,
offset by the mortality curve in this aging population of beneficiaries. See
"Government Regulation." As a result of the Apfel decision (discussed below),
companies that are signatories to the UMWA Wage Agreement after 1974 may bear a
greater portion of liability to ensure that the Combined Fund is fully funded.
The Company's premiums paid to Combined Fund are relatively small, (the Company
paid premiums of $3.4 million, in the nine months ended September 30, 1998).
The Company does not expect that any increase in its contributions to the UMWA
Combined Fund will have a material adverse effect on the Company's financial
condition or results of operations.
 
The retiree health care liabilities totaled approximately $388.8 million on the
Company's pro forma balance sheet as of September 30, 1998, $34.5 million of
which is a current liability. The amount that was included as an operating
expense in the pro forma nine-month period ended September 30, 1998 was $22.5
million, while the related cash expense for such liability was $12.1 million.
Obligations to the Combined Fund totaled $48.0 million on the Company's pro
forma balance sheet as of September 30, 1998, of which $5.0 million is a
current liability. That amount was included in operating expense for the pro
forma nine-month period ended September 30, 1998 and was $2.3 million, while
the related cash expense for such liability was $3.4 million.
 
The active management of these liabilities is a key focus of senior executives.
While variances have occurred within a category of liability, cash expenses as
a whole for these liabilities has approximated the amounts charged to earnings.
Provisions for these liabilities reflect standard U.S. coal industry accounting
practices. These costs are borne by the operating subsidiaries from which the
obligations arose.
 
                                       93

 
Legal Proceedings
 
By letters to the Company dated January 12, 1995, January 12, 1996, and January
13, 1997, Pittston Acquisition Company ("PAC"), an indirect wholly-owned
subsidiary of [Pittston], made claims for indemnification from the Company
under the terms of the Pittston Agreement (as defined). See "Certain Related
Party Transactions--Indemnification." The claimed indemnification covers a
number of items, including allegedly delinquent taxes and fees, allegedly
assumed liabilities, alleged failure to transfer specific licenses, assets and
permits and alleged non-compliance with certain agreements and applicable laws
and permits. Addington Enterprises is in the process of investigating and
negotiating the claims with PAC. Many of the claims have been resolved without
any payment by or liability to the Company. To the Company's knowledge, no
lawsuit has been filed or otherwise threatened by PAC against the Company. The
Company intends to defend these claims vigorously, and at this time it is not
possible to predict the outcome of the claims. However, even if PAC
successfully pursued such claims, the Company believes that the liability
arising from such claims would not have a material adverse effect on the
business of the Company and its subsidiaries, taken as a whole.
 
In 1996, Cyprus Amax was sued in the Circuit Court of Perry County, Kentucky,
with the plaintiffs alleging competing claims to approximately 1,425 acres of
property in eastern Kentucky upon which the Company conducts coal mining
activities and claiming damages of approximately $400.0 million. Based on a
prior federal appellate court decision related to a similar claim of different
plaintiffs based on the same alleged source of claim rights, the Company
believes that it is likely to prevail. The Company believes that an adverse
result would not require the Company to pay significant damages and would not
likely have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
 
In addition, the Company is named as a defendant in various actions in the
ordinary course of its business. These actions generally involve such matters
as property boundaries, mining rights, blasting damage, personal injury and
royalty payments. The Company believes these proceedings are incidental to its
business and are not likely to result in materially adverse judgments.
 
Employees
 
As of September 30, 1998, after giving effect to the Recent Acquisitions, the
Company had a total of 4,573 employees, 4,197 of whom worked in coal
production, 376 of whom worked in the management of its coal business.
 
Approximately 38% of the Company's coal employees are affiliated with unions.
Relations with union labor are extremely important to the viability of the
Company. Union labor is represented by the UMWA and falls under separate wage
agreements negotiated with the UMWA or under the National Bituminous Coal Wage
Agreement ("NBCWA"). The Company has several collective bargaining agreements
with the UMWA. Certain of the Company's subsidiaries with operations in Indiana
and West Virginia, which employ 645 union employees, are currently operating
under expired collective bargaining agreements that have been mutually extended
until December 15, 1998 by the Company and the UMWA while they negotiate new
agreements. These agreements also contain rolling provisions requiring two
weeks notification prior to any termination. There can be no assurance that the
Company's unionized labor will not go on strike upon expiration of existing
contracts.
 
                                       94

 
                             GOVERNMENT REGULATION
 
Overview
 
The U.S. coal mining industry is subject to regulation by federal, state and
local authorities on matters such as employee health and safety, limitations on
land use, permitting and licensing requirements, air quality standards, water
pollution, plant and wildlife protection, reclamation and restoration of mining
properties after mining is completed, the discharge of materials into the
environment, surface subsidence from underground mining and the effects of
mining on groundwater quality and availability. In addition, the industry is
affected by significant legislation mandating certain benefits for current and
retired coal miners. Numerous federal, state and local governmental permits and
approvals are required for mining operations. The Company believes that all
permits currently required to conduct its present mining operations have been
obtained. The Company believes that, upon the filing of the required
information with the appropriate regulatory agencies, it will not encounter
substantial difficulty obtaining or renewing necessary permits in the future.
The Company may be required to prepare and present to federal, state and local
authorities data pertaining to the effect or impact that a proposed exploration
for or production of coal may have on the environment. Such requirements could
prove costly and time consuming, and could delay commencement or continuation
of exploration or production operations. Future legislation and administrative
regulations may emphasize the protection of the environment and, as a
consequence, the activities of the Company may be more closely regulated. Such
legislation and regulations, as well as future interpretations and more
rigorous enforcement of existing laws, may require substantial increases in
equipment and operating costs to the Company and delays, interruptions or
termination of operations, the extent of which cannot be predicted. In
addition, as discussed below, the electric utility industry is subject to
extensive regulation regarding the environmental impact of its electricity
generation activities, which could affect demand for coal. See "Risk Factors--
Governmental Regulation of the Mining Industry."
 
The Company endeavors to conduct mining operations in compliance with all
applicable federal, state and local laws and regulations. However, because of
extensive and comprehensive regulatory requirements, violations during mining
operations occur from time to time in the industry. None of the violations to
date or the monetary penalties assessed upon the Company has been material, and
the Company believes that is in substantial compliance with all applicable laws
and regulations.
 
Environmental Laws
 
The Company is subject to various federal, state and local environmental laws.
These laws require approval of many aspects of coal mining operations, and both
federal and state inspectors regularly visit the Company's mines and other
facilities to ensure compliance.
 
The Federal Surface Mining Control and Reclamation Act. SMCRA, which is
administered by the Office of Surface Mining Reclamation and Enforcement
("OSM"), establishes mining and reclamation standards for all aspects of
surface mining as well as many aspects of deep mining. SMCRA and similar state
statutes, among other things, require that mined property be restored in
accordance with specified standards and an approved reclamation plan. In
addition, the Abandoned Mine Lands Act, which is part of SMCRA, imposes a tax
on all current mining operations the proceeds of which are used to restore
mines closed before 1977. The maximum tax is $0.35 per ton on surface-mined
coal and $0.15 per ton on deep-mined coal.
 
SMCRA also requires that comprehensive environmental protection and reclamation
standards be met during the course of and upon completion of mining activities.
For example, SMCRA requires the Company to restore a surface mine to
approximate original contour as contemporaneously as practicable with surface
coal mining operations. The mine operator must submit a bond or otherwise
secure the performance of these reclamation obligations. The issuance and
renewal of permits for surface mining operations must be obtained from OSM or,
where state regulatory agencies have adopted federally approved state programs
under SMCRA, the appropriate state regulatory authority. The Company accrues
for the liability associated with all end of mine reclamation on
 
                                       95

 
a ratable basis as the coal reserve is being mined. The estimated cost of
reclamation, and the corresponding accrual on the Company's financial
statements, is restated annually. The earliest a reclamation bond can be
released is five years after reclamation to the approximate original contour or
to a productive use, as applicable, has been achieved.
 
Most states in which the Company's active mining operations are located have
achieved primary jurisdiction for SMCRA enforcement through approved state
programs. These state programs have established reclamation and environmental
standards for coal mining operations that generally correspond to, and may not
be less stringent than, those found in SMCRA. Each state is charged with
enforcing its state laws and with enforcing, subject to federal oversight, the
provisions of SMCRA in its jurisdiction. The Company currently has posted more
than $524.4 million in reclamation bonds. Because much of the reclamation
process occurs contemporaneously with mining activities in accordance with the
approved reclamation plan, the estimated reclamation cost to immediately cease
mining operations substantially exceeds the recorded reclamation accrual.
 
SMCRA requires the issuance and periodic renewal of permits to conduct mining
operations. Although the Company does not anticipate significant permit
issuance or renewal problems, there can be no assurance that the Company's
permits will be renewed or granted in the future or that permit issues will not
adversely affect operations. Under previous SMCRA regulations, responsibility
for any coal operator currently in violation of SMCRA could be imputed to other
companies deemed, according to regulations, to "own or control" the coal
operation. Sanctions included being blocked from receiving new permits and
rescission or suspension of existing permits. Because of a recent federal court
action invalidating these SMCRA ownership and control regulations, the scope
and potential impact of the "ownership and control" requirements on the Company
are unclear. OSM has responded to the court action by promulgating interim
regulations that more narrowly apply the ownership and control standards to
coal companies. Although the federal action should have by analogy a
precedential effect on state regulations dealing with "ownership and control,"
which are in many instances similar to the invalidated federal regulation, it
is not certain what impact the federal court decision will have on these state
regulations.
 
Clean Air Act. The Federal Clean Air Act, including the Clean Air Act
Amendments, and corresponding state laws that regulate the emissions of
materials into the air, affect coal mining operations both directly and
indirectly. Direct impacts on coal mining and processing operations may occur
through Clean Air Act permitting requirements and/or emissions control
requirements relating to particulate matter (e.g., "fugitive dust") including
future regulation of fine particulate matter measuring 2.5 micrometers in
diameter or smaller. In July 1997, the U.S. Environmental Protection Agency
("EPA") adopted new, more stringent National Ambient Air Quality Standards
("NAAQS") for particulate matter and ozone. As a result, some states will be
required to change their existing implementation plans to attain and maintain
compliance with the new NAAQS. Because coal mining operations emit particulate
matter, the Company's mining operations and utility customers are likely to be
directly affected when the revisions to the NAAQS are implemented by the
states. State and federal regulations relating to implementation of the new
NAAQS may restrict the Company's ability to develop new mines or could require
the Company to modify its existing operations. The extent of the potential
direct impact of the new NAAQS on the coal industry will depend on the policies
and control strategies associated with the state implementation process under
the Clean Air Act, but could have a material adverse effect on the Company's
business, financial condition and results of operations.
 
The Clean Air Act indirectly affects coal mining operations by extensively
regulating the air emissions of sulfur dioxide (believed to be a cause of "acid
rain") and other compounds including nitrogen oxide emitted by coal-fueled
utility power plants. Title IV of the Clean Air Act Amendments places limits on
SO/2/ emissions (in the form of baseline emission standards) from electric
power generation plants. Reduction in such emission limits occurred in Phase I
in 1995 and additional reductions in such emission limits will occur in Phase
II in 2000 and will apply to all coal-fueled utility power plants, including
those subject to the 1995 restrictions. The
 
                                       96

 
affected utilities have been and may be able to meet these requirements by,
among other ways, switching to low-sulfur fuels, installing pollution control
devices such as scrubbers, reducing electricity generating levels or purchasing
or trading emission allowances. Specific emission sources will receive these
emission allowances, which utilities and industrial concerns can trade or sell
to allow other units to emit higher levels of SO/2/. The effect of these
provisions of the Clean Air Act Amendments on the Company cannot be completely
ascertained at this time. The Company believes that implementation of Phase II
will likely exert a downward pressure on the price of higher sulfur coal, as
additional coal-fueled utility power plants become subject to the restrictions
of Title IV. This price effect is expected to result after the large surplus of
emission allowances which has accumulated in connection with Phase I has been
reduced, and before the utilities electing to comply with Phase II by
installing sulfur-reduction technologies are able to implement such a
compliance strategy.
 
The Clean Air Act Amendments also require that utilities that currently are
major sources of nitrogen oxides in moderate or higher ozone nonattainment
areas install reasonably available control technology ("RACT") for nitrogen
oxides, which are precursors of ozone. In addition, stricter ozone standards,
as discussed above, are expected to be implemented by the EPA by 2003. The
Ozone Transport Assessment Group ("OTAG"), formed to make recommendations to
the EPA for addressing ozone problems in the eastern United States, submitted
its final recommendations to the EPA in June 1997. In September 1998, EPA
announced an implementation plan (the "SIP call") that will require 22 eastern
states to amend their state implementation plans for substantial reductions in
nitrogen oxide emissions. The SIP call includes state-by-state nitrogen oxide
budgets and was accompanied by two additional actions that EPA has proposed to
implement if the SIP call does not adequately address nitrogen oxide emissions.
Installation of RACT and additional control measures required under the
proposal will make it more costly to operate coal-fueled utility power plants
and, depending on requirements of individual state attainment plans and the
development of revised new source performance standards, could make coal a less
attractive fuel alternative in the planning and building of utility power
plants in the future.
 
The Clean Air Act Amendments also require a study of utility power plant
emissions of certain toxic substances, including mercury, and direct the EPA to
regulate these substances, if warranted. In a recent report, the EPA indicated
that although it plans to study the issue further, it does not plan to propose
regulations in the near future. However, future federal or state regulatory or
legislative activity may seek to reduce mercury emissions and such
requirements, if enacted, could result in reduced use of coal if utilities
switch to other sources of fuel.
 
In addition, air emissions of SO/2/, particulate matter ("PM"), nitrogen oxide
also are subject to Clean Air Act Amendment regulations that protect visibility
in Class I Federal areas, such as national parks and wilderness areas.
Currently, these regulations address visibility impairment reasonably
attributable to a single source or small group of sources in 35 states and one
territory. In July 1997, EPA proposed regulations that would expand the
applicability of the regional haze program to all states, including those that
may not have any Class I areas, and that would establish presumptive reasonable
progress targets to be met by states. If these proposed regional haze
regulations are finalized, some states may be required to change their existing
implementation plans to achieve compliance. Although the proposed regulations
do not identify specific sources as potential contributors to visibility
impairment, coal-fueled utilities are a source of these substances. Depending
on the requirements of the final rule and individual state implementation
plans, efforts to reduce SO/2/, PM, and nitrogen oxide emissions may make it
more costly to operate coal-fueled utility power plants. Existing strategies
for other air quality programs, such as those previously discussed, may provide
visibility improvements, thereby limiting the potential adverse effects of any
final regulations on the Company.
 
Clean Water Act. The Federal Water Pollution Control Act (the "Clean Water
Act") affects coal mining operations by: (i) imposing effluent discharge
restrictions on pollutants discharged into water; (ii) imposing regular
monitoring and reporting requirements; (iii) requiring the issuance and renewal
of permits for the discharge of pollutants into waters; and (iv) imposing
performance standards as a requirement for the issuance of permits. In
addition, states in which the Company conducts mining operations have enacted
legislation regulating the water pollution effects of coal mining operations.
Each state is charged with enforcing its state laws and with enforcing, subject
to federal oversight, the Clean Water Act in its jurisdiction.
 
                                       97

 
Various state and federal initiatives and activities are underway regarding
the environmental impacts of valley fills associated with surface mining
activities, including mountaintop removal mining. Valley fills currently are
permitted under provisions of the Clean Water Act that authorize the discharge
of fill material into navigable waters. Citizen suits against permitting
authorities have been filed in federal court in both Pennsylvania and West
Virginia alleging that valley fill permits violate the anti-degradation
provisions of the Clean Water Act and therefore should not be issued pursuant
to those provisions. In addition, various task forces and agencies at the
state and federal level are currently exploring environmental issues
associated with valley fills in general, as well as environmental issues
associated with mountaintop removal mining in particular. The Company cannot
predict the outcome of the pending litigation or whether legislation and/or
regulations, if enacted, regarding valley fills or mountaintop removal mining
could have a material adverse effect on the Company.
 
Resource Conservation and Recovery Act. The Federal Resource Conservation and
Recovery Act ("RCRA") and similar state laws affect coal mining operations by
imposing requirements for the treatment, storage and disposal of hazardous
wastes. Although coal mining wastes covered by SMCRA permits are exempted from
regulation under RCRA, the Company cannot predict whether this exclusion will
continue.
 
Federal and State Superfund Statutes. The Federal Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA") and similar state laws
affect coal mining operations by creating investigation and remediation
obligations for releases of hazardous substances which may endanger public
health or the environment and providing for natural resource damages. Under
CERCLA, joint and several liability may be imposed on waste generators, past
and present site owners and operators, as well as others, regardless of fault
or the legality of the disposal activity at the time it occurred. Waste
substances generated by coal production and processing are generally not
considered hazardous substances covered by CERCLA. Products used by coal
companies in operations, such as certain chemicals, and the disposal of such
products, however, are governed by the statute. Although the Company does not
currently anticipate material liabilities or costs associated with CERCLA or
similar state laws, there can be no assurance that material liabilities or
costs related to CERCLA or similar state laws will not be incurred in the
future.
 
Global Climate Change. The United States and over 160 other nations are
signatories to the 1992 Framework Convention on Global Climate Change (the
"Convention"), which is intended to limit or capture emissions of greenhouse
gases such as carbon dioxide. In December 1997 in Kyoto, Japan, the
signatories to the Convention established a binding set of emissions targets
for developed nations (the "Kyoto Protocol"). The specific limits under the
terms of the Kyoto Protocol vary from country to country, but under the terms
of the Kyoto Protocol the United States would be required to reduce emissions
to 93% of 1990 levels over a five-year budget period from 2008 through 2012.
Although the United States has not ratified the Kyoto Protocol and no
comprehensive requirements focusing on greenhouse gas emissions are in place,
such restrictions, whether through ratification of the Kyoto Protocol or other
efforts to stabilize or reduce greenhouse gas emissions, could adversely
impact the price and demand for coal. According to the Department of Energy's
Annual Energy Outlook for 1998, coal accounts for 34% of the man-made
greenhouse gas emissions in the United States, and efforts to control
greenhouse gas emissions could result in reduced use of coal if electric
generators switch to lower carbon sources of fuel.
 
Mine Health and Safety
 
Stringent health and safety standards have been imposed by federal legislation
since the Federal Coal Mine Health and Safety Act of 1969 was adopted. That
legislation resulted in increased operating costs and reduced productivity.
The Federal Mine Health and Safety Act of 1977 significantly expanded the
enforcement of health and safety standards and imposed health and safety
standards on all aspects of mining operations.
 
All of the states in which the Company conducts coal mining operations have
programs for mine health and safety regulation and enforcement. In
combination, federal and state health and safety regulation in the coal mining
industry is perhaps the most comprehensive and pervasive system for protection
of employee health and safety affecting any segment of U.S. industry. Together
with the federal requirements, these programs provide extensive and
comprehensive requirements for protection of employee safety and health.
 
                                      98

 
Black Lung
 
Under the Black Lung provisions of the Federal Coal Mine Health and Safety Act
of 1969, the Black Lung Benefits Revenue Act of 1977 and the Black Lung
Benefits Reform Act of 1977, as amended in 1981, and provisions of state
workers' compensation acts, each coal mine operator is required to secure
payment of federal black lung benefits to claimants who are current and former
employees and to a federal trust fund for the payment of benefits and medical
expenses to claimants who last worked in the coal industry prior to July 1,
1973. On a program-wide basis, less than 15% of the miners currently seeking
federal black lung benefits are awarded such benefits by the federal
government. The trust fund is funded by an excise tax on production of up to
$1.10 per ton for deep-minded coal and up to $0.55 per ton for surface-mined
coal, neither amount to exceed 4.4% of the sales price. This tax is passed on
to the purchaser under many of the Company's coal sales agreements.
 
Legislation seeking to increase the federal black lung approval rate has been
introduced repeatedly since 1980 in the Senate and the House of
Representatives. The last such bill died when Congress adjourned in 1997. It is
expected that similar legislation will be introduced in future sessions of
Congress. Black lung claims may also be filed under the provisions of workers
compensation laws in states in which a company operates. Currently, Kentucky,
the state with the most costly black lung provisions, has seen a significant
decrease in claims awards since a 1996 law reformed the state workers'
compensation system. However, future changes in Kentucky's workers'
compensation statutes could result in a return to higher levels of claims.
 
In 1997, the U.S. Department of Labor (the "DOL") issued proposed amendments to
the regulations implementing the federal black lung laws which, among other
things, establish a presumption in favor of a claimant's treating physician and
limit a coal operator's ability to introduce medical evidence regarding the
claimant's medical condition. If adopted, the amendments could have an adverse
impact on the Company, the extent of which cannot be accurately predicted. The
House subcommittee with oversight authority for the Federal Black Lung Program
has included in the current budget bill provisions that prohibit the DOL from
implementing these regulations until the DOL addresses issues related to the
cost impact of the regulations.
 
The Coal Industry Retiree Health Benefit Act of 1992
 
The Coal Industry Retiree Health Benefit Act of 1992 (the "Coal Act") was
enacted to provide for the funding of health benefits for certain UMWA
retirees. The Coal Act merged previously established UMWA benefit plans into a
newly created fund called the "Combined Fund," into which "signatory operators"
and "related persons" are obligated to pay annual premiums for beneficiaries.
The Coal Act also created a second benefit fund (the "1992 Fund") for miners
who retired between July 21, 1992 and September 30, 1994 and whose former
employers are no longer in business. Companies which are signatories to the
NBCWA labor agreements must pay premiums to the Combined Fund and the 1992
Fund. The Social Security Administration assigns retired miners and their
beneficiaries to the coal companies with which they were formerly employed or
related for purposes of assessing the premium. The Supreme Court's recent
decision in Eastern Enterprises v. Apfel, 1998 WL 332966 (U.S.), held that the
assessment of premiums under the Coal Act against those coal companies that
were only signatories to the UMWA wage agreements prior to 1974 is an
unconstitutional taking under the Fifth Amendment.
 
The Company is currently required to pay premiums to both the Combined Fund and
the 1992 Fund. The possibility exists that the Company will be assessed for a
greater number of miners than could be reasonably foreseen, or that higher
premiums will be assessed for the Combined Fund and the 1992 Fund.
 
Federal Land Policy
 
The U.S. government is the largest owner of coal reserves in the nation. Its
authority is exercised through several agencies, but primarily through the BLM.
The majority of these reserves are located in the western United States. Some
are on lands on which the Company has conducted surface coal mining operations
since 1995 and on which it will mine in the future.
 
                                       99

 
The federal government's authority over public lands exceeds the rights of any
private owner of coal. The federal government possesses both the customary
property rights of a private owner and the rights of the sovereign over the
management of public lands. Although the relevant statutes and regulations,
including the Mineral Leasing Act of 1920, as amended by the Federal Coal
Leasing Amendments Act of 1976, the Federal Land Policy Management Act of 1977
and SMCRA, are well-established, they create a complex and cumbersome process
for a lease applicant. The consequence is that an opponent of federal coal
leasing has numerous opportunities to delay the issuance of a federal coal
lease.
 
Penalties
 
Under certain circumstances, substantial fines and penalties, including
revocation of mining permits, may be imposed under the laws described above.
Monetary sanctions and, in severe circumstances, criminal sanctions may be
imposed for failure to comply with these laws. Regulations also provide that a
mining permit can be refused or revoked if an officer, director or a
shareholder with a 10% or greater interest in the entity is affiliated with
another entity which has outstanding permit violations. Although the Company
has been cited for violations, the Company and its subsidiaries have never had
a permit suspended or revoked because of any violation by the Company, its
subsidiaries or any affiliates of the Company, and the penalties assessed for
such violations have not been material, with most violations being abated
without any penalty being assessed.
 
Compliance with Regulatory Requirements
 
The Company endeavors to conduct its mining operations in compliance with all
applicable federal, state and local laws and regulations and believes that it
is currently in substantial compliance with all such laws and regulations.
However, because of the extensive and comprehensive regulatory requirements,
minor, inadvertent violations during mining operations are not unusual, and
although the Company has no intention to commit and seeks to prevent the
occurrence of any infractions, the Company may have violations in the future.
The Company believes its compliance record compares favorably with that of
other coal mining companies.
 
Because of the extensive nature of the Company's land holdings, it has not
undertaken an investigation of environmental conditions on most of its land
holdings which might subject the Company to liability under existing
environmental laws. From time to time during the course of normal operations
there have been discharges of hazardous materials onto the Company's lands. The
Company is not aware of other adverse environmental conditions on its lands
which might subject the Company to material liability under existing
environmental laws.
 
In addition to environmental liability at its own properties, the Company is
potentially liable for environmental conditions on properties transferred to
PAC under the Pittston Agreement. Under the Pittston Agreement, Addington
Holding Company, Inc. ("Addington Holding") transferred to PAC certain mining
properties and indemnified PAC for certain liabilities, including certain
environmental liabilities, associated with the transferred properties. The
Company agreed to assume the liabilities of Addington Holding under this
indemnification when the Company purchased its current operating properties
from Addington Holding in 1995. PAC has notified the Company of various
environmental conditions existing on the transferred properties for which it
claims indemnification. The Company has contested the applicability of the
indemnification to many of these conditions; however, it is possible that the
Company may incur liability as a result of these conditions. See "Certain
Related Party Transactions--Indemnification." The Company does not believe such
liability would have a material adverse effect on the business of the Company
and its subsidiaries, taken as a whole.
 
The Company believes that its continued compliance with regulatory standards
will not substantially affect its ability to compete with similarly-situated
coal mining companies. The cost of compliance, however, does increase the cost
of mining coal and to this extent makes coal less competitive with alternative
fuels. While the Company is not aware of any pending or proposed legislation or
regulatory action that relates to environmental issues that materially affect
the Company, except as discussed above, the possibility exists that new
legislation may be enacted or new regulations adopted which will have the
effect of materially increasing the cost of mining coal.
 
                                      100

 
                                   MANAGEMENT
 
Directors and Executive Officers
 
The following information is furnished with respect to the directors and
executive officers of the Company.
 


Name                     Age Position with the Company
- ----                     --- -------------------------
                       
Larry Addington.........  62 Chairman of the Board, Director
Don Brown...............  53 Vice Chairman
Kevin Crutchfield.......  37 President, Chief Operating Officer
John Baum...............  44 Chief Financial Officer
Keith Sieber............  47 Vice President--Western Operations
Robert Addington........  58 Senior Vice President--Eastern Operations, Director
Bernie Mason............  50 Senior Vice President--Technical Services, Land and
                             Business Development
Marc Merritt............  45 Senior Vice President--Sales & Marketing
Vic Grubb...............  39 Treasurer/Controller
John Lynch..............  50 Vice President--Supply/Maintenance, Secretary
Stonie Barker...........  72 Director
Robert Anderson.........  72 Director
Stephen Addington.......  32 Director

 
Larry Addington, Robert Anderson, Robert Addington, Stonie Barker and Stephen
Addington are the directors of the Company. All directors hold office until the
next annual meeting of stockholders and until their successors are elected and
qualified. Officers serve at the discretion of the Board of Directors. All
officers spend substantially full time working for the Company or its
subsidiaries.
 
Larry Addington, Chairman of the Board since the formation of the Company, has
substantial experience in the operation of coal mining ventures. His first
mining company, Addington Brothers Mining Company ("Addington Brothers
Mining"), began mining coal in eastern Kentucky in 1972 and was sold to Ashland
Oil, Inc. in 1976. In 1978, Larry Addington formed Pyramid Mining, Inc. which
mined coal in western Kentucky and was sold to First Mississippi Corporation in
1981. In 1984, Larry Addington formed Addington Resources, which became a
public company in 1987, and which primarily conducted coal mining and
integrated solid waste disposal operations. Larry Addington continues to hold
an interest in Republic Industries, Inc. ("Republic"), which acquired Addington
Resources in 1995, but has no involvement in the management of Republic. Larry
Addington has been Chairman of the Board of the Company since its organization
and was the founder of each of the corporate entities controlled by the
Company. Larry Addington is the brother of Robert Addington and Stephen
Addington. See "The Company" for more details.
 
Don Brown, Vice Chairman of the Company since January 1999, has worked in the
coal industry since 1968, and has extensive experience in all phases of coal
mining operations. From 1987 to 1993, Mr. Brown served as President of Cyprus
Coal Company ("Cyprus Coal"). From 1993 to 1995, Mr. Brown served as President
of Cyprus Amax, and directed that company's increase in annual production from
10 million tons of coal to over 80 million tons of coal, making it the second
largest coal company in the United States. From 1995 until September 1997,
Mr. Brown was Chief Executive Officer of International Executive Services LLC,
a coal mining consulting business, and Chief Executive Officer of Beaver Brook
Coal Company, LLC, a coal leasing and exploration company. From September 1997
until January 1999, Mr. Brown served as President and Chief Executive Officer
of the Company.
 
Kevin Crutchfield, Chief Operating Officer of the Company since July 1, 1998,
and President of the Company since January 1999, has worked in the coal
industry since 1981. From 1993 to 1995, he worked for Pittston Coal Company and
its subsidiaries as a Vice President. From 1995 until his employment by the
Company, he served in various capacities for Cyprus Amax, including President
and Chairman of Cyprus Australia Coal Company ("Cyprus Australia"), where he
directed operations employing 1,600 workers and producing 16 million tons of
coal per year.
 
                                      101

 
John Baum, Chief Financial Officer of the Company since November 1997, has been
involved in the coal industry since 1981. From 1991 through April 1993, Mr.
Baum served as Vice President of Business Development for Cyprus Coal. From May
1993 until June 1995, Mr. Baum was employed by Cyprus Australia as Deputy
Chairman and Chief Financial Officer of its Australian operations. From June
1996 until his employment by the Company, he was a general consultant with J.E.
Baum & Associates.
 
Keith Sieber, Vice President--Western Operations of the Company since November
1997, has worked in the coal industry since 1972. From 1992 until his
employment by the Company, he was employed as a Vice President by Cyprus Amax.
Mr. Sieber was responsible for the operations of Twentymile mine when it set a
world record for monthly coal production by a longwall mine (944,443 tons).
 
Robert Addington, Senior Vice President--Eastern Operations of the Company
since 1970, has worked in the coal industry since 1970. With Larry Addington
and Bruce Addington, he founded Addington Brothers Mining, which was sold to
Ashland Oil in 1976. He served as an officer and director of Addington
Resources from 1986 until 1995. Since 1995, he has been employed by the Company
or its predecessor.
 
Bernie Mason, Senior Vice President--Technical Services and Business
Development of the Company since January 1999, has worked in the coal industry
since 1978. From 1986 until his employment by the Company, Mr. Mason worked as
a manager and geologist for various Addington-related entities.
 
Marc Merritt, Senior Vice President--Sales and Marketing of the Company since
January 1998, has worked in the coal industry since 1977. From 1986 until 1994,
he was a sales manager for Addington, Inc., and from 1994 until 1997, he was
the Executive Vice President--Coal Sales for Pittston Coal Sales Corp. From
1997 until his employment by the Company, he was President of M&M Management,
Inc., a coal industry consulting company.
 
Vic Grubb, Treasurer/Controller has worked in the coal industry since 1989.
From 1989 to 1995, he was an accountant with Addington Resources, and since
1995 he has been the Chief Financial Officer of Addington Enterprises.
 
John Lynch, Vice President--Supply/Maintenance and Secretary of the Company
since September 1997 and has worked in the coal industry since 1983. From 1983
until his employment by the Company, he worked as a manager and an equipment
purchaser for various Addington-affiliated companies. He has been the Vice
President and Secretary of Addington Enterprises since 1987.
 
Stonie Barker, director of the Company since November, 1997, has worked in the
coal industry since 1951. He has served as President, Chief Executive Officer
and Chairman of the Board of Island Creek Coal Company and Executive Vice
President of Occidental Petroleum Corporation. Since 1984, Mr. Barker has
served as President of the Executive Energy Company, a coal industry consulting
group. He is also a director of Kaiser Steel Corporation.
 
Robert Anderson, director of the Company since August, 1998, has worked in the
coal industry since 1953. He has served in various senior executive capacities,
including as President of ANDALEX Resources, Inc. ("ANDALEX") from 1990 until
1994 and Vice Chairman of the Board of Directors of ANDALEX from 1990 until
1995. From 1995 until 1996, he served as Chief Executive Officer and from 1995
until October 1998 he served as Chairman of the Board of Directors of
Centennial Resources, Inc. ("Centennial"). On October 13, 1998, Centennial
filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code in
the U.S. Bankruptcy Court, District of Delaware.
 
Stephen Addington, director of the Company since its formation, has worked in
the coal industry since 1991. He was a Regional Manager of Addington Resources
from 1990 until 1992. From 1992 until 1995, he was the Vice President of
Operations for Addington Environmental, Inc. Since 1995 he has been a Division
Manager of Tennessee Mining, Inc. and a consultant to Kindill Mining, Inc.,
positions he continues to hold.
 
                                      102

 
Directors of the Company who are also officers or shareholders of the Company
or Holdings receive no compensation for their services as directors. Non-
management directors are paid a base salary of $25,000 per year for services as
directors, plus an additional $2,000 per meeting actually attended and $500 for
each committee meeting actually attended which was not held in conjunction with
a Board of Directors meeting.
 
Limitation on Liability of Directors
 
Pursuant to the Certificates of Incorporation of the Company, no director shall
be personally liable to the Company or its stockholders for monetary damages
for breach of his fiduciary duty as a director, except for a breach of the
director's duty of loyalty, for acts and omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, for
transactions from which a director derived an improper personal benefit or for
unlawful payment of dividends or stock purchases or redemptions pursuant to
Section 174 of the Delaware General Corporation Law. This provision offers
persons who serve on the board of directors of the Company protection against
awards of monetary damages for negligence in the performance of their duties.
It does not affect the availability of equitable remedies such as an injunction
or rescission based upon a director's breach of the duty of care.
 
Executive Compensation
 
The following table presents certain summary information concerning
compensation paid or accrued by the Company for services rendered in all
capacities for the year ended December 31, 1998,for (i) the Chief Executive
Officer of the Company, and (ii) each of the four other most highly compensated
executive officers of the Company who received in excess of $100,000, (the
"Named Executive Officers") determined as of December 31, 1998.
 
                           Summary Compensation Table
 


                                          Annual Compensation (1)        Long-Term Compensation Awards
                                      -------------------------------- ----------------------------------
                                                                                     Securities
        Name and                                          Other Annual  Restricted   Underlying    LTIP      All Other
   Principal Position     Fiscal Year  Salary  Bonus (2)  Compensation Stock Awards Options/SARs Payments Compensation(3)
   ------------------     ----------- -------- ---------- ------------ ------------ ------------ -------- ---------------
                                                                                  
Don Brown...............     1998     $524,200 $2,501,000     --           --           --         --         $57,959
 President and Chief
  Executive Officer
John Baum...............     1998     $201,881 $1,451,000     --           --           --         --             --
 Chief Financial Officer
Kevin Crutchfield.......     1998     $183,312 $  700,350     --           --           --         --         $ 7,497
 Chief Operating Officer
James Morris............     1998     $138,524 $  250,500     --           --           --         --             --
 Senior Vice President--
  Technical Service,
  Land & Business
  Development
Talmadge Mosley.........     1998     $ 34,711 $  300,000     --           --           --         --             --
 Vice President--
  Underground Mining
  Operations; Eastern
  United States

- --------
(1) Perquisites and other personal benefits paid in 1998 for the Named
    Executive Officers aggregated less than the lesser of $50,000 and 10% of
    the total annual salary and bonus set forth in the columns entitled
    "Salary" and "Bonus" for each Named Executive Officer.
(2) The Company accrued discretionary cash bonuses in 1998 for extraordinary
    services provided by certain key employees in connection with the
    restructuring of the Company and its predecessors.
(3) Represents payment of moving expenses.
 
                                      103

 
Employment Contracts
 
Don Brown has an amended and restated employment agreement with the Company,
dated as of June 30, 1998, which expires on October 1, 1999, and automatically
renews for one-year periods unless either party gives notice not to renew. Mr.
Brown is employed as Vice Chairman at an annual base salary of $600,000, with
such annual merit increases and bonus compensation as the Company may decide.
Mr. Brown is also entitled to participate in any employee benefit plan
sponsored by the Company and has received options to purchase 6,600 shares of
the stock of Holdings pursuant to the Stock Option Plan (as defined). Pursuant
to the employment agreement, the Company paid Mr. Brown $1.5 million for
services rendered in connection with the acquisition of Zeigler, and $1.0
million for services rendered in connection with the Offering and the Senior
Credit Facility. During the term of Mr. Brown's employment, the Company will
provide him with a house in Ashland, Kentucky. The Company also provided Mr.
Brown a $150,000 bridge loan, which was repaid upon the sale of his prior
residence, and paid Mr. Brown's moving expenses and the real estate commission
on the sale of such residence. Mr. Brown receives a life insurance policy in
the amount of $500,000, a company car and four weeks of paid vacation per year.
In the event that Mr. Brown's employment with the Company is terminated at any
time prior to October 1, 1999, other than due to death, disability or for
cause, the Company must continue to pay him the compensation remaining over the
term of his contract.
 
Don Brown has a Stock Option Purchase Agreement with the Company dated as of
June 30, 1998. The agreement provides that, if Mr. Brown remains in the
Company's employment through October 1, 1999, Mr. Brown may cause the Company
to purchase his stock options, and the Company may cause Mr. Brown to sell to
the Company such stock options, for a purchase price of $2.5 million. This
Agreement is triggered upon the termination of Mr. Brown's employment and
expires ninety (90) days thereafter.
 
Don Brown has a bonus agreement with the Company, dated as of June 30, 1998,
which provides that in the event that the Company completes certain asset
acquisitions within nine (9) months from the date of the agreement, Mr. Brown
shall be paid bonuses of up to $2.0 million. Pursuant to this bonus agreement,
Mr. Brown was paid $2.5 million for services rendered in connection with the
Triton Disposition.
 
Kevin Crutchfield has an employment agreement with the Company, dated as of
June 26, 1998 and amended on January 29, 1999, which expires on July 20, 2003.
Mr. Crutchfield is employed as the President Chief Operating Officer of the
Company at an annual base salary of $500,000, with such annual merit increases
and bonus compensation as the Company may decide. In the event that the Company
employs Mr. Crutchfield in any position other than President and Chief
Operation Officer, his annual base salary will be reduced to $350,000. The
Company paid Mr. Crutchfield a sign-on bonus of $700,000 upon his commencement
of work. Mr. Crutchfield is also entitled to participate in any incentive,
savings, retirement, welfare, fringe or employee benefit plan sponsored by the
Company. Mr. Crutchfield received options to purchase 2,284 shares of the stock
of Holdings pursuant to the Stock Option Plan. Under certain circumstances, if
Mr. Crutchfield remains employed with the Company through the first anniversary
of a change of control (as defined in the employment agreement), Mr.
Crutchfield will receive an additional bonus equal to the sum of his annual
base salary plus the greater of the "Annual Bonus" and the "Recent Average
Bonus" (each as defined in the employment agreement). The Company paid Mr.
Crutchfield's moving expenses from Sydney, Australia. Mr. Crutchfield receives
a life insurance policy in the amount of $1,000,000, a disability policy for
the amount of the maximum insurable interest permitted, a company car and four
weeks of paid vacation per year. Following the second year of Mr. Crutchfield's
employment, in the event that the Company terminates his employment prior to
July 20, 2003, other than for death, disability or cause, the Company shall
continue to pay Mr. Crutchfield his then existing annual base salary, and any
bonuses that would otherwise have been paid if he had remained employed, for
one year from the date of termination of employment or such shorter period as
may remain under the term of the employment agreement. Following the third year
of employment, Mr. Crutchfield may terminate his employment for good reason (as
defined in the employment agreement) and the Company shall continue to pay Mr.
Crutchfield his then existing annual base salary, and any bonuses that would
otherwise have been paid if he had remained employed, for one year from the
date of termination of employment or such shorter period as may remain under
the term of the employment agreement.
 
                                      104

 
Keith Sieber has an employment agreement with the Company, dated as of November
1, 1997 and amended on February 5, 1998 which expires on October 31, 2000. Mr.
Sieber is employed as Senior Vice President--Western Operations at an annual
base salary of $235,000, with such annual merit increases and bonus
compensation as the Company may decide. Mr. Sieber is also entitled to
participate in any employee benefit plan sponsored by the Company and has
received options to purchase 2,200 shares of the stock of Holdings pursuant to
the Stock Option Plan (as defined on p. 108). For the initial year of his
employment, the Company must lease an apartment in Grand Junction, Colorado for
Mr. Sieber, and loan Mr. Sieber $10,300 per month until the earlier of the one-
year anniversary of his employment or the sale of his existing residence. The
balance of such loan is currently $92,700. During the term of his employment,
Mr. Sieber receives a company car, a life insurance policy in the amount of
$500,000, and four weeks of paid vacation per year. In the event that Mr.
Sieber's employment with the Company is terminated at any time prior to October
31, 2000, other than due to death, disability or cause, the Company must
continue to pay him the compensation remaining over the term of his contract.
 
John Baum has an amended and restated employment agreement with the Company,
dated as of December 22, 1998, which may be terminated by the Company upon
giving written notice. Mr. Baum is employed as the Chief Financial Officer at
an annual base salary of $190,000, with such annual merit increases and bonus
compensation as the Company may decide. Mr. Baum is also entitled to
participate in any employee benefit plan sponsored by the Company, and receives
a company car.
 
The company will pay Mr. Baum $250,000 if Mr. Baum assists the Company in
connection with a supplemental bond offering on or before February 28, 1999.
The Company paid Mr. Baum $1.0 million in consideration of the modification of
his prior employment agreement and the cancellation of his options to purchase
1,760 shares of the stock of Holdings pursuant to the Stock Option Plan.
 
Marc R. Merritt has an employment agreement with the Company, dated as of
January 1, 1998, which expires on January 15, 2001. Mr. Merritt is employed as
Senior Vice-President of Sales and Marketing at an annual base salary of
$165,000, with such annual merit increases and bonus compensation as the
Company may decide. Mr. Merritt is also entitled to participate in any employee
benefit plan sponsored by the Company, and has received options to purchase
1,702 shares of the stock of Holdings pursuant to the Stock Option Plan. The
Company paid Mr. Merritt's moving expenses and the real estate commission on
the sale of his residence located at Abbington, Virginia. Mr. Merritt receives
a life insurance policy in the amount of $500,000, a company car and four weeks
of paid vacation per year. In the event that Mr. Merritt's employment with the
Company is terminated at any time prior to January 15, 2001, other than due to
death, disability or cause, the Company must continue to pay him the remaining
compensation over the term of his contract.
 
Deferred Compensation
 
Stock Option Plan
 
Holdings has adopted the AEI Resources Holding, Inc. Stock Option Plan (the
"Stock Option Plan"), which provides for the issuance to certain key employees
of or advisors to Holdings, its Subsidiaries or its Parent (both as defined
therein) (the "Optionees") of options (the "Options") for up to 75,000 shares
of Common Stock (as defined therein) of Holdings outstanding from time to time,
subject to adjustment to reflect certain events such as stock dividends, stock
split-ups, subdivisions or consolidations of share or other events which
necessitate a similar adjustment. The Stock Option Plan is intended to, among
other things, increase the profitability and growth of Holdings and its
Subsidiaries, motivate key employees to contribute to the success of Holdings
and its Subsidiaries and provide competitive compensation while obtaining the
benefits of tax deferral.
 
The Board of Directors of Holdings or a committee appointed by the Board of
Directors (the "Committee") will administer the Stock Option Plan. The
Committee has the authority to determine the awards made to Optionees (each, a
"Grant"). Such Grants are subject to various limitations and conditions
specified in the Stock Option Plan (including certain legal restrictions).
 
                                      105

 
All key employees of or advisors to Holdings or a Subsidiary or Parent are
eligible for Grants. The Committee has the authority to designate the employees
and advisors to whom Options are to be granted and will specify the number of
shares of Common Stock subject to each Grant.
 
The Committee has the authority to make such amendments to any terms and
conditions applicable to outstanding Grants as are consistent with the Stock
Option Plan, except that no such amendment shall become effective without prior
approval of the Optionees if such approval is necessary. No such amendment
shall, without an Optionee's consent, adversely affect any rights of such
Optionee under the Grant outstanding at the time such amendment is made.
Holdings shall comply with any tax or regulatory requirement or rule of any
exchange or system upon which the stock may be listed.
 
Stock Option Agreements
 
The exercise price of any Options granted under the Stock Option Plan is
determined by the Committee and set forth in a Stock Option Agreement (the
"Stock Option Agreement"), but cannot be less than the fair market value of
Common Stock on the date the Option is granted (the "Grant Date"); provided,
however, that the exercise price cannot be less than 110% of the fair market
value if the Optionee receives an incentive stock option and owns more than 10%
of the total combined voting power of Holdings, any Subsidiary or any Parent.
In addition, such Options are exercisable based upon a date set forth in each
Optionee's Stock Option Agreement. Any vesting period for an Option may be
subject to acceleration upon a Change in Control (as defined in the Stock
Option Plan). The exercise period for an Option may be shortened due to a
Termination of Employment (as defined in the Stock Option Plan). No Option can
be exercised more than 10 years from the Grant Date; provided, however, that no
Option can be exercised more than five years from the Grant Date if the
Optionee receives an incentive stock option and owns more than 10% of the total
combined voting power of Holdings, any Subsidiary or any Parent.
 
                                      106

 
                       CERTAIN RELATED PARTY TRANSACTIONS
 
General
 
Holdings is closely held and has entered into transactions and loans with
related individuals and entities. As provided in the Indenture, all future
related party transactions or loans must be for a bona fide business purpose on
terms at least as favorable as those obtainable from an unaffiliated party
unless otherwise authorized under the Indenture. In addition, all such
transactions or loans will be approved or ratified by a majority of the
independent and disinterested directors of the Company. In situations where
there will be an ongoing relationship with related parties for the purchase of
services or products, a majority of the independent and disinterested directors
will be required to approve continuation or initiation of the relationship and
will periodically review such transactions to assure that they meet the
aforementioned standard. See "Description of the Notes--Certain Covenants--
Transactions with Affiliates" and "Description of Other Indebtedness--The New
Senior Notes" for a further description of the procedure for review and
approval of transactions with affiliates.
 
Arrangements Involving Affiliates
 
TASK Trucking Company ("TASK"), which is owned by Austin Dickerson, Larry
Addington's brother-in-law, provides trucking brokerage services to the
Company, for which TASK receives compensation per ton hauled. The Company paid
TASK gross payments of $9.8 million, $12.9 million and $18.2 million for
trucking services in 1995, 1996 and 1997, respectively, and $13.8 million for
the nine-month period ended September 30, 1998. Based upon the Company's annual
review of prices charged by competing trucking companies, the Company believes
that the price charged for such trucking services was not greater than the
prices generally charged by non-affiliated entities in the area.
 
The Company has a service agreement dated October 22, 1997 with Mining
Machinery, Inc. ("MMI"), of which John Lynch and Larry Addington own more than
10% and more than 86% of the capital stock, respectively. The service agreement
expires November 30, 2007, but may be terminated earlier upon written notice by
MMI. Under this agreement, MMI repairs and maintains some of the Company's
mining equipment. In 1997, the Company paid MMI $5.8 million, and for the nine-
month period ended September 30, 1998, the Company paid MMI $6.7 million for
repairs and maintenance. Based upon the Company's annual review of prices
charged by competing equipment repair and maintenance companies, the Company
believes that the price charged for such repair and maintenance services is not
greater than prices generally charged by non-affiliated entities in the area.
 
The Company has several month-to-month equipment leases with MMI, whereby MMI
leases mining equipment. In 1997, the Company paid MMI $3.8 million, and for
the nine-month period ended September 30, 1998, the Company paid MMI $2.5
million pursuant to such equipment leases. Based on the Company's annual review
of prices charged by competing equipment leasing companies, the Company
believes that the price charged for such leases is not greater than prices
generally charged by non-affiliated entities in the area.
 
In connection with the Kindill Acquisition, Stephen Addington received
approximately $3.6 million. Rothschild, issued an opinion in connection with
the Kindill Acquisition which stated that the transaction was fair to the
Company from a financial point of view.
 
For the years ended December 31, 1996 and December 31, 1997, the Company paid
Bruce Addington, Larry Addington's brother, approximately $230,000 and
$232,000, respectively, for services rendered as an employee of the Company.
Bruce Addington assists in managing Addington Mining's operations in eastern
Kentucky.
 
On August 4, 1998, Holdings and the Company entered into a Tax Allocation
Agreement providing for the filing of consolidated income tax returns by the
consolidated group of corporations of which Holdings and the Company are
members, and the allocation among the members of such consolidated group of the
tax liabilities or credits arising from such consolidated filings.
 
                                      107

 
Pursuant to a Technology Sharing Agreement, dated as of April 29, 1998, between
MTI and Addington Enterprises, MTI and Addington Enterprises agreed to share
with each other certain technology and technological developments relating to
highwall mining. The Company has not acquired, and currently does not intend to
acquire from Addington Enterprises, the foreign patent rights for Addcar
highwall mining systems, which are in effect in Australia, China, France,
Germany, Spain, the United Kingdom, India, Indonesia, Poland, Russia and South
Africa.
 
Pursuant to a Manufacture and Service Agreement, dated as of November 12, 1998,
between MTI and Addington Enterprises, MTI agreed to manufacture Addcar
highwall mining systems for Addington Enterprises on a cost plus ten percent
basis.
 
Indemnification
 
Pursuant to a Stock Purchase Agreement, dated September 24, 1993 (the "Pittston
Agreement"), between Addington Holding and PAC, PAC acquired all of the issued
and outstanding stock of certain subsidiaries of Addington Holding for $157
million. Pursuant to a Guaranty Agreement, dated September 24, 1993, Addington
Resources, the sole shareholder of Addington Holding, guaranteed the
obligations of Addington Holding and its subsidiaries under the Pittston
Agreement. Addington Enterprises assumed Addington Resources' indemnity
obligations to PAC when Addington Enterprises purchased the stock of the
Addington Resources' subsidiaries engaged in coal mining operations. The
Company assumed those obligations when it acquired substantially all of
Addington Enterprises' coal assets in November, 1997. Although the Company
believes that it has significant defenses to any indemnity claims that PAC may
assert, the Company further believes that even if PAC successfully pursued
indemnity claims raised in its prior correspondence with the Company, that the
aggregate liabilities for such claims would not have a material adverse effect
on the business of the Company and its subsidiaries taken as a whole.
 
                                      108

 
                          DESCRIPTION OF CAPITAL STOCK
 
The following description of the capital stock of the Company, Holdings and AEI
Holding (the "AEI Common Shares") does not purport to be complete and is
subject in all respects to applicable Delaware law and to the provisions of
each company's Certificate of Incorporation. The AEI Common Shares of each
company have substantially identical rights, preferences and limitations.
 
Each AEI Common share has one vote on all matters presented to the
stockholders. Each AEI Common Share is entitled to receive such dividends or
other distributions as may be declared by the Board of Directors from funds
legally available for payment of dividends. The declaration and payment of
dividends are restricted by certain covenants in the Indenture and the Senior
Credit Facility. Each AEI Common share is not redeemable and has no preemptive,
conversion or cumulative voting rights. In the event of a liquidation,
dissolution or winding-up of the Company, Holdings or AEI Holding, the holders
of such company's Common Shares are entitled to share equally and ratably in
the assets of such company, if any, remaining after the payment of all debts
and liabilities of such company (including the New Notes). There is no
established public trading market for the AEI Common Shares.
 
AEI Resources, Inc.
 
The authorized capital stock of AEI Resources, Inc. consists of 150,000 shares
of common stock, par value $0.01 per share (the "Company Common Stock"). As of
February 8, 1999, 52,802 of the authorized shares of Company Common Stock were
issued and outstanding.
 
AEI Resources Holding, Inc.
 
The authorized capital stock of AEI Resources Holding, Inc. Consists of 150,000
shares of common stock, par value $0.01 per share (the "Holdings Common
Stock"). As of February 8, 1999, 55,802 of the authorized shares of Holdings
Common Stock were issued and outstanding.
 
AEI Holding Company, Inc.
 
The authorized capital stock of the AEI Holding Company, Inc. consists of
120,000 shares of common stock, par value $0.01 per share (the "AEI Holding
Common Stock"). As of February 8, 1999, 52,800 of the authorized shares of AEI
Holding Common Stock were issued and outstanding.
 
                                      109

 
          SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
 
The following table sets forth certain information concerning ownership of the
common stock of Holdings as of the consummation of the Offering by each
director, each person who is known to Holdings to be the beneficial owner of
more than 5% of its common stock, all Named Executive Officers and all
directors and officers of Holdings as a group. Each stockholder listed below
has sole voting and dispositive power with respect to the shares listed next to
his name. Holdings owns all of the issued and outstanding capital stock of the
Company as of the consummation of the Offering.
 


                                                              Percentage of
Name and Address                              Percentage of       Class
of Beneficial Owner              Shares Owned     Class     Beneficially Owned
- -------------------              ------------ ------------- ------------------
                                                   
Larry Addington (1).............    26,402        47.5%            100%
  1500 North Big Run Road
  Ashland, Kentucky 41101
Addington Enterprises, Inc.
 (2)............................    26,402        47.5%            100%
  1500 North Big Run Road
  Ashland, Kentucky 41101
Named Executive Officers (3)....     3,100           5%            100%
All executive officers and
 directors as a group
 (13 persons) (4)...............    29,502        52.5%            100%

- --------
(1) Larry Addington's beneficial ownership includes 38% beneficial ownership
    through Addington Enterprises and 9.5% beneficial ownership attributed
    based on Robert Addington's and Bruce Addington's interest in Addington
    Enterprises, and 5% beneficial ownership is attributed based on shares
    owned by Robert Addington..
(2) Addington Enterprises is owned 80%, 10% and 10% by Larry Addington, Robert
    Addington and Bruce Addington, respectively.
(3) The 3,100 shares are owned by Robert Addington. Beneficial ownership
    includes Robert Addington's 4.8% beneficial ownership through Addington
    Enterprises and 90.2% beneficial ownership attributed through Bruce
    Addington's interest in Addington Enterprises and Larry Addington's direct
    ownership and his interest in Addington Enterprises.
(4) Beneficial ownership is attributable to the beneficial ownership of Larry
    Addington and Robert Addington set forth above.
 
Reports to Noteholders
 
The Indenture provides that the Company will furnish the holders of the Notes
with annual reports containing audited financial statements and quarterly
reports containing unaudited financial information for the first three quarters
of each fiscal year.
 
                               THE EXCHANGE OFFER
 
  The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange up to $200,000,000
aggregate principal amount of New Notes for a like aggregate principal amount
of Old Notes properly tendered on or prior to the Expiration Date and not
withdrawn as permitted pursuant to the procedures described below. The Exchange
Offer is being made with respect to all of the Old Notes.
 
  As of the date of this Prospectus, $200,000,000 aggregate principal amount of
the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about        1999, to all holders of Old
Notes known to the Company. The Company's obligation to accept Old Notes for
exchange pursuant to the Exchange Offer is subject to certain conditions set
forth under "Conditions to the Exchange Offer" below. The Company currently
expects that each of the conditions will be satisfied and that no waivers will
be necessary.
 
                                      110

 
Purpose and Effect of Exchange Offer
 
  The Old Notes were issued by the Company in exchange for $200.0 aggregate
principal amount of debt securities of AEI Holding. As a condition to the
exchange, the Company and the Guarantors have entered into the Registration
Rights Agreement with the trustee for the Old Notes. Pursuant to the
Registration Rights Agreement, the Company agreed to file with the SEC a
registration statement under the Securities Act of 1933 (the "Securities Act")
with respect to the Notes as soon as reasonably practicable, to use all
reasonable commercial efforts to cause such registration statement to become
effective under the Securities Act at the earliest possible time, and, upon
effectiveness of such registration statement, to commence the Exchange Offer
and offer to eligible holders of Old Notes the opportunity to exchange their
Old Notes for a like principal amount of New Notes.
 
  Holders of Old Notes acquired directly from the Company, affiliates of the
Company and persons participating in, or having any arrangement or
understanding with any person to participate in a distribution of the Old Notes
will be ineligible, under SEC policy, to participate in the Exchange Offer, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale of the Old Notes.
 
  The Company agreed, pursuant to Registration Rights Agreements, that if
notified by a holder of Transfer Restricted Securities within 20 business days
of the consummation of the Exchange Offer that such holder is prohibited by
applicable law or SEC policy from participating in the Exchange Offer, or that
such holder may not resell the New Notes acquired by it in the Exchange Offer
to the public without delivering a prospectus or that such holder is a broker-
dealer and holds Old Notes acquired directly from the Company or one of its
affiliates, it would file a shelf registration statement, pursuant to Rule 415
under the Securities Act, registering for resale any Transfer Restricted
Securities, subject to the satisfaction by such holder of certain other
conditions. "Transfer Restricted Securities" means each of the Old Notes until
the earliest to occur of (a) the date on which such Old Note is exchanged in
the Exchange Offer and entitled to be resold to the public by the holder
thereof without complying with the prospectus delivery requirements of the
Securities Act, (b) the date on which such Old Note has been disposed of in
accordance with a Shelf Registration Statement or a Registration Statement, (c)
the date on which such Old Note is distributed to the public pursuant to Rule
144 under the Securities Act and (d) following the exchange by a broker-dealer
in the Exchange Offer of an Old Note for an Exchange Note, the date on which
such Exchange Note is disposed of pursuant to the "Plan of Distribution"
section set forth herein. A copy of the Registration Rights Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part.
 
  This Registration Statement covers the offer of the New Notes pursuant to the
Exchange Offer made hereby and resales by broker-dealers that acquired Old
Notes for their own accounts as a result of market-making and other trading
activities. Such resales of Transfer Restricted Securities made in reliance
upon the registration thereof under the Securities Act may be made only
pursuant to the "Plan of Distribution" set forth in this Prospectus or other
prospectus, if any, filed as an amendment to the Registration Statement. To be
eligible to effect resales of Transfer Restricted Securities pursuant to
registration of the Old Notes for resale by holders ineligible to participate
in the Exchange Offer, a holder of Transfer Restricted Securities must (i)
notify the Company within 20 business days of the consummation of the Exchange
Offer that it has determined that it is not permitted by law or any policy of
the SEC to participate in the Exchange Offer made hereby or that such holder
may not resell the New Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and that this Prospectus is inappropriate or
unavailable for such resales by such holder or that such holder is a broker-
dealer and holds Old Notes acquired directly from the Company or one of its
affiliates and (ii) provide to the Company, within 20 business days following
the Company's request therefor, such information as the Company may reasonably
request for use in preparation of the Shelf Registration Statement. In the
event that any holders of Transfer Restricted Securities comply with the
foregoing requirements, and supply any additional information reasonably
requested by the Company within 20 business
 
                                      111

 
days following such request, the Company will file, as promptly as is
practicable, a Shelf Registration Statement containing an appropriate resale
prospectus and will use its reasonable efforts to cause such Shelf Registration
Statement to become effective under the Securities Act and to remain
continuously effective thereunder for a period of two years, or such shorter
period as will terminate when all Transfer Restricted Securities covered by
such Shelf Registration Statement have been sold pursuant thereto.
 
  The Exchange Offer is being made by the Company to satisfy its obligations
with respect to the Registration Rights Agreement. The term "holder," with
respect to the Exchange Offer, means any person in whose name Old Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder, or any person whose
Old Notes are held of record by DTC. Other than pursuant to the Registration
Rights Agreement, the Company is not required to file any registration
statement to register any outstanding Old Notes. Holders of Old Notes who do
not tender their Old Notes or whose Old Notes are tendered but not accepted
would have to rely on exemptions from registration requirements under the
securities laws, including the Securities Act, if they wish to sell their Old
Notes.
 
  The Company is making the Exchange Offer in reliance on the position of the
SEC as set forth in certain interpretive letters addressed to third parties in
other transactions. However, the Company has not sought its own interpretive
letter and there can be no assurance that the SEC would make a similar
determination with respect to the Exchange Offer as it has in such interpretive
letters to third parties. Based on these interpretations by the SEC, the
Company believes that the Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by a holder (other than any holder who is a broker-dealer or an
"affiliate" of the Company within the meaning of Rule 405 of the Securities
Act) without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Notes are acquired in
the ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Notes. See "-- Resale of Notes." Each broker-dealer that receives Notes
for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Notes. See "Plan of Distribution."
 
Consequences of Failure to Exchange
 
  Following the completion of the exchange offer (except as set forth in the
second paragraph under "--Purpose and Effect" above), holders of Old Notes not
tendered will not have any further registration rights and those Old Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for a holder's Old Notes could be adversely affected
upon completion of the exchange offer if the holder does not participate in the
exchange offer.
 
Terms of The Exchange Offer
 
  Upon the terms and subject to the conditions set forth in this Prospectus and
in the letter of transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
    , 1999, or such date and time to which we extend the offer. The Company
will issue $1,000 principal amount of New Notes in exchange for each $1,000
principal amount of outstanding Old Notes accepted in the exchange offer.
Holders may tender some or all of their Old Notes pursuant to the exchange
offer. However, Old Notes may be tendered only in integral multiples of $1,000
in principal amount.
 
  The form and terms of the New Notes are substantially the same as the form
and terms of the Old Notes except that the New Notes have been registered under
the Securities Act and will not bear legends restricting their transfer. The
New Notes will evidence the same debt as the Old Notes and will be issued
pursuant to, and entitled to the benefits of, the Indenture pursuant to which
the Old Notes were issued.
 
 
                                      112

 
  As of     , 1999, Old Notes representing $200.0 million aggregate principal
amount were outstanding and there was one registered holder, a nominee of the
DTC. This Prospectus, together with the letter of transmittal, is being sent to
such registered holder and to others believed to have beneficial interests in
the Old Notes. The Company intends to conduct the exchange offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder.
 
  The Company shall be deemed to have accepted validly tendered Old Notes when,
as, and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the New Notes from the Company. If any tendered Old Notes
are not accepted for exchange because of an invalid tender, the occurrence of
certain other events set forth herein or otherwise, certificates for any such
unaccepted Old Notes will be returned, without expense, to the tendering holder
thereof as promptly as practicable after     , 1999, unless the exchange offer
is extended.
 
  Holders who tender Old Notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the exchange offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the exchange offer. See
"--Fees and Expenses."
 
Expiration Date; Extensions; Amendments
 
  The expiration date shall be 5:00 p.m., New York City time, on     , 1999,
unless the Company, in its sole discretion, extends the exchange offer, in
which case the expiration date shall mean the latest date and time to which the
exchange offer is extended. In order to extend the exchange offer, the Company
will notify the Exchange Agent and each registered holder of any extension by
oral or written notice prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date. The Company
reserves the right, in its sole discretion, (i) to delay accepting any Old
Notes, to extend the exchange offer or, if any of the conditions set forth
under "--Conditions to Exchange Offer" shall not have been satisfied, to
terminate the exchange offer, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, or (ii) to amend the terms of
the exchange offer in any manner. In the event that the Company makes a
material or fundamental change to the terms of the exchange offer, the Company
will file a post-effective amendment to the Registration Statement.
 
Procedures for Tendering
 
  Only a holder of Old Notes may tender the Old Notes in the exchange offer.
Except as set forth under "--Book Entry Transfer," to tender in the exchange
offer a holder must complete, sign, and date the Letter of Transmittal, or a
copy thereof, have the signatures thereon guaranteed if required by the Letter
of Transmittal, and mail or otherwise deliver the Letter of Transmittal or copy
to the Exchange Agent prior to the expiration date. In addition, (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal prior to the expiration date, (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if that procedure is available, into the Exchange Agent's account at DTC
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
expiration date or (iii) the holder must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the letter of
transmittal and other required documents must be received by the Exchange Agent
at the address set forth under "--Exchange Agent" prior to the expiration date.
 
  The tender by a holder that is not withdrawn before the expiration date will
constitute an agreement between that holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the letter of
transmittal.
 
                                      113

 
  THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
 
  Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company, or other nominee and who wishes to
tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the letter of transmittal and delivering the owner's
Old Notes, either make appropriate arrangements to register ownership of the
Old Notes in the beneficial owner's name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may take
considerable time.
 
  Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined) unless Old
Notes tendered pursuant thereto are tendered (i) by a registered holder who has
not completed the box entitled "Special Registration Instruction" or "Special
Delivery Instructions" on the letter of transmittal or (ii) for the account of
an Eligible Institution. If signatures on a letter of transmittal or a notice
of withdrawal, as the case may be, are required to be guaranteed, the guarantee
must be by any eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an
"Eligible Institution").
 
  If the letter of transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, the Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by the registered holder
as that registered holder's name appears on the Old Notes.
 
  If the letter of transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the letter of
transmittal unless waived by the Company.
 
  All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old
Notes not properly tendered or any Old Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the exchange offer (including the instructions in the letter of
transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends
to notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent, nor any other person shall
incur any liability for failure to give such notification. Tenders of Old Notes
will not be deemed to have been made until such defects or irregularities have
been cured or waived.
 
  Any Old Notes received by the Exchange Agent that are not properly tendered
and as to which the defects or irregularities have not been cured or waived
will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the letter of transmittal, as soon as practicable
following , 1999, unless the exchange offer is extended.
 
                                      114

 
  In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding after the
expiration date or, as set forth under "-- Conditions to the Exchange Offer,"
to terminate the exchange offer and, to the extent permitted by applicable law,
purchase Old Notes in the open market, in privately negotiated transactions, or
otherwise. The terms of any such purchases or offers could differ from the
terms of the exchange offer.
 
  By tendering, each holder will represent to the Company and the Guarantors
that, among other things, (i) the New Notes acquired pursuant to the exchange
offer are being obtained in the ordinary course of business of the person
receiving such New Notes, whether or not such person is the registered holder,
(ii) the holder is not engaging in and does not intend to engage in a
distribution of such New Notes, (iii) the holder does not have an arrangement
or understanding with any person to participate in the distribution of such New
Notes and (iv) the holder is not an "affiliate," as defined under Rule 405 of
the Securities Act, of the Company and the Guarantors.
 
  In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility, a properly completed and duly executed letter of
transmittal (or, with respect to the DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of and
agreement to be bound by the letter of transmittal), and all other required
documents. If any tendered Old Notes are not accepted for any reason set forth
in the terms and conditions of the exchange offer or if Old Notes are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Old Notes will be returned without expense to the
tendering Holder thereof (or, in the case of Old Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
nonexchanged Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration
or termination of the exchange offer.
 
  Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution."
 
Book-Entry Transfer
 
The Exchange Agent will make a request to establish an account with respect to
the Old Notes at the Book-Entry Transfer Facility for purposes of the exchange
offer within two business days after the date of this Prospectus, and any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the Book-
Entry Transfer Facility, the letter of transmittal or copy thereof, with any
required signature guarantees and any other required documents, must, in any
case other than as set forth in the following paragraph, be transmitted to and
received by the Exchange Agent at the address set forth under "--Exchange
Agent" on or prior to the expiration date or the guaranteed delivery procedures
described below must be complied with.
 
  DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the exchange offer through
ATOP, participants in DTC must send electronic instructions to DTC through
DTC's communication system in lieu of sending a signed, hard copy letter of
transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Old Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the character by which the participant acknowledges its receipt of and
agrees to be bound by the letter of transmittal.
 
                                      115

 
Guaranteed Delivery Procedures
 
  If a registered holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the expiration date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the expiration date, the
Exchange Agent receives from such Eligible Institution a properly completed and
duly executed letter of transmittal (or a facsimile thereof) and notice of
guaranteed delivery, substantially in the form provided by the Company (by
telegram, telex, facsimile transmission, mail or hand delivery), setting forth
the name and address of the holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within three New York Stock Exchange, Inc. ("NYSE") trading days after the date
of execution of the notice of guaranteed delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, will be deposited by the Eligible Institution
with the Exchange Agent and (iii) the certificates for all physically tendered
Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the
case may be, are received by the Exchange Agent within three NYSE trading days
after the date of execution of the notice of guaranteed delivery.
 
Withdrawal Rights
 
  Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the expiration date.
 
  For a withdrawal of a tender of Old Notes to be effective, a written or (for
DTC participants) electronic ATOP transmission notice of withdrawal must be
received by the Exchange Agent at its address set forth under "--Exchange
Agent" prior to 5:00 p.m., New York City time, on the expiration date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to
be withdrawn (including the certificate number or numbers and principal amount
of such Old Notes), (iii) be signed by the holder in the same manner as the
original signature on the letter of transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee register the transfer of
such Old Notes into the name of the person withdrawing the tender, and (iv)
specify the name in which any such Old Notes are to be registered, if different
from that of the Depositor. All questions as to the validity, form, and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the exchange offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender, or termination of the
exchange offer. Properly withdrawn Old Notes may be retendered by following one
of the procedures under " --Procedures for Tendering" at any time on or prior
to the expiration date.
 
Conditions to the Exchange Offer
 
  Notwithstanding any other provision of the exchange offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the exchange offer if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, the Company determines that the exchange offer
violates applicable law, any applicable interpretation of the staff of the SEC
or any order of any governmental agency or court of competent jurisdiction.
 
  The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any
time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time.
 
                                      116

 
  In addition, the Company will not accept for exchange any Old Notes tendered,
and no New Notes will be issued in exchange for any such Old Notes, if at such
time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended. In any such event the Company is required to use every reasonable
effort to obtain the withdrawal of any stop order at the earliest possible
time.
 
Exchange Agent
 
IBJ Whitehall Bank & Trust Company has been appointed as the Exchange Agent for
the Exchange Offer. All executed Letters of Transmittal should be directed to
the Exchange Agent at one of the addresses set forth below:
 


  By Hand/Overnight Courier:                       By Mail:
                                   
  IBJ Whitehall Bank & Trust Company  IBJ Whitehall Bank & Trust Company
  One State Street                    Post Office Box 84
  New York, NY 10004                  Bowling Green Station
  Attn: Securities Processing Window, New York, NY 10274-0084
  Subcellar One (SC-1)                Attn: Reorganization Operations

 
  By Facsimile
 
  IBJ Whitehall Bank & Trust Company
  Attn: Reorganization Operations
  Facsimile No. (212) 858-2611, with a
  confirmation by telephone to:
  Telephone No. (212) 858-2103
 
  Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the address and
telephone number set forth in the Letter of Transmittal.
 
  DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF TRANSMITTAL,
OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER OTHER THAN THE
ONES SET FORTH ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE A VALID
DELIVERY.
 
Fees and Expenses
 
  The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the exchange offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
 
  The estimated cash expenses to be incurred in connection with the exchange
offer will be paid by the Company and are estimated in the aggregate to be
$700,000, which includes fees and expenses of the Exchange Agent, accounting,
legal, printing, and related fees and expenses.
 
Transfer Taxes
 
  Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the exchange offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
 
 
                                      117

 
Accounting Treatment
 
  The Notes will be recorded at the carrying value of the Old Notes as
reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company upon the exchange of Notes for Old Notes. Expenses incurred in
connection with the issuance of the Notes will be amortized over the remaining
term of the Notes.
 
Certain Federal Income Tax Consequences of the Exchange Offer
 
  The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations,
judicial authority and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the "IRS") will not take a
contrary view, and no ruling from the IRS has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conditions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to holders. Certain holders of the Old Notes
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below.
 
  The issuance of the Notes to holders of the Old Notes pursuant to the terms
set forth in this Prospectus will not constitute an exchange for federal income
tax purposes. Consequently, no gain or loss would be recognized by holders of
the Old Notes upon receipt of the Notes, and ownership of the Notes will be
considered a continuation of ownership of the Old Notes. For purposes of
determining gain or loss upon the subsequent sale or exchange of the Notes, a
holder's basis in the Notes should be the same as such holder's basis in the
Old Notes exchanged therefor. A holder's holding period for the Notes should
include the holder's holding period for the Old Notes exchanged therefor. The
issue price, original issue discount inclusion and other tax characteristics of
the Notes should be identical to the issue price, original issue discount
inclusion and other tax characteristics of the Old Notes exchanged therefor.
 
  HOLDERS OF OLD NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES OF EXCHANGING SUCH HOLDERS' OLD NOTES FOR NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
 
                                      118

 
                        DESCRIPTION OF THE SENIOR NOTES
 
General
 
The Senior Notes will be issued pursuant to an Indenture (the "Exchange Note
Indenture") between the Company and IBJ Schroder Bank & Trust Company, as
trustee (the "Exchange Note Trustee"), in a private transaction that is not
subject to the registration requirements of the Securities Act. See "Notice to
Investors." The terms of the Senior Notes include those stated in the Indenture
and those made part of the Exchange Note Indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act"). The Senior Notes are subject
to all such terms, and Holders of Senior Notes are referred to the Exchange
Note Indenture and the Trust Indenture Act for a statement thereof. The
following summary of the material provisions of the Exchange Note Indenture
does not purport to be complete and is qualified in its entirety by reference
to the Exchange Note Indenture, including the definitions therein of certain
terms used below. Copies of the proposed form of Exchange Note Indenture and
Registration Rights Agreement are available as set forth below under "--
Additional Information." The definitions of certain terms used in the following
summary are set forth below under "--Certain Definitions." For purposes of this
summary, the term "Company" refers only to AEI Resources, Inc. and not to any
of its Subsidiaries.
 
The Senior Notes will be general unsecured obligations of the Company and AEI
Holding and will rank pari passu in right of payment with all current and
future Senior Indebtedness of the Company, including the Senior Credit
Facilities and will rank senior in right of payment to all subordinated
Indebtedness (as defined) of the Company, including the Senior Subordinated
Notes. However, the Company and its Restricted Subsidiaries are parties to
Senior Credit Facilities and all borrowings thereunder are secured by a first
priority Lien on certain of the assets of the Company and its Restricted
Subsidiaries. As a result, the Senior Notes are effectively subordinated to the
Senior Credit Facilities to the extent of such collateral. AEI Holding, the
issuer of the Old Notes, will be a co-obligor of the Senior Notes. As of
September 30, 1998, on a pro forma basis after giving effect to the
Transactions, $575.0 million would have been outstanding under the Senior
Credit Facilities and approximately $117.0 million would have been available
for borrowing therewith (after giving effect to approximately $183.0 million of
outstanding letters of credit). The Exchange Note Indenture will permit
substantial additional borrowings under the Senior Credit Facilities in the
future. See "Risk Factors --Subordination."
 
As of the date of the closing of the Transactions, all of the Company's
Subsidiaries will be Restricted Subsidiaries. However, under certain
circumstances, the Company will be able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not
be subject to many of the restrictive covenants set forth in the Exchange Note
Indenture.
 
Principal, Maturity and Interest
 
The Senior Notes offered hereby will be limited in aggregate principal amount
to $200.0 million and will mature on December 15, 2005. Interest on the Senior
Notes will accrue at a rate per annum equal to the Exchange Note Coupon and
will be payable semi-annually in arrears on June 15 and December 15 commencing
on December 15, 1998, to Holders of record on the immediately preceding June 1
and December 1, respectively. Interest on the Senior Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the most recent date to which interest was paid on the Old Notes
which are tendered for exchange. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. Principal, premium, if any, and
interest and Liquidated Damages on the Senior Notes will be payable at the
office or agency of the Company maintained for such purpose within the City and
State of New York or, at the option of the Company, payment of interest and
Liquidated Damages, if any, may be made by check mailed to the Holders of the
Senior Notes at their respective addresses set forth in the register of Holders
of Senior Notes; provided that all payments of principal, premium, interest and
Liquidated Damages with respect to Senior Notes the Holders of which have given
wire transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the
Holders thereof.
 
                                      119

 
Until otherwise designated by the Company, the Company's office or agency in
New York will be the office of the Exchange Note Trustee maintained for such
purpose. The Senior Notes will be issued in denominations of $1,000 and
integral multiples thereof.
 
Exchange Note Guarantees
 
The Company's payment obligations under the Senior Notes will be jointly and
severally guaranteed (the "Exchange Note Guarantees") by the Exchange Note
Guarantors. The obligations of each Exchange Note Guarantor under its Exchange
Note Guarantee will be limited to the maximum amount that would not constitute
a fraudulent conveyance under applicable law. See "Risk Factors--Fraudulent
Conveyance Matters." Notwithstanding the foregoing, no Subsidiary of the
Company will be required to endorse a Subsidiary Guarantee unless such
Subsidiary is required to, and does, simultaneously execute a Guarantee of the
Senior Credit Facilities.
 
The Senior Notes will not be guaranteed by Yankeetown Dock Corporation or any
of its direct and indirect Subsidiaries or by any current or future Foreign
Subsidiaries of the Company. The aggregate net assets, earnings and equity of
the Exchange Note Guarantors and the Company are substantially equivalent to
the net assets, earnings and equity of the Company on a consolidated basis. The
claims of creditors (including trade creditors) of any Non-Guarantor Subsidiary
will generally have priority as to the assets of such Subsidiaries over the
claims of the holders of the Senior Notes.
 
The Exchange Note Indenture will provide that no Subsidiary Guarantor may
consolidate with or merge with or into (whether or not such Subsidiary
Guarantor is the surviving Person), another corporation, Person or entity
whether or not affiliated with such Subsidiary Guarantor unless (i) subject to
the provisions of the following paragraph, the Person formed by or surviving
any such consolidation or merger (if other than such Subsidiary Guarantor)
assumes all the obligations of such Subsidiary Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Exchange Note Trustee, under the Senior Notes, the Exchange Note Indenture and
the Registration Rights Agreement; (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists; and (iii) the Company would
be permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio,
immediately after giving effect to such transaction, to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the covenant described below under the caption "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock."
 
The Exchange Note Indenture will provide that in the event of (a) a sale or
other disposition of all of the assets of any Subsidiary Guarantor, by way of
merger, consolidation or otherwise, (b) a sale or other disposition of all of
the capital stock of any Subsidiary Guarantor or (c) the designation of a
Subsidiary Guarantor as an Unrestricted Subsidiary in accordance with the terms
of the Exchange Note Indenture, then such Subsidiary Guarantor (in the event of
a sale or other disposition, by way of such a merger, consolidation or
otherwise, of all of the capital stock of such Subsidiary Guarantor) or the
corporation acquiring the property (in the event of a sale or other disposition
of all of the assets of such Subsidiary Guarantor) will be released and
relieved of any obligations under its Subsidiary Guarantee; provided that the
Net Proceeds of any such sale or other disposition are applied in accordance
with the applicable provisions of the Exchange Note Indenture and any such
designation of a Subsidiary Guarantor as an Unrestricted Subsidiary complies
with all applicable covenants. See "--Repurchase at the Option of Holders--
Asset Sales."
 
Optional Redemption
 
On and after December 15, 2002, the Senior Notes will be subject to redemption
at any time at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the applicable redemption prices
(such prices being subject to reset in the event the Exchange Note Coupon is
reset) plus accrued and unpaid interest and Liquidated Damages thereon to the
applicable redemption date. The applicable
 
                                      120

 
redemption prices will be determined on the Pricing Date and will be 100% plus
one half of the Exchange Note Coupon during the twelve-month period commencing
on December 15, 2002, scaling down ratably on each December 15th in the years
2003 and 2004. The redemption prices will be reset using the formula described
in the preceding sentence to reflect the effect of any reset of the Exchange
Note Coupon.
 
In addition, prior to December 15, 2002, the Senior Notes will be redeemable at
a price equal to 100% of the principal amount thereof plus an applicable Make
Whole Premium, plus, to the extent not included in the Make Whole Premium,
accrued and unpaid interest and Liquidated Damages, if any, to the date of
redemption.
 
For purposes of the foregoing, the "Make Whole Premium" means, with respect to
an Exchange Note, an amount equal to the greater of (A) the redemption price of
such Exchange Note on December 15, 2002 and (B) the excess of, if any, (1) the
present value of the remaining interest, premium, if any, and principal
payments due on such Exchange Note as if such Exchange Note were redeemed on
December 15, 2002, computed using a discount rate equal to the Treasury Rate
plus 50 basis points, over (2) the outstanding principal amount of such
Exchange Note.
 
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled by, and
published in, the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
date fixed for redemption of the Senior Notes (or, if such Statistical Release
is no longer published, any publicly available source of similar market data))
most nearly equal to the then remaining Weighted Average Life to Maturity of
the Senior Notes; provided, however, that if the Weighted Average Life to
Maturity of the Senior Notes is not equal to the constant maturity of a United
States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the
Weighted Average Life to Maturity of the Senior Notes is less than one year,
the weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used.
 
Notwithstanding the foregoing, at any time on or before December 15, 2000, the
Company may on any one or more occasions redeem up to 35% of the aggregate
principal amount of Senior Notes ever issued under the Exchange Note Indenture
at a redemption price equal to the principal amount thereof plus a premium
equal to the Exchange Note Coupon plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the redemption date, with the net cash
proceeds of an initial public offering of common stock of the Company or
Holdings (to the extent that the net proceeds therefrom are contributed to the
Company as common equity capital); provided that at least 65% of the aggregate
principal amount of Senior Notes issued on the date of the Exchange Note
Indenture remains outstanding immediately after the occurrence of such
redemption (excluding Senior Notes held by Holdings or the Company and their
Subsidiaries) and provided, further, that such redemption shall occur within 45
days of the date of the closing of such initial public offering.
 
Mandatory Redemption
 
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Senior Notes.
 
Repurchase at the Option of Holders
 
Change of Control
 
Upon the occurrence of a Change of Control, each Holder of Senior Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Senior Notes pursuant
to the offer described below (the "Change of Control Offer") at an offer price
in cash equal to
 
                                      121

 
101% of the aggregate principal amount thereof plus accrued and unpaid interest
and Liquidated Damages thereon, if any, to the date of purchase (the "Change of
Control Payment"). Within ten days following any Change of Control, the Company
will mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Senior Notes
on the date specified in such notice, which date shall be no earlier than 30
days and no later than 60 days from the date such notice is mailed (the "Change
of Control Payment Date"), pursuant to the procedures required by the Exchange
Note Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Senior Notes as a result of
a Change of Control.
 
On the Change of Control Payment Date, the Company will, to the extent lawful,
(1) accept for payment all Senior Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Senior Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Exchange Note Trustee the Senior Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Senior Notes or portions
thereof being purchased by the Company. The Paying Agent will promptly mail to
each Holder of Senior Notes so tendered the Change of Control Payment for such
Senior Notes, and the Exchange Note Trustee will promptly authenticate and mail
(or cause to be transferred by book entry) to each Holder a new Exchange Note
equal in principal amount to any unpurchased portion of the Senior Notes
surrendered, if any; provided that each such new Exchange Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
 
The Change of Control provisions described above will be applicable whether or
not any other provisions of the Exchange Note Indenture are applicable. Except
as described above with respect to a Change of Control, the Senior Notes
Indenture will not contain provisions that permit the Holders of the Senior
Notes to require that the Company repurchase or redeem the Senior Notes in the
event of a takeover, recapitalization or similar transaction.
 
The Company's other senior Indebtedness, including the Senior Credit
Facilities, contains prohibitions of certain events that would constitute a
Change of Control. In addition, the exercise by the Holders of Senior Notes of
their right to require the Company to repurchase the Senior Notes could cause a
default under such other senior Indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchases on the
Company. Finally, the Company's ability to pay cash to the Holders of Senior
Notes upon a repurchase may be limited by the Company's then existing financial
resources. See "Risk Factors--Financing Change of Control Offer."
 
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Senior Notes validly tendered and not withdrawn under
such Change of Control Offer.
 
The definition of Change of Control set forth under "--Certain Definitions"
includes a phrase relating to the sale, lease, transfer, conveyance or other
disposition of "all or substantially all" of the assets of the Company and its
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of Senior Notes to require the Company to repurchase such Senior Notes
as a result of a sale, lease, transfer, conveyance or other disposition of less
than all of the assets of the Company and its Subsidiaries taken as a whole to
another Person or group may be uncertain.
 
 
                                      122

 
Asset Sales
 
The Exchange Note Indenture will provide that the Company will not, and will
not permit any of its Restricted Subsidiaries to, consummate an Asset Sale
unless (i) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
fair market value as determined in good faith by the Company (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Exchange Note Trustee with respect to any Asset Sale
determined to have a value greater that $25.0 million) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) except in the case
of Assets Held for Sale, at least 75% of the consideration therefor received by
the Company or such Subsidiary is in the form of cash, Cash Equivalents or
Marketable Securities; provided that the following amounts shall be deemed to
be cash: (w) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet), of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Senior Notes or any guarantee thereof) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases the Company or such Restricted Subsidiary from further
liability, (x) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received), (y) any Designated Noncash Consideration received by the Company or
any of its Restricted Subsidiaries in such Asset Sale; provided that the
aggregate fair market value (as determined above) of such Designated Noncash
Consideration, taken together with the fair market value at the time of receipt
of all other Designated Noncash Consideration received pursuant to this clause
(y) less the amount of Net Proceeds previously realized in cash from prior
Designated Noncash Consideration is less than 5% of Total Assets at the time of
the receipt of such Designated Noncash Consideration (with the fair market
value of each item of Designated Noncash Consideration being measured at the
time received and without giving effect to subsequent changes in value) and (z)
Additional Assets received in an exchange of assets transaction.
 
Within 360 days after the receipt of any cash Net Proceeds from an Asset Sale,
the Company or such Restricted Subsidiary, at its option, may apply such cash
Net Proceeds, at its option, (i) in the case of an Asset Sale of Assets Held
for Sale, toward the repayment of the Bridge Facilities and (ii) in the case of
all other Asset Sales, (a) to repay Indebtedness of the Company or any
Restricted Subsidiary that is not subordinated in right of payment to the
Senior Notes or to repay debt under one or more Credit Facilities and, if such
debt is revolving debt, to effect a corresponding commitment reduction
thereunder, (b) to the acquisition of all or a portion of the assets of, or a
majority of the Voting Stock of, another Permitted Business, the making of a
capital expenditure or the acquisition of other assets or Investments that are
used or useful in a Permitted Business or (c) to an Investment in Additional
Assets. Any cash Net Proceeds from Asset Sales that are not applied or invested
as provided in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $15.0 million, the Company will be required to make an offer to all
Holders of Senior Notes and all holders of other Indebtedness that ranks pari
passu with the Senior Notes containing provisions similar to those set forth in
the Exchange Note Indenture with respect to offers to purchase or redeem with
the proceeds of sales of assets (an "Asset Sale Offer") to purchase the maximum
principal amount of Senior Notes and such other Indebtedness that may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof plus accrued and unpaid interest
and Liquidated Damages thereon, if any, to the date of purchase, in accordance
with the procedures set forth in the Exchange Note Indenture and such other
Indebtedness. To the extent that any Excess Proceeds remain after consummation
of an Asset Sale Offer, the Company may use such Excess Proceeds for any
purpose not otherwise prohibited by the Exchange Note Indenture. If the
aggregate principal amount of Senior Notes and such other Indebtedness tendered
into such Asset Sale Offer surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Exchange Note Trustee shall select the Senior Notes and
such other Indebtedness to be purchased on a pro rata basis. Upon completion of
such offer to purchase, the amount of Excess Proceeds shall be reset at zero.
 
 
                                      123

 
Selection and Notice
 
If less than all of the Senior Notes are to be redeemed or purchased in an
offer to purchase at any time, selection of Senior Notes for redemption or
purchase will be made by the Exchange Note Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Senior Notes are listed, or, if the Senior Notes are not so listed, on a
pro rata basis, by lot or by such method as the Exchange Note Trustee shall
deem fair and appropriate; provided that no Senior Notes of $1,000 or less
shall be redeemed in part. Notices of redemption shall be mailed by first class
mail at least 30 but not more than 60 days before the redemption date to each
Holder of Senior Notes to be redeemed at its registered address. Notices of
redemption may not be conditional. If any Exchange Note is to be redeemed in
part only, the notice of redemption that relates to such Exchange Note shall
state the portion of the principal amount thereof to be redeemed. A new
Exchange Note in principal amount equal to the unredeemed portion thereof will
be issued in the name of the Holder thereof upon cancellation of the original
Exchange Note. Senior Notes called for redemption become due on the date fixed
for redemption. On and after the redemption date, interest ceases to accrue on
Senior Notes or portions of them called for redemption.
 
Certain Covenants
 
Restricted Payments
 
The Exchange Note Indenture will provide that the Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly make
any Restricted Payment of the types described in clauses (i) and (ii) of the
definition of Restricted Payments prior to the first anniversary of the Issue
Date. The Exchange Note Indenture will provide that the Company will not at any
time thereafter, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company or any of its
Restricted Subsidiaries) or to the direct or indirect holders of the Company's
or any of its Restricted Subsidiaries' Equity Interests in their capacity as
such (other than dividends or distributions payable in Equity Interests (other
than Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value (including, without limitation, in connection with
any merger or consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company; (iii) make any payment
on or with respect to, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated to the Senior Notes or
any Subsidiary Guarantee, except a payment of interest or principal at Stated
Maturity; or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless, at the time of and after giving effect to
such Restricted Payment:
 
    (a) no Default or Event of Default shall have occurred and be continuing
  or would occur as a consequence thereof; and
 
    (b) the Company would, at the time of such Restricted Payment and after
  giving pro forma effect thereto as if such Restricted Payment had been made
  at the beginning of the applicable four-quarter period, have been permitted
  to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
  Charge Coverage Ratio test set forth in the first paragraph of the covenant
  described below under caption "--Incurrence of Indebtedness and Issuance of
  Preferred Stock;" and
 
    (c) such Restricted Payment, together with the aggregate amount of all
  other Restricted Payments made by the Company and its Subsidiaries after
  the date of the Exchange Note Indenture (excluding Restricted Payments
  permitted by clauses (ii), (iii), (iv), (v), (vii), (viii) and (ix) of the
  next succeeding paragraph), is less than the sum, without duplication, of
  (i) 50% of the Consolidated Net Income of the Company for the period (taken
  as one accounting period) from the date of the closing of the issuance of
  the Senior Notes to the end of the Company's most recently ended fiscal
  quarter for which internal financial statements are available at the time
  of such Restricted Payment (or, if such Consolidated Net
 
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  Income for such period is a deficit, less 100% of such deficit), plus (ii)
  100% of the aggregate net cash proceeds received by the Company since the
  date of the closing of the issuance of the Senior Notes as a contribution
  to its common equity capital or from the issue or sale of Equity Interests
  of the Company (other than Disqualified Stock) or from the issue or sale of
  Disqualified Stock or debt securities of the Company that have been
  converted into such Equity Interests (other than Equity Interests (or
  Disqualified Stock or convertible debt securities) sold to a Subsidiary of
  the Company), plus (iii) to the extent that any Restricted Investment that
  reduced the amount available for Restricted Payments under this clause (c)
  is sold for cash or otherwise liquidated or repaid for cash or any dividend
  or payment is received by the Company or a Restricted Subsidiary after the
  date of the closing of the Acquisitions in respect of such Investment, 100%
  of the amount of Net Proceeds or dividends or payments (including the fair
  market value of property) received in connection therewith, up to the
  amount of the Restricted Investment that reduced this clause (c), and
  thereafter 50% of the amount of Net Proceeds or dividends or payments
  (including the fair market value of property) received in connection
  therewith (except that the amount of dividends or payments received in
  respect of payments of Obligations in respect of such Investments, such as
  taxes, shall not increase the amounts under this clause (c)), plus (iv) to
  the extent that any Unrestricted Subsidiary of the Company is redesignated
  as a Restricted Subsidiary after the date of the Exchange Note Indenture,
  100% of the fair market value of the Company's Investment in such
  Subsidiary as of the date of such redesignation up to the amount of the
  Restricted Investments made in such Subsidiary that reduced this clause (c)
  and 50% of the excess of the fair market value of the Company's Investment
  in such Subsidiary as of the date of such redesignation over (1) the amount
  of the Restricted Investment that reduced this clause (c) and (2) any
  amounts that increased the amount available as a Permitted Investment
  provided that with respect to any redesignation pursuant to this clause
  (iv) the Company shall deliver to the Exchange Note Trustee (I) in the case
  of any such redesignation involving aggregate fair market value greater
  than $2.0 million, a resolution of the Board of Directors set forth in an
  Officers' Certificate certifying such value or (II) in the case of any such
  redesignation involving aggregate fair market value greater than $10.0
  million, an independent appraisal or valuation opinion issued by an
  accounting, appraisal or investment banking firm of national standing;
  provided that any amounts that increase this clause (c) shall not
  duplicatively increase amounts available as Permitted Investments.
 
The foregoing provisions will not prohibit: (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Exchange Note Indenture; (ii) the redemption, repurchase, retirement,
defeasance or other acquisition of any subordinated Indebtedness or Equity
Interests of the Company in exchange for, or out of the net cash proceeds of
the substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of, other Equity Interests of the Company (other than any Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or other
acquisition shall be excluded from clause (c)(ii) of the preceding paragraph;
(iii) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness; (iv) dividends or distributions by a
Restricted Subsidiary of the Company so long as, in the case of any dividend or
distribution payable on or in respect of any class or series of securities
issued by a Restricted Subsidiary, the Company or a Restricted Subsidiary
receives at least its pro rata share of such dividend or distribution in
accordance with its Equity Interests in such class or series of securities; (v)
Investments in Unrestricted Subsidiaries having an aggregate fair market value
not to exceed the amount, at the time of such Investment, substantially
concurrently contributed in cash or Cash Equivalents to the common equity
capital of the Company after the date of the closing of the Acquisitions;
provided that any such amount contributed shall be excluded from the
calculation made pursuant to clause (c) of the preceding paragraph; (vi) the
payment of dividends on the Company's Common Stock, following the first public
offering of the Company's Common Stock after the date of the closing of the
Acquisitions, of up to 6% per annum of the net proceeds received by the Company
in such public offering, other than public offerings with respect to the
Company's Common Stock registered on Form S-8; (vii) the repurchase, redemption
or other acquisition or retirement for value of any Equity Interests of the
Company or any Restricted Subsidiary of the Company held by any present or
former employee or director of the Company (or any of its Restricted
Subsidiaries), other
 
                                      125

 
than Equity Interests held by the Principals or any of their Related Parties,
pursuant to any management equity subscription agreement or stock option
agreement or any other management or employee benefit plan; provided that (A)
the aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $2.0 million in any calendar year
(with unused amounts in any calendar year being carried over to succeeding
calendar years subject to a maximum (without giving effect to the following
proviso) of $5.0 million in any calendar year); provided further that such
amount in any calendar year may be increased by an amount not to exceed (x) the
cash proceeds from the sale of Equity Interests (not including Disqualified
Stock) of the Company or a Restricted Subsidiary to members of management and
directors of the Company and its Subsidiaries that occurs after the date of the
Indenture, plus (y) the cash proceeds of key-man life insurance policies
received by the Company and its Restricted Subsidiaries after the date of the
Indenture, less (z) the amount of any Restricted Payments previously made
pursuant to clauses (x) and (y) of this subparagraph (vii) and (B) no Default
or Event of Default shall have occurred and be continuing immediately after
such transaction; and, provided further, that cancellation of Indebtedness
owing to the Company from members of management of the Company or any of its
Restricted Subsidiaries (other than the Principals or any of their Related
Parties) in connection with a repurchase of Equity Interests of the Company or
a Restricted Subsidiary pursuant to any employment agreement or arrangement or
any stock option or similar plan will not be deemed to constitute a Restricted
Payment for purposes of this covenant or any other provision of the Exchange
Note Indenture; (viii) repurchases of Equity Interests deemed to occur upon
exercise of stock options if such Equity Interests represent a portion of the
exercise price of such options; (ix) the payment of dividends or distributions
to Holdings (I) pursuant to a tax allocation agreement in effect on the date of
the Exchange Note Indenture, in amounts required by Holdings to pay income
taxes; (II) in amounts required by Holdings to pay administrative expenses not
to exceed $500,000 in any calendar year; and (III) in order to permit Holdings
to repay Indebtedness under the Bridge Facilities; and (x) the use of any and
all Net Proceeds received from the sale of Assets Held for Sale to repay
Indebtedness outstanding under the Bridge Facilities.
 
As of the date of the Exchange Note Indenture, all of the Company's
Subsidiaries will be Restricted Subsidiaries. The Board of Directors may
designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such
designation would not cause a Default. For purposes of making such
determination, all outstanding Investments by the Company and its Restricted
Subsidiaries (except to the extent repaid in cash) in the Subsidiary so
designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the fair market value of
such Investments at the time of such designation. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
 
If, at any time, any Unrestricted Subsidiary would fail to meet the
requirements in the definition of "Unrestricted Subsidiary" as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Exchange Note Indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "Incurrence of Indebtedness
and Issuance of Preferred Stock," the Company shall be in default of such
covenant). The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under the covenant described under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a
pro forma basis as if such designation had occurred at the beginning of the
four-quarter reference period, and (ii) no Default or Event of Default would be
in existence following such designation.
 
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any
 
                                      126

 
non-cash Restricted Payment or any adjustment made pursuant to clause (c) of
the first paragraph of this covenant shall be determined by the Board of
Directors whose resolution with respect thereto shall be delivered to the
Exchange Note Trustee, such determination to be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if such fair market value exceeds $10.0 million. Not later
than the date of making any Restricted Payment, the Company shall deliver to
the Exchange Note Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed.
 
If any Restricted Investment is sold or otherwise liquidated or repaid or any
dividend or payment is received by the Company or a Restricted Subsidiary and
such amounts may be credited to clause (c) of the first paragraph of this
covenant, then such amounts will be credited only to the extent of amounts not
otherwise included in Consolidated Net Income and that do not otherwise
increase the amount available as a Permitted Investment.
 
Incurrence of Indebtedness and Issuance of Preferred Stock
 
The Exchange Note Indenture will provide that the Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not issue any
Disqualified Stock and will not permit any of its Subsidiaries to issue any
shares of preferred stock; provided, however, that the Company may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock
and the Subsidiary Guarantors may incur Indebtedness or issue Disqualified
Stock or preferred stock if the Fixed Charge Coverage Ratio for the Company's
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock or preferred
stock is issued would have been at least 2.0 to 1.0, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock or
preferred stock had been issued, as the case may be, at the beginning of such
four-quarter period.
 
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
 
    (i) the incurrence by the Company of Indebtedness under Credit Facilities
  (and the Guarantee thereof by the Subsidiary Guarantors); provided that the
  aggregate principal amount of all Indebtedness outstanding under this
  clause (i) after giving effect to such incurrence does not exceed an amount
  equal to $875.0 million (with letters of credit being deemed to have a
  principal amount equal to the maximum potential liability of the Company
  and its Restricted Subsidiaries thereunder) less the amount of proceeds of
  Asset Sales applied to repay any such term Indebtedness or revolving
  Indebtedness if such repayment of revolving Indebtedness resulted in a
  corresponding commitment reduction (excluding any such payments to the
  extent refinanced at the time of repayment);
 
    (ii) the incurrence by the Company and its Subsidiaries of Existing
  Indebtedness, the Senior Subordinated Notes issued in the Offering and the
  Guarantees thereof;
 
    (iii) (A) the guarantee by the Company or any of the Subsidiary
  Guarantors of Indebtedness of the Company or a Restricted Subsidiary of the
  Company or (B) the incurrence of Indebtedness of a Restricted Subsidiary to
  the extent that such Indebtedness is supported by a letter of credit, in
  each case that was permitted to be incurred by another provision of this
  covenant;
 
    (iv) the incurrence by the Company or any of its Restricted Subsidiaries
  of Indebtedness (including Capital Lease Obligations) to finance the
  acquisition (including by direct purchase, by lease or indirectly by the
  acquisition of the Capital Stock of a Person that becomes a Restricted
  Subsidiary as a result of such acquisition) or improvement of assets or
  property (real or personal) in an aggregate principal amount which, when
  aggregated with the principal amount of all other Indebtedness then
  outstanding pursuant to this clause (iv) and including all Permitted
  Refinancing Indebtedness incurred to refund, refinance or
 
                                      127

 
  replace any Indebtedness incurred pursuant to this clause (iv), does not
  exceed an amount equal to 5% of Total Assets at the time of such
  incurrence;
 
    (v) the incurrence by the Company or any of its Restricted Subsidiaries
  of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
  of which are used to refund, refinance or replace Indebtedness (other than
  intercompany Indebtedness) that was permitted by the Exchange Note
  Indenture to be incurred under the first paragraph hereof or clauses (ii),
  (iii) or (iv) of this paragraph;
 
    (vi) the incurrence by the Company or any of its Restricted Subsidiaries
  of intercompany Indebtedness between or among the Company and any of its
  Restricted Subsidiaries; provided, however, that (i) if the Company is the
  obligor on such Indebtedness, such Indebtedness is expressly subordinated
  to the prior payment in full in cash of all Obligations with respect to the
  Senior Notes and (ii)(A) any subsequent issuance or transfer of Equity
  Interests that results in any such Indebtedness being held by a Person
  other than the Company or a Restricted Subsidiary thereof and (B) any sale
  or other transfer of any such Indebtedness to a Person that is not either
  the Company or a Restricted Subsidiary thereof shall be deemed, in each
  case, to constitute an incurrence of such Indebtedness by the Company or
  such Restricted Subsidiary, as the case may be, that was not permitted by
  this clause (vi);
 
    (vii) the incurrence by the Company or any of its Restricted Subsidiaries
  of Hedging Obligations that are incurred in the ordinary course of business
  for the purpose of risk management and not for the purpose of speculation;
 
    (viii) the incurrence by the Company's Unrestricted Subsidiaries of Non-
  Recourse Debt, provided, however, that if any such Indebtedness ceases to
  be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
  deemed to constitute an incurrence of Indebtedness by a Restricted
  Subsidiary of the Company that was not permitted by this clause (viii), and
  the issuance of preferred stock by Unrestricted Subsidiaries;
 
    (ix) the incurrence of Indebtedness solely in respect of performance,
  surety and similar bonds or completion or performance guarantees
  (including, without limitation, performance guarantees pursuant to coal
  supply agreements or equipment leases and including letters of credit
  issued in support of such performance, surety and similar bonds), to the
  extent that such incurrence does not result in the incurrence of any
  obligation for the payment of borrowed money to others;
 
    (x) the incurrence of Indebtedness arising from agreements of the Company
  or a Restricted Subsidiary providing for indemnification, adjustment of
  purchase price or similar obligations, in each case, incurred or assumed in
  connection with the disposition of any business, assets or a Subsidiary;
  provided, however, that (i) such Indebtedness is not reflected on the
  balance sheet of the Company or any Restricted Subsidiary (contingent
  obligations referred to in a footnote to financial statements and not
  otherwise reflected on the balance sheet will not be deemed to be reflected
  on such balance sheet for purposes of this clause (i)) and (ii) the maximum
  assumable liability in respect of all such Indebtedness shall at no time
  exceed the gross proceeds including noncash proceeds (the fair market value
  of such noncash proceeds being measured at the time received and without
  giving effect to any subsequent changes in value) actually received by the
  Company and its Restricted Subsidiaries in connection with such
  disposition; and
 
    (xi) the incurrence by the Company or any of its Restricted Subsidiaries
  of additional Indebtedness in an aggregate principal amount (or accreted
  value, as applicable) at any time outstanding, including all Permitted
  Refinancing Indebtedness incurred to refund, refinance or replace any
  Indebtedness incurred pursuant to this clause (xi), not to exceed the
  greater of (i) (x) $25.0 million and (y) 1% of Total Assets if incurred on
  or prior to December 15, 2000 or (ii) (x) $50.0 million and (y) 2% of Total
  Assets if incurred thereafter.
 
The Exchange Note Indenture will also provide that the Company will not incur,
and will not permit its Restricted Subsidiaries to incur, any Indebtedness
(including Permitted Debt) that is contractually subordinated in right of
payment to any other Indebtedness of the Company or such Restricted Subsidiary
unless such Indebtedness is also contractually subordinated in right of payment
to the Senior Notes, or the Subsidiary
 
                                      128

 
Guarantees, as the case may be, on substantially identical terms; provided,
however, that no Indebtedness of the Company or any Restricted Subsidiary shall
be deemed to be contractually subordinated in right of payment to any other
Indebtedness of the Company or any Restricted Subsidiary solely by virtue of
being unsecured.
 
For purposes of determining compliance with this covenant, in the event that an
item of Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (i) through (xi) above or is entitled to be
incurred pursuant to the first paragraph of this covenant, the Company shall,
in its sole discretion, classify or reclassify such item of Indebtedness in any
manner that complies with this covenant. Accrual of interest, accretion or
amortization of original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms, and
the payment of dividends on Disqualified Stock in the form of additional shares
of the same class of Disqualified Stock, will not be deemed to be an incurrence
of Indebtedness or an issuance of Disqualified Stock for purposes of this
covenant; provided, in each such case, that the amount thereof is included in
Fixed Charges of the Company as accrued.
 
Incurrence of Senior Indebtedness
 
The Exchange Note Indenture will also provide that the Company will not, and
will not permit any of its Restricted Subsidiaries to, directly, or indirectly,
incur any Senior Indebtedness (other than (x) secured Indebtedness pursuant to
the Senior Credit Facilities not in excess of $875.0 million at any one time
outstanding thereunder and (y) Indebtedness incurred pursuant to clauses (iii)
through (xi) of the definition of Permitted Debt); provided, however, that the
Company or any of its Restricted Subsidiaries may incur Senior Indebtedness
(including Acquired Debt that is Senior Indebtedness) if the Company's Debt to
Cash Flow Ratio at the time of incurrence of such Senior Indebtedness, after
giving pro forma effect to such incurrence as of such date and to the use of
proceeds therefrom as if the same had occurred at the beginning of the most
recently ended four full fiscal quarter period of the Company for which
internal financial statements are available, would have been no greater than
3.0 to 1; provided, further, that any unsecured Senior Indebtedness to be
issued in compliance with this proviso must have a maturity date or mandatory
redemption or repurchase date which is the same as or later than the maturity
date of the Senior Notes.
 
Liens
 
The Exchange Note Indenture will provide that the Company will not and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, assume or otherwise cause or suffer to exist or become effective any
Lien of any kind (other than Permitted Liens) upon any of their property or
assets, now owned or hereafter acquired, unless all payments due under the
Exchange Note Indenture and the Senior Notes are secured on an equal and
ratable basis with the obligations so secured until such time as such
obligations are no longer secured by a Lien.
 
Dividend and Other Payment Restrictions Affecting Subsidiaries
 
The Exchange Note Indenture will provide that the Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any Restricted Subsidiary to
(i)(a) pay dividends or make any other distributions to the Company or any of
its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits, or (b) pay any
indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii)
make loans or advances to the Company or any of its Restricted Subsidiaries or
(iii) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries. However, the foregoing restrictions will not apply to
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Exchange Note Indenture, (b) the
Senior Credit Facilities as in effect as of the date of the Exchange Note
Indenture, and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other payment
restrictions than those contained in the Senior Credit Facilities as in effect
on the date of the Exchange
 
                                      129

 
Note Indenture, (c) the Exchange Note Indenture, the Senior Subordinated Note
Indenture, the Senior Notes and the Senior Subordinated Notes, (d) applicable
law or any applicable rule, regulation or order, (e) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided
that, in the case of Indebtedness, such Indebtedness was permitted by the terms
of the Exchange Note Indenture to be incurred, (f) customary non-assignment
provisions in leases and other agreements entered into in the ordinary course
of business and consistent with past practices, (g) purchase money obligations
for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired, (h) any agreement for the sale of a Restricted Subsidiary that
restricts distributions by that Restricted Subsidiary pending its sale, (i)
Permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive, taken as a whole, than those contained in the agreements governing
the Indebtedness being refinanced, (j) secured Indebtedness otherwise permitted
to be incurred pursuant to the provisions of the covenant described above under
the caption "--Liens" that limits solely the right of the debtor to dispose of
the assets securing such Indebtedness, (k) provisions with respect to the
disposition or distribution of assets or property in joint venture agreements
and other similar agreements entered into in the ordinary course of business,
(l) restrictions on cash or other deposits or net worth imposed by customers or
lessors under contracts or leases entered into in the ordinary course of
business and (m) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of the contracts, instruments or obligations
referred to in clauses (a) through (l) above, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are, in the good faith judgment of the Company's
Board of Directors, not materially more restrictive in the aggregate with
respect to such dividend and other payment restrictions than those (considered
as a whole) contained in the dividend or other payment restrictions prior to
such amendment, modification, restatement, renewal, increase, supplement,
refunding, replacement or refinancing.
 
Merger, Consolidation, or Sale of Assets
 
The Exchange Note Indenture will provide that the Company may not consolidate
or merge with or into (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets in one or more related
transactions, to another corporation, Person or entity unless (i) the Company
is the surviving corporation or the entity or the Person formed by or surviving
any such consolidation or merger (if other than the Company) or to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Registration Rights Agreement, the Senior
Notes and the Exchange Note Indenture pursuant to a supplemental indenture in a
form reasonably satisfactory to the Exchange Note Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; and (iv) except
in the case of a merger of the Company with or into a Wholly Owned Restricted
Subsidiary of the Company, immediately after giving pro forma effect to such
transaction, as if such transaction had occurred at the beginning of the
applicable four-quarter period, (A) the entity surviving such consolidation or
merger would be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock" or (B) the Fixed Charge Coverage
Ratio for the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made would, immediately after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the
 
                                      130

 
applicable four-quarter period, not be less than such Fixed Charge Coverage
Ratio for the Company and its Restricted Subsidiaries immediately prior to such
transaction. The Exchange Note Indenture will also provide that the Company may
not, directly or indirectly, lease all or substantially all of its properties
or assets, in one or more related transactions, to any other Person. The
provisions of this covenant will not be applicable to a sale, assignment,
transfer, conveyance or other disposition of assets between or among the
Company and its Restricted Subsidiaries.
 
Notwithstanding the foregoing clause (iv), (i) any Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company and (ii) the Company may merge with an Affiliate that has
no significant assets or liabilities and was formed solely for the purpose of
changing the jurisdiction of organization of the Company in another State of
the United States or the form of organization of the Company so long as the
amount of Indebtedness of the Company and its Restricted Subsidiaries is not
increased thereby and provided that the successor assumes all the obligations
of the Company under the Registration Rights Agreement, the Senior Notes and
the Exchange Note Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Exchange Note Trustee.
 
Transactions with Affiliates
 
The Exchange Note Indenture will provide that the Company will not, and will
not permit any of its Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
that are materially no less favorable to the Company or the relevant Subsidiary
than those that would have been obtained in a comparable transaction by the
Company or such Subsidiary with an unrelated Person and (ii) the Company
delivers to the Exchange Note Trustee (a) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $2.0 million, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors and (b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal
or investment banking firm of national standing. Notwithstanding the foregoing,
the following items shall not be deemed to be Affiliate Transactions: (i)
transactions entered into pursuant to the terms of (a) the Haulage and Delivery
Agreement,(b) the MMI Service Agreement, (c) the MMI Leases, (d) the Bowie
Sales Agency Agreement, (e) the Manufacture and Service Agreement and (f) the
Technology Sharing Agreement, each as in effect on the date of the Exchange
Note Indenture or as thereafter amended, provided any such amendment does not
materially and adversely effect the rights of the Holders of the Senior Notes
under the Exchange Note Indenture, (ii) any employment agreement or arrangement
entered into by the Company or any of its Subsidiaries or any employee benefit
plan available to employees of the Company and its Subsidiaries generally, in
each case in the ordinary course of business and consistent with the past
practice of the Company or such Subsidiary, (iii) transactions between or among
the Company and/or its Subsidiaries, (iv) payment of reasonable directors fees
to Persons who are not otherwise Affiliates of the Company, (v) Restricted
Payments that are permitted by the provisions of the Exchange Note Indenture
described above under the caption "--Restricted Payments" or pursuant to the
definition of Permitted Investments, (vi) indemnification payments made to
officers, directors and employees of the Company or any Restricted Subsidiary
pursuant to charter, bylaw, statutory or contractual provisions; and
(vii) transactions pursuant to the terms of the Transaction Documents in effect
on the dates of the closings of the Acquisitions.
 
Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Subsidiaries
 
The Exchange Note Indenture will provide that the Company (i) will not, and
will not permit any Wholly Owned Restricted Subsidiary of the Company to,
transfer, convey, sell, lease or otherwise dispose of any Equity Interests in a
Wholly Owned Restricted Subsidiary of the Company to any Person (other than the
 
                                      131

 
Company or a Wholly Owned Subsidiary of the Company), unless (1) such transfer,
conveyance, sale, lease or other disposition is of all the Equity Interests in
such Wholly Owned Restricted Subsidiary and (2) the cash Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in
accordance with the covenant described above under the caption "Repurchase at
the Option of Holders--Asset Sales," and (ii) will not permit any Wholly Owned
Restricted Subsidiary of the Company to issue any of its Equity Interests
(other than, if necessary, shares of its Capital Stock constituting directors'
qualifying shares) to any Person other than to the Company or a Wholly Owned
Restricted Subsidiary of the Company.
 
Additional Subsidiary Guarantees
 
The Exchange Note Indenture will provide that if the Company or any of its
Domestic Subsidiaries shall acquire or create another Domestic Subsidiary after
the date of the Exchange Note Indenture and such Domestic Subsidiary provides a
guarantee of the Senior Credit Facilities, then such newly acquired or created
Domestic Subsidiary shall execute a supplemental indenture in form and
substance satisfactory to the Exchange Note Trustee providing that such
Domestic Subsidiary shall become a Subsidiary Guarantor under the Exchange Note
Indenture, provided, however, this covenant shall not apply to any Domestic
Subsidiary that has been properly designated as an Unrestricted Subsidiary in
accordance with the Exchange Note Indenture for so long as it continues to
constitute an Unrestricted Subsidiary.
 
Business Activities
 
The Company will not, and will not permit any Restricted Subsidiary to, engage
in any business other than Permitted Businesses, except to such extent as would
not be material to the Company and its Restricted Subsidiaries taken as a
whole.
 
Payments for Consent
 
The Exchange Note Indenture will provide that neither the Company nor any of
its Restricted Subsidiaries will, directly or indirectly, pay or cause to be
paid any consideration, whether by way of interest, fee or otherwise, to any
Holder of any Senior Notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Exchange Note Indenture or
the Senior Notes unless such consideration is offered to be paid or is paid to
all Holders of the Senior Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
 
Reports
 
The Exchange Note Indenture will provide that, whether or not required by the
rules and regulations of the SEC, so long as any Senior Notes are outstanding,
the Company will furnish to the Holders of Senior Notes (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the SEC on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results
of operations of the Company and its consolidated Subsidiaries (showing in
reasonable detail, either on the face of the financial statements or in the
footnotes thereto and in Management's Discussion and Analysis of Financial
Condition and Results of Operations, the financial condition and results of
operations of the Company and its Restricted Subsidiaries separate from the
financial condition and results of operations of the Unrestricted Subsidiaries
of the Company) and, with respect to the annual information only, a report
thereon by the Company's certified independent accountants and (ii) all current
reports that would be required to be filed with the SEC on Form 8-K if the
Company were required to file such reports, in each case within the time
periods specified in the SEC's rules and regulations. In addition, whether or
not required by the rules and regulations of the SEC, the Company will file a
copy of all such information and reports with the SEC for public availability
within the time periods specified in the SEC's rules and regulations (unless
the SEC will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company and the Subsidiary Guarantors have agreed that, for so long as any
Senior
 
                                      132

 
Notes remain outstanding, they will furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
 
Events of Default and Remedies
 
The Exchange Note Indenture will provide that each of the following constitutes
an Event of Default: (i) default for 30 days in the payment when due of
interest on, or Liquidated Damages, if any, with respect to, the Senior Notes;
(ii) default in payment when due of the principal of or premium, if any, on the
Senior Notes; (iii) failure by the Company or any of its Subsidiaries to make
the offer required or to purchase any of the Senior Notes as required under the
provisions described under the captions "--Repurchase at the Option of
Holders--Change of Control," or "--Repurchase at the Option of Holders--Asset
Sales;" (iv) failure by the Company or any of its Subsidiaries for 30 days
after notice to comply with the provisions of the covenants entitled "--Certain
Covenants--Restricted Payments" or "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock;" or failure by the Company or any
of its Subsidiaries for 60 days after notice to comply with any of its other
agreements in the Exchange Note Indenture or the Senior Notes; (v) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Restricted Subsidiaries (or the payment of which
is guaranteed by the Company or any of its Restricted Subsidiaries) whether
such Indebtedness or guarantee now exists, or is created after the date of the
Exchange Note Indenture, which default (a) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on the date of
such default (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $25.0 million or more;
(vi) failure by the Company or any of its Restricted Subsidiaries or any group
of Restricted Subsidiaries that, taken as a whole, would be a Significant
Subsidiary to pay final judgments aggregating in excess of $25.0 million, which
judgments are not paid, discharged or stayed for a period of 60 days; (vii)
except as permitted by the Exchange Note Indenture, any Subsidiary Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or any Exchange Note
Guarantor, or any Person acting on behalf of any Exchange Note Guarantor, shall
deny or disaffirm its obligations under its Senior Subsidiary Guarantee; and
(viii) certain events of bankruptcy or insolvency with respect to the Company,
any of its Significant Subsidiaries that are Restricted Subsidiaries or any
group of Restricted Subsidiaries that, taken as a whole, would be a Significant
Subsidiary.
 
If any Event of Default occurs and is continuing, the Exchange Note Trustee or
the Holders of at least 25% in principal amount of the then outstanding Senior
Notes may declare all the Senior Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company, any
Significant Subsidiary that is a Restricted Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding Senior Notes will become due and payable without
further action or notice. Holders of the Senior Notes may not enforce the
Exchange Note Indenture or the Senior Notes except as provided in the Exchange
Note Indenture. Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding Senior Notes may direct the Exchange
Note Trustee in its exercise of any trust or power. The Exchange Note Trustee
may withhold from Holders of the Senior Notes notice of any continuing Default
or Event of Default (except a Default or Event of Default relating to the
payment of principal or interest) if it determines that withholding notice is
in their interest.
 
In the case of any Event of Default occurring by reason of any willful action
(or inaction) taken (or not taken) by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the Senior Notes pursuant to the
optional redemption provisions of the Exchange Note Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the Senior Notes. If an Event of
Default occurs prior to December 15, 2002 by reason of any willful action (or
inaction) taken (or not
 
                                      133

 
taken) by or on behalf of the Company with the intention of avoiding paying the
premium upon redemption of the Senior Notes prior to December 15, 2002, then
the premium specified in the event of an optional redemption using the net cash
proceeds of an Equity Offering shall also become immediately due and payable to
the extent permitted by law upon the acceleration of the Senior Notes.
 
The Holders of a majority in aggregate principal amount of the Senior Notes
then outstanding by notice to the Exchange Note Trustee may on behalf of the
Holders of all of the Senior Notes waive any existing Default or Event of
Default and its consequences under the Exchange Note Indenture except a
continuing Default or Event of Default in the payment of interest on, or the
principal of, the Senior Notes.
 
The Company is required to deliver to the Exchange Note Trustee annually a
statement regarding compliance with the Exchange Note Indenture, and the
Company is required upon becoming aware of any Default or Event of Default, to
deliver to the Exchange Note Trustee a statement specifying such Default or
Event of Default.
 
No Personal Liability of Directors, Officers, Employees and Stockholders
 
No director, officer, employee, incorporator or stockholder of the Company or
any Person controlling such Person, as such, shall have any liability for any
obligations of the Company under the Senior Notes, the Subsidiary Guarantees,
the Exchange Note Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Senior Notes by
accepting a Exchange Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Senior Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the SEC that such a waiver is against
public policy.
 
Legal Defeasance and Covenant Defeasance
 
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Senior Notes
to receive payments in respect of the principal of, premium, if any, and
interest and Liquidated Damages, if any, on such Senior Notes when such
payments are due from the trust referred to below, (ii) the Company's
obligations with respect to the Senior Notes concerning issuing temporary
Senior Notes, registration of Senior Notes, mutilated, destroyed, lost or
stolen Senior Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Exchange Note Trustee, and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Exchange Note Indenture. In addition, the Company may, at its option and at
any time, elect to have the obligations of the Company released with respect to
certain covenants that are described in the Exchange Note Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Senior Notes.
In the event Covenant Defeasance occurs, certain events (not including non-
payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Senior Notes.
 
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Exchange Note Trustee, in trust, for
the benefit of the Holders of the Senior Notes, cash in U.S. dollars, non-
callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest and Liquidated Damages, if any, on the outstanding Senior Notes on the
stated maturity or on the applicable redemption date, as the case may be, and
the Company must specify whether the Senior Notes are being defeased to
maturity or to a particular redemption date; (ii) in the case of Legal
Defeasance, the Company shall have delivered to the Exchange Note Trustee an
opinion of counsel in the United States reasonably acceptable to the Exchange
Note Trustee confirming that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the date
of the Exchange Note Indenture, there has been a change in the applicable
federal income tax law, in either case
 
                                      134

 
to the effect that, and based thereon such opinion of counsel shall confirm
that, the Holders of the outstanding Senior Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Exchange Note Trustee an opinion of counsel
in the United States reasonably acceptable to the Exchange Note Trustee
confirming that the Holders of the outstanding Senior Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the
effective date of such defeasance (v) such Legal Defeasance or Covenant
Defeasance will not result in a breach or violation of, or constitute a default
under any material agreement or instrument (other than the Exchange Note
Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company must
have delivered to the Exchange Note Trustee, at or prior to the effective date
of such defeasance, an opinion of counsel to the effect that at the effective
date of such defeasance, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; (vii) the Company must deliver to the Exchange
Note Trustee an Officers' Certificate stating that the deposit was not made by
the Company with the intent of preferring the Holders of Senior Notes over the
other creditors of the Company with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and (viii) the
Company must deliver to the Exchange Note Trustee an Officers' Certificate and
an opinion of counsel, each stating that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with.
 
Transfer and Exchange
 
A Holder may transfer or exchange Senior Notes in accordance with the Exchange
Note Indenture. The Registrar and the Exchange Note Trustee may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and the Company may require a Holder to pay any taxes and fees
required by law or permitted by the Exchange Note Indenture. The Company is not
required to transfer or exchange any Exchange Note selected for redemption.
Also, the Company is not required to transfer or exchange any Exchange Note for
a period of 15 days before a selection of Senior Notes to be redeemed.
 
The registered Holder of an Exchange Note will be treated as the owner of it
for all purposes.
 
Amendment, Supplement and Waiver
 
Except as provided in the next two succeeding paragraphs, the Exchange Note
Indenture, the Senior Notes or the Guarantees of the Senior Notes by the
Exchange Note Guarantors may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the Senior Notes then
outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Senior Notes), and
any existing default or compliance with any provision of the Exchange Note
Indenture, the Senior Notes or the Guarantees of the Senior Notes by the
Exchange Note Guarantors may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Senior Notes (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Senior Notes).
 
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Senior Notes held by a non-consenting Holder): (i) reduce
the principal amount of Senior Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Exchange Note or alter the provisions with respect to the
redemption of the Senior Notes (other than provisions relating to
 
                                      135

 
the covenants described above under the caption "--Repurchase at the Option of
Holders"), (iii) reduce the rate of or change the time for payment of interest
on any Exchange Note, (iv) waive a Default or Event of Default in the payment
of principal of or premium, if any, or interest on the Senior Notes (except a
rescission of acceleration of the Senior Notes by the Holders of at least a
majority in aggregate principal amount of the Senior Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Exchange
Note payable in money other than that stated in the Senior Notes, (vi) make any
change in the provisions of the Exchange Note Indenture relating to waivers of
past Defaults or the rights of Holders of Senior Notes to receive payments of
principal of or premium, if any, or interest on the Senior Notes, (vii) waive a
redemption payment with respect to any Exchange Note (other than a payment
required by one of the covenants described above under the caption "--
Repurchase at the Option of Holders"), (viii) make any change in the foregoing
amendment and waiver provisions or (ix) release any Exchange Note Guarantor
from any of its obligations under its Exchange Note Guarantee or the Exchange
Note Indenture, except in accordance with the terms of the Exchange Note
Indenture.
 
Notwithstanding the foregoing, without the consent of any Holder of Senior
Notes, the Company and the Exchange Note Trustee may amend or supplement the
Exchange Note Indenture or the Senior Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Senior Notes in addition to or in
place of certificated Senior Notes, to provide for the assumption of the
Company's obligations to Holders of Senior Notes in the case of a merger or
consolidation or sale of all or substantially all of the Company's assets, to
make any change that would provide any additional rights or benefits to the
Holders of Senior Notes or that does not adversely affect the legal rights
under the Exchange Note Indenture of any such Holder, to comply with
requirements of the SEC in order to effect or maintain the qualification of the
Exchange Note Indenture under the Trust Indenture Act or to allow any Exchange
Note Guarantor to execute a supplemental Exchange Note Indenture and/or an
Exchange Note Guarantee with respect to the Senior Notes.
 
Concerning the Trustee
 
The Exchange Note Indenture contains certain limitations on the rights of the
Exchange Note Trustee, should it become a creditor of the Company, to obtain
payment of claims in certain cases, or to realize on certain property received
in respect of any such claim as security or otherwise. The Exchange Note
Trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the SEC for permission to continue or resign.
 
The Holders of a majority in principal amount of the then outstanding Senior
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Exchange Note
Trustee, subject to certain exceptions. The Exchange Note Indenture provides
that in case an Event of Default shall occur (which shall not be cured), the
Exchange Note Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Exchange Note Trustee will be under no obligation to
exercise any of its rights or powers under the Exchange Note Indenture at the
request of any Holder of Senior Notes, unless such Holder shall have offered to
the Exchange Note Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
 
Book-Entry, Delivery and Form
 
Except as set forth below, New Notes will be issued in registered, global form
in minimum denominations of $1,000 and integral multiples of $1,000 in excess
thereof. Senior Notes will be issued at the closing of the Exchange Offer (the
"Closing").
 
New Notes initially will be represented by one or more New Notes in registered,
global form without interest coupons (collectively, the "Global New Notes").
The Global New Notes will be deposited upon issuance with the [Exchange Note]
Trustee as custodian for DTC, in New York, New York, and registered in the name
of DTC or its nominee, in each case for credit to an account of a direct or
indirect participant in DTC as described below.
 
 
                                      136

 
Except as set forth below, the Global New Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global New Notes may not be exchanged for
New Notes in certificated form except in the limited circumstances described
below. See "--Exchange of Book-Entry New Notes for Certificated New Notes."
Except in the limited circumstances described below, owners of beneficial
interests in the Global New Notes will not be entitled to receive physical
delivery of Certificated New Notes (as defined below).
 
Initially, the Exchange Note Trustee will act as Paying Agent and Registrar.
The Senior Notes may be presented for registration of transfer and exchange at
the offices of the Registrar.
 
Depository Procedures
 
The following description of the operations and procedures of DTC are provided
solely as a matter of convenience. These operations and procedures are solely
within the control of DTC and are subject to changes by them from time to time.
The Company takes no responsibility for these operations and procedures and
urges investors to contact the system or its participants directly to discuss
these matters.
 
DTC has advised the Company that DTC is a limited-purpose trust company created
to hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers
and dealers (including the [Dealer Manager], banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
 
DTC has also advised the Company that, pursuant to procedures established by
it, (i) upon deposit of the Global New Notes, DTC will credit the accounts of
Participants designated by the Dealer Manager with portions of the principal
amount of the Global New Notes and (ii) ownership of such interests in the
Global New Notes will be shown on, and the transfer of ownership thereof will
be effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interest in the Global New Notes).
 
All interests in a Global Exchange Note may be subject to the procedures and
requirements of DTC. The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own. Consequently,
the ability to transfer beneficial interests in a Global Exchange Note to such
persons will be limited to that extent. Because DTC can act only on behalf of
Participants, which in turn act on behalf of Indirect Participants and certain
banks, the ability of a person having beneficial interests in a Global Exchange
Note to pledge such interests to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such interests, may be
affected by the lack of a physical certificate evidencing such interests.
 
Except as described below, owners of interests in the Global New Notes will not
have Senior Notes registered in their names, will not receive physical delivery
of Senior Notes in certificated form and will not be considered the registered
owners or "Holders" thereof under the Exchange Note Indenture for any purpose.
 
Payments in respect of the principal of, and premium, if any, and interest on a
Global Exchange Note registered in the name of DTC or its nominee will be
payable to DTC in its capacity as the registered Holder under the Exchange Note
Indenture. Under the terms of the Exchange Indenture, the Company and the
Exchange Note Trustee will treat the persons in whose names the Senior Notes,
including the Global New Notes, are registered
 
                                      137

 
as the owners thereof for the purpose of receiving such payments and for any
and all other purposes whatsoever. Consequently, neither the Company, the
Exchange Note Trustee nor any agent of the Company or the Exchange Note Trustee
has or will have any responsibility or liability for (i) any aspect of DTC's
records or any Participant's or Indirect Participant's records relating to or
payments made on account of beneficial ownership interests in the Global New
Notes, or for maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in the Global New Notes or (ii) any other matter relating
to the actions and practices of DTC or any of its Participants or Indirect
Participants. DTC has advised the Company that its current practice, upon
receipt of any payment in respect of securities such as the Senior Notes
(including principal and interest), is to credit the accounts of the relevant
Participants with the payment on the payment date, in amounts proportionate to
their respective holdings in the principal amount of beneficial interests in
the relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of Senior
Notes will be governed by standing instructions and customary practices and
will be the responsibility of the Participants or the Indirect Participants and
will not be the responsibility of DTC, the Exchange Note Trustee or the
Company. Neither the Company nor the Exchange Note Trustee will be liable for
any delay by DTC or any of its Participants in identifying the beneficial
owners of the Senior Notes, and the Company and the Exchange Note Trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee for all purposes.
 
Interests in the Global New Notes are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will, therefore, settle in immediately available funds, subject in
all cases to the rules and procedures of DTC and its Participants. See "--Same
Day Settlement and Payment."
 
Transfers between Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same day funds.
 
DTC has advised the Company that it will take any action permitted to be taken
by a Holder of Senior Notes only at the direction of one or more Participants
to whose account DTC has credited the interests in the Global New Notes and
only in respect of such portion of the aggregate principal amount of the Senior
Notes as to which such Participant or Participants has or have given such
direction. However, if there is an Event of Default under the Senior Notes, DTC
reserves the right to exchange the Global New Notes for legended Senior Notes
in certificated form, and to distribute such Senior Notes to its Participants.
 
Exchange of Book-Entry Senior Notes for Certificated Senior Notes
 
A Global Exchange Note is exchangeable for definitive Senior Notes in
registered certificated form ("Certificated Senior Notes") if (i) DTC (x)
notifies the Company that it is unwilling or unable to continue as depositary
for the Global New Notes and the Company thereupon fails to appoint a successor
depositary or (y) has ceased to be a clearing agency registered under the
Exchange Act, (ii) the Company, at its option, notifies the Exchange Note
Trustee in writing that it elects to cause the issuance of the Certificated
Senior Notes or (iii) there shall have occurred and be continuing a Default or
Event of Default with respect to the Senior Notes. In addition, beneficial
interests in a Global Exchange Note may be exchanged for Certificated Senior
Notes upon request but only upon prior written notice given to the Exchange
Note Trustee by or on behalf of DTC in accordance with the Exchange Note
Indenture. In all cases, Certificated Senior Notes delivered in exchange for
any Global Exchange Note or beneficial interests therein will be registered in
the names, and issued in any approved denominations, requested by or on behalf
of the depositary (in accordance with its customary procedures).
 
Exchange of Certificated Senior Notes for Book-Entry Senior Notes
 
Senior Notes issued in certificated form may not be exchanged for beneficial
interests in any Global Exchange Note unless the transferor first delivers to
the Exchange Note Trustee a written certificate (in the form provided
 
                                      138

 
in the Exchange Note Indenture) to the effect that such transfer will comply
with the appropriate transfer restrictions applicable to such Senior Notes.
 
Same Day Settlement and Payment
 
The Exchange Note Indenture will require that payments in respect of the Senior
Notes represented by the Global New Notes (including principal, premium, if
any, interest be made by wire transfer of immediately available funds to the
accounts specified by the Global Exchange Note Holder. With respect to Senior
Notes in certificated form, the Company will make all payments of principal,
premium, if any, interest by wire transfer of immediately available funds to
the accounts specified by the Holders thereof or, if no such account is
specified, by mailing a check to each such Holder's registered address. The
Senior Notes represented by the Global New Notes are expected and to trade in
DTC's Same-Day Funds Settlement System, and any permitted secondary market
trading activity in such Senior Notes will, therefore, be required by DTC to be
settled in immediately available funds. The Company expects that secondary
trading in any certificated Senior Notes will also be settled in immediately
available funds.
 
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Exchange Note from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Cedel participant, during the securities settlement
processing day (which must be a business day for Euroclear and Cedel)
immediately following the settlement date of DTC. DTC has advised the Company
that cash received in Euroclear or Cedel as a result of sales of interests in a
Global Exchange Note by or through a Euroclear or Cedel participant to a
Participant in DTC will be received with value on the settlement date of DTC
but will be available in the relevant Euroclear or Cedel cash account only as
of the business day for Euroclear or Cedel following DTC's settlement date.
 
Registration Rights; Liquidated Damages
 
The Company entered into the Registration Rights Agreement on December 14,
1998. Pursuant to the Registration Rights Agreement, the Company agreed to file
with the SEC the Exchange Offer Registration Statement on the appropriate form
under the Securities Act with respect to the New Notes. Upon the effectiveness
of the Exchange Offer Registration Statement, the Company will offer to the
Holders of Transfer Restricted Securities pursuant to the Exchange Offer who
are able to make certain representations the opportunity to exchange their
Transfer Restricted Securities for New Notes. If (i) the Company is not
required to file the Exchange Offer Registration Statement or permitted to
consummate the Exchange Offer because the Exchange Offer is not permitted by
applicable law or SEC policy or (ii) any Holder of Transfer Restricted
Securities notifies the Company prior to the 20th day following consummation of
the Exchange Offer that (A) it is prohibited by law or SEC policy from
participating in the Exchange Offer or (B) that it may not resell the New Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (C) that it is a
broker-dealer and owns Old Notes acquired directly from the Company or an
affiliate of the Company, the Company will file with the SEC a Shelf
Registration Statement to cover resales of the Old Notes by the Holders thereof
who satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement. The Company will use its best
efforts to cause the applicable registration statement to be declared effective
as promptly as possible by the SEC. For purposes of the foregoing, "Transfer
Restricted Securities" means each Old Note until (i) the date on which such Old
Note has been exchanged by a person other than a broker-dealer for a New Note
in the Exchange Offer, (ii) following the exchange by a broker-dealer in the
Exchange Offer of a Old Note for a New Note, the date on which such Note is
sold to a purchaser who receives from such broker-dealer on or prior to the
date of such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement, (iii) the date on which such Old Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iv) the date on which such Old Note
is distributed to the public pursuant to Rule 144 under the Act.
 
 
                                      139

 
The Registration Rights Agreement provides that (i) the Company will file an
Exchange Offer Registration Statement with, and use all commercially reasonable
efforts to have it declared effective by, the SEC as soon as practicable after
the Exchange Offer Closing Date, (ii) unless the Exchange Offer would not be
permitted by applicable law or SEC policy, commence the Exchange Offer and use
all commercially reasonable efforts to issue on or prior to 30 business days
after the date on which the Exchange Offer Registration Statement was declared
effective by the SEC, New Notes in exchange for all Old Notes tendered prior
thereto in the Exchange Offer, and (iii) if obligated to file the Shelf
Registration Statement, the Company will use all commercially reasonable
efforts to file the Shelf Registration Statement, and have it declared
effective by the SEC as soon as practicable. Until the Company completes the
Exchange Offer, the Company will pay liquidated damages ("Liquidated Damages")
to each Holder of Old Notes, in an amount equal to $.10 per week per $1,000
principal amount of Senior Notes held by such Holder, such amount of Liquidated
Damages to increase by an additional $.05 per week per $1,000 principal amount
of Senior Notes commencing December 8, 1998 and with respect to each subsequent
90-day period until the Company completes the Exchange Offer up to a maximum
amount of Liquidated Damages for all Registration Defaults of $.50 per week per
$1,000 principal amount of Old Notes. All accrued Liquidated Damages will be
paid by the Company on each Damages Payment Date to the Global Old Note Holder
by wire transfer of immediately available funds or by federal funds check and
to Holder of Certificated Securities by wire transfer to the accounts specified
by them or by mailing checks to their registered addresses if no such accounts
have been specified. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
 
Holders of Old Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver certain
information to be used in connection with the Shelf Registration Statement and
benefit from the provisions regarding Liquidated Damages set forth above.
 
Certain Definitions
 
Set forth below are certain defined terms used in the Exchange Note Indenture.
Reference is made to the Exchange Note Indenture for a full disclosure of all
such terms, as well as any other capitalized terms used herein for which no
definition is provided.
 
"Acquired Debt" means, with respect to any specified Person, (i) Indebtedness
of any other Person existing at the time such other Person is merged with or
into or became a Subsidiary of such specified Person, including, without
limitation, Indebtedness incurred in connection with, or in contemplation of,
such other Person merging with or into or becoming a Subsidiary of such
specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
 
"Acquisitions" means the acquisition by the Company of: (i) all of the
outstanding capital stock of Zeigler Coal Holding Company, (ii) all of the
outstanding capital stock of certain subsidiaries of Cyprus Amax Coal Company
and certain mining equipment used by such subsidiaries together with an
agreement to pay Cyprus Amax Coal Company or its affiliate certain royalties,
(iii) all of the outstanding capital stock of Mid-Vol Leasing, Inc., Mega
Minerals, Inc. and Premium Processing, Inc. together with an agreement to pay
the former owners of Mid-Vol Leasing, Inc. certain royalties, (iv) all of the
outstanding capital stock of Kindill Holding, Inc. and Hayman Holdings, Inc.,
(v) certain of the assets of The Battle Ridge Companies, (vi) the stock of
Leslie Resources, Inc. and Leslie Resources Management, Inc., (vii) certain
facilities, equipment, and intellectual property through the purchase of a
substantial portion of the assets of the Mining Technologies Division of
Addington Enterprises, Inc., (viii) all of the outstanding capital stock of
Martiki Coal Corporation and (ix) all of the outstanding capital stock if
Ikerd-Bandy Co., Inc.
 
 
                                      140

 
"Additional Assets" means (i) any property or assets (other than Capital Stock,
Indebtedness or rights to receive payments over a period greater than 180 days,
other than with respect to coal supply contract restructurings) that are usable
by the Company or a Restricted Subsidiary in a Permitted Business or (ii) the
Capital Stock of a Person that is at the time, or becomes, a Restricted
Subsidiary as a result of the acquisition of such Capital Stock by the Company
or another Restricted Subsidiary.
 
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control.
 
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of any
assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of coal or rights to acquire coal or sales of
mining equipment and related parts and services, in each case, in the ordinary
course of business (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Restricted Subsidiaries taken as a whole will be governed by the provisions of
the Exchange Note Indenture described above under the caption "--Change of
Control" and/or the provisions described above under the caption "--Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset Sale
covenant), and (ii) the issue or sale by the Company or any of its Restricted
Subsidiaries of Equity Interests of any of the Company's Restricted
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $2.0 million or (b) for Net Proceeds in excess of $2.0
million. Notwithstanding the foregoing, the following items shall not be deemed
to be Asset Sales: (i) a transfer of assets by the Company to a Subsidiary
Guarantor Restricted Subsidiary or by a Subsidiary Guarantor Restricted
Subsidiary to the Company or to another Restricted Subsidiary, (ii) an issuance
of Equity Interests by a Restricted Subsidiary to the Company or to another
Restricted Subsidiary, (iii) a Restricted Payment that is permitted by, or an
Investment that is not prohibited by, the covenant described above under the
caption "--Certain Covenants--Restricted Payments," (iv) a disposition of Cash
Equivalents or obsolete equipment, (v) foreclosures on assets, (vi) the sale or
discount, in each case without recourse, of accounts receivable arising in the
ordinary course of business, but only in connection with the compromise or
collection thereof, (vii) the factoring of accounts receivable arising in the
ordinary course of business pursuant to arrangements customary in the industry
and (viii) the sale or disposition by the Company or a Restricted Subsidiary of
its Equity Interest in, or all or substantially all of the assets of, an
Unrestricted Subsidiary.
 
"Assets Held for Sale" means (i) assets of the Company that are reported on the
pro forma financial statements of the Company contained in the Offering
Memorandum as assets held for sale in accordance with GAAP and (ii) the office
building in Fairview Heights, Illinois.
 
"Board of Directors" means the board of directors of AEI Resources, Inc. or any
authorized committee of the Board of Directors.
 
"Bridge Facilities" means the (i) Senior Subordinated Credit Agreement, dated
as of September 2, 1998, among the Company, the Guarantors, Warburg Dillon Read
LLC, as Arranger and Syndication Agent, UBS AG, Stamford Branch, as
Administrative Agent, and the lenders party thereto and (ii) Senior Credit
Agreement, dated as of September 2, 1998, among Holdings, Warburg Dillon Read
LLC, as Arranger and Syndication Agent, UBS AG, Stamford Branch, as
Administrative Agent, and the lenders party thereto.
 
"Capital Lease Obligation" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance
with GAAP.
 
 
                                      141

 
"Capital Stock" means (i) in the case of a corporation, corporate stock, (ii)
in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
 
"Cash Equivalents" means (a) securities with maturities of one year or less
from the date of acquisition issued or fully guaranteed or insured by the U.S.
Government or any agency thereof, (b) certificates of deposit and time deposits
with maturities of one year or less from the date of acquisition and overnight
bank deposits of any lender under the Senior Credit Facilities or of any
commercial bank having capital and surplus in excess of $500.0 million and a
Thompson Bank Watch Rating of "B" or better, except that up to up to $10.0
million of such certificates of deposit, time deposits and overnight deposits
may be of or with the Kentucky Bank and Trust Company at any one time, (c)
repurchase obligations of any lender under the Senior Credit Facilities or of
any commercial bank satisfying the requirements of clause (b) of this
definition, having a term of not more than 90 days with respect to securities
issued or fully guaranteed or insured by the United States Government,
(d) commercial paper of a domestic issuer rated at least A-2 by Standard and
Poor's Rating Group ("S&P") or P-2 by Moody's Investors Service, Inc.
("Moody's"), or carrying an equivalent rating by a nationally recognized rating
agency if both of S&P and Moody's cease publishing ratings of investments, (e)
securities with maturities of one year or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the
United States, by any political subdivision or taxing authority of any such
state, commonwealth or territory or by any foreign government, the securities
of which state, commonwealth, territory, political subdivision, taxing
authority or foreign government (as the case may be) are rated at least A by
S&P or A by Moody's, (f) securities with maturities of one year or less from
the date of acquisition backed by standby letters of credit issued by any
lender under the Senior Credit Facilities or any commercial bank satisfying the
requirements of clause (b) of this definition or (g) shares of money market
mutual or similar funds which invest exclusively in assets satisfying the
requirements of clauses (a) through (f) of this definition.
 
"Change of Control" means the occurrence of any of the following: (i) the sale,
lease, transfer, conveyance or other disposition (other than by way of merger
or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than a Principal or a Related Party of a Principal, (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company,
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as defined
above), other than the Principals and their Related Parties or (prior to the
establishment of a Public Market) a Permitted Group, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the occurrence of a
subsequent condition), directly or indirectly, of more than 50% of the Voting
Stock of the Company (measured by voting power rather than number of shares),
or (iv) the Company consolidates with, or merges with or into, any Person, or
any Person consolidates with, or merges with or into, the Company, in any such
event pursuant to a transaction in which any of the outstanding Voting Stock of
the Company is converted into or exchanged for cash, securities or other
property, other than any such transaction where the Voting Stock of the Company
outstanding immediately prior to such transaction is converted into or
exchanged for Voting Stock (other than Disqualified Stock) of the surviving or
transferee Person constituting a majority of the outstanding shares of such
Voting Stock of such surviving or transferee Person (immediately after giving
effect to such issuance). For purposes of this definition, any transfer of an
equity interest of an entity that was formed for the purpose of acquiring
Voting Stock of the Company will be deemed to be a transfer of such portion of
such Voting Stock as corresponds to the portion of the equity of such entity
that has been so transferred.
 
"Consolidated Cash Flow" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus (i) provision for
taxes based on income or profits of such Person and its
 
                                      142

 
Restricted Subsidiaries for such period, to the extent that such provision for
taxes was included in computing such Consolidated Net Income, plus (ii)
consolidated interest expense of such Person and its Restricted Subsidiaries
for such period, whether paid or accrued and whether or not capitalized
(including, without limitation, amortization of debt issuance costs, deferred
financing fees and original issue discount, noncash interest payments, the
interest component of any deferred payment obligations (other than employee
benefit obligations), the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iii)
depreciation, depletion, amortization (including amortization of goodwill and
other intangibles) and other noncash charges and expenses (including, without
limitation, writedowns and impairment of property, plant and equipment and
intangibles and other long-lived assets) (excluding any such noncash expense
for periods after the date of the Exchange Note Indenture to the extent that it
represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period to the extent that such
depreciation, depletion, amortization and other noncash expenses were deducted
in computing such Consolidated Net Income, plus, (iv) unusual or nonrecurring
charges incurred either (A) prior to the date of the Exchange Note Indenture or
(B) within 12-months thereafter and in connection with any of the transactions
contemplated by the Transaction Documents, in each case to the extent deducted
in computing such Consolidated Net Income, minus (v) noncash items increasing
such Consolidated Net Income for such period (other than accruals in accordance
with GAAP), plus (vi) noncash items decreasing such Consolidated Net Income for
such period (other than accruals in accordance with GAAP), in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation, depletion and amortization and other noncash expenses of, a
Restricted Subsidiary that is not a Subsidiary Guarantor shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
that a corresponding amount would be permitted at the date of determination to
be dividended to the Company by such Restricted Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.
 
"Consolidated Net Income" means, with respect to any Person for any period, the
aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or distributions paid in cash to the referent
Person or a Restricted Subsidiary thereof, (ii) the Net Income of any
Restricted Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary of
that Net Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Restricted Subsidiary or its stockholders, (iii) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded, (iv) the cumulative effect of a
change in accounting principles shall be excluded, (v) the Net Income (or loss)
of any Unrestricted Subsidiary shall be excluded, whether or not distributed to
the Company or one of its Restricted Subsidiaries, (vi) any non-cash expense
related to employee equity participation programs or stock option or similar
plans shall be disregarded, and (vii) losses of TEK-KOL prior to the date of
the Exchange Note Indenture shall be disregarded.
 
"Consolidated Senior Indebtedness" means, as of any date, the total amount of
Senior Indebtedness of the Company and its Restricted Subsidiaries as of such
date, calculated on a consolidated basis and in accordance with GAAP.
 
 
                                      143

 
"Credit Facilities" means, with respect to the Company or any of its Restricted
Subsidiaries, one or more debt facilities (including, without limitation, the
Senior Credit Facilities) or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
 
"Debt to Cash Flow Ratio" means, as of any date of determination, the ratio of
(a) the Consolidated Indebtedness of any Person and its Restricted Subsidiaries
as of such date to (b) the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for the four most recent full fiscal quarters ending
immediately prior to such date for which internal financial statements are
available. For purposes of making the computation referred to above, (i)
acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the date on which the
event for which the calculation of the Debt to Cash Flow Ratio is being
calculated ("Calculation Date") shall be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving effect
to clause (iii) of the proviso set forth in the definition of Consolidated Net
Income and (ii) the Consolidated Cash Flow and Consolidated Senior Indebtedness
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall
be excluded.
 
"Default" means any event that is or with the passage of time or the giving of
notice or both would be an Event of Default.
 
"Designated Noncash Consideration" means the fair market value of noncash
consideration received by the Company or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, executed by the principal executive officer and the principal
financial officer of the Company, less the amount of cash or Cash Equivalents
received in connection with a sale of such Designated Noncash Consideration.
 
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Senior Notes mature; provided, however, that any Capital Stock that
would constitute Disqualified Stock solely because the holders thereof have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with the covenant described above
under the caption "--Certain Covenants--Restricted Payments."
 
"Domestic Subsidiary" means a Restricted Subsidiary that is (i) formed under
the laws of the United States of America or a state or territory thereof or
(ii) as of the date of determination, treated as a domestic entity or a
partnership or a division of a domestic entity for United States federal income
tax purposes.
 
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
 
"Equity Offering" means any public or private sale of equity securities
(excluding Disqualified Stock) of the Company or Holdings (to the extent that
the net proceeds therefrom are contributed to the Company as common equity
capital), other than any private sales to an Affiliate of the Company.
 
"Exchange Note Coupon" means, in the event that a Benchmark Transaction is
consummated prior to January 1, 1999, the greater of (a) 10% per annum and (b)
the yield to maturity at which the Senior Subordinated Notes
 
                                      144

 
are first offered to investors on the issue date of the Senior Notes, less
100 basis points. In the event that a Benchmark Transaction is not consummated
on or prior to the issuance of the Senior Notes, the Exchange Note Coupon will
be 10%, subject to reset as described below. A "Benchmark Transaction" will be
deemed to have been consummated on the date on which the Company issues Senior
Subordinated Notes (or preferred stock or other equity securities or any
combination of any thereof) in an amount that generates gross proceeds to the
Company of at least $150 million in a transaction that results in such
securities being fully distributed to purchasers promptly after their issuance;
provided that such Senior Subordinated Notes (or other securities) have a
maturity date that is later than the maturity date of the Senior Notes and no
mandatory redemption or repurchase provisions prior to the maturity date of the
Senior Notes. The interest rate on the Senior Notes will be reset as follows:
(a) if no Benchmark Transaction is consummated prior to January 1, 1999, the
Exchange Note Coupon will increase as of such date to 11% per annum; (b) if a
Benchmark Transaction is consummated on or subsequent to January 1, 1999 but
prior to July 1, 1999, then the Exchange Note Coupon will be reset on the date
of issuance of the Senior Subordinated Notes to a rate equal to the yield to
maturity at which the Senior Subordinated Notes are first offered to investors
on the issue date of the Senior Subordinated Notes less 100 basis points, but
in any event not below 11% per annum. On and after July 1, 1999, whether or not
a Benchmark Transaction is consummated thereafter, there will be no further
reset of the Exchange Note Coupon.
 
"Exchange Note Guarantors" means each of the Subsidiary Guarantors and
Holdings.
 
"Existing Indebtedness" means Indebtedness of the Company and its Restricted
Subsidiaries (other than Indebtedness under the Senior Credit Facilities, the
Senior Notes, the Senior Subordinated Notes and related Guarantees) in
existence on the date of the Exchange Note Indenture, including without
duplication, outstanding letters of credit which support such Indebtedness,
until such amounts are repaid.
 
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and
original issue discount, noncash interest payments, the interest component of
any deferred payment obligations (other than employee benefit obligations), the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of
letters of credit or bankers' acceptance financings, and net payments (if any)
pursuant to Hedging Obligations, but excluding amortization of debt issuance
costs) and (ii) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period, and (iii) any interest
expense on the portion of Indebtedness of another Person that is Guaranteed by
such Person or one of its Restricted Subsidiaries or secured by a Lien on
assets of such Person or one of its Restricted Subsidiaries (whether or not
such Guarantee or Lien is called upon) and (iv) the product of (a) all dividend
payments, whether or not in cash, on any series of preferred stock of such
Person or any of its Restricted Subsidiaries, other than dividend payments on
Equity Interests payable solely in Equity Interests of the Company (other than
Disqualified Stock) or to the Company or a Restricted Subsidiary of the
Company, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the effective combined federal, state and
local tax rate of such Person for such period, expressed as a decimal, in each
case, for the Company and its Restricted Subsidiaries on a consolidated basis
and in accordance with GAAP.
 
"Fixed Charge Coverage Ratio" means with respect to any Person and its
Restricted Subsidiaries for any period, the ratio of the Consolidated Cash Flow
of such Person and its Restricted Subsidiaries for such period to the Fixed
Charges of such Person and its Restricted Subsidiaries for such period. In the
event that the referent Person or any of its Restricted Subsidiaries incurs,
assumes, Guarantees or redeems any Indebtedness (other than revolving credit
borrowings) or issues or redeems preferred stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making
 
                                      145

 
the computation referred to above, (i) acquisitions that have been made by the
Company or any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving effect
to clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, (ii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date or held for sale as of the date of
the Exchange Note Indenture, shall be excluded and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall
be excluded, but only to the extent that the obligations giving rise to such
Fixed Charges will not be obligations of the referent Person or any of its
Restricted Subsidiaries following the Calculation Date.
 
"Foreign Subsidiaries" means Subsidiaries of the Company that are not Domestic
Subsidiaries.
 
"GAAP" means generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Exchange Note Indenture.
 
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
 
"Haulage and Delivery Agreement" means that certain agreement dated as of
October 22, 1997 between the Company and TASK, as the same may be extended or
renewed from time to time without alteration of the material terms thereof.
 
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange, interest rate or commodity swap
agreements, currency exchange, interest rate or commodity cap agreements and
currency exchange, interest rate or commodity collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in currency exchange, interest rates or commodity prices, in each case for the
purpose of risk management and not for speculation.
 
"Holdings" means AEI Resources Holding, Inc., a Delaware corporation and the
100% parent of the Company.
 
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations, if
and to the extent any of the foregoing (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such Indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person, but excluding
from the definition of "Indebtedness," any of the foregoing that constitutes
(1) an accrued expense, (2) trade payables, (3) Obligations in respect of
reclamation, workers' compensation, including black lung, pensions and retiree
health care, in each case to the extent not overdue for more than 90 days and
(4) agreements to make royalty payments, including minimum royalty payments,
that are entered into in connection with the acquisition of assets to be used
in a Permitted Business and which comprise part of the purchase price of the
assets acquired. The amount of any Indebtedness
 
                                      146

 
outstanding as of any date shall be (i) the accreted value thereof, in the case
of any Indebtedness issued with original issue discount, and (ii) the principal
amount thereof, together with any interest thereon that is more than 30 days
past due, in the case of any other Indebtedness.
 
"Investments" means, with respect to any Person, all investments by such Person
in other Persons (including Affiliates) in the form of direct or indirect loans
(including guarantees of any portion of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, such Person is no longer a Restricted Subsidiary of the Company,
the Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Equity Interests of
such Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "--Certain Covenants--Restricted Payments."
 
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or
other agreement to sell or give a security interest in and any filing of or
agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
 
"Liquidated Damages" means all liquidated damages then owing pursuant to
Section 5 of the registration rights agreement among the Company, the Exchange
Note Guarantors and the Exchange Note Trustee, related to the Senior Notes.
 
"Manufacture and Service Agreement" means that certain agreement dated as of
November 12, 1998 between Addington Enterprises or its affiliate and MTI, as
the same may be extended or renewed from time to time without alteration of the
material terms thereof.
 
"Marketable Securities" means, with respect to any Asset Sale, any readily
marketable equity securities that are (i) traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market; and (ii)
issued by a corporation having a total equity market capitalization of not less
than $250.0 million; provided that the excess of (A) the aggregate amount of
securities of any one such corporation held by the Company and any Restricted
Subsidiary over (B) ten times the average daily trading volume of such
securities during the 20 immediately preceding trading days shall be deemed not
to be Marketable Securities; as determined on the date of the contract relating
to such Asset Sale.
 
"MMI Service Agreement" means that certain agreement dated as of October 22,
1997 between MMI and the Company, as the same may be extended or renewed from
time to time without alteration of the material terms thereof.
 
"MMI Leases" means all equipment leases between the Company and its
Subsidiaries and MMI in existence as of the date of the Indenture; provided
that MMI Leases shall not include any extension, renewal, exercise of option or
modification of any equipment lease between the Company and its Subsidiaries
and MMI.
 
"Net Income" means, with respect to any Person, the net income or loss of such
Person, determined in accordance with GAAP and before any reduction in respect
of preferred stock dividends, excluding, however, (i) any gain or loss,
together with any related provision for taxes on such gain or loss, realized in
connection with (a) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or (b) the disposition of any
securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries and (ii) any
 
                                      147

 
extraordinary or nonrecurring item, together with any related provision for
taxes on such extraordinary or nonrecurring item.
 
"Net Proceeds" means the aggregate proceeds (cash or property) received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any noncash consideration received in any Asset Sale) or the
sale or disposition of any Investment, net of the direct costs relating to such
Asset Sale, sale or disposition, (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance
with GAAP.
 
"Non-Guarantor Subsidiaries" means (i) Yankeetown Dock Corporation and its
direct and indirect Subsidiaries, (ii) the Company's future Unrestricted
Subsidiaries and (iii) the Company's current and future Foreign Subsidiaries.
 
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor
any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness) other than a pledge of the Equity Interests of any Unrestricted
Subsidiaries, (b) is directly or indirectly liable (as a guarantor or
otherwise) other than by virtue of a pledge of the Equity
Interests of any Unrestricted Subsidiaries, or (c) constitutes the lender; and
(ii) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unrestricted Subsidiary)
would permit (upon notice, lapse of time or both) any holder of any other
Indebtedness (other than the Senior Notes being offered hereby) of the Company
or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
 
"Obligations" means any principal, premium (if any), interest, penalties, fees,
charges, expenses, indemnifications, reimbursement obligations, damages,
Guarantees and other liabilities and amounts payable under the documentation
governing any Indebtedness or in respect thereto.
 
"Permitted Business" means coal production, coal mining, coal brokering, coal
transportation, mine development, energy related businesses, coal, natural gas,
petroleum or other fossil fuel exploration, production, marketing,
transportation and distribution and other related businesses, and activities of
the Company and its Subsidiaries as of the date of the Exchange Note Indenture
and any business or activity that is reasonably similar to any of the foregoing
or a reasonable extension, development or expansion thereof or ancillary to any
of the foregoing.
 
"Permitted Group" means any group of investors that is deemed to be a "person"
(as such term is used in Section 13(d)(3) of the Exchange Act) by virtue of any
agreement or arrangement among two or more Persons, provided that no single
Person (together with its Affiliates), other than the Principals and their
Related Parties, is the "beneficial owner" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has
the right to acquire, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition, and beneficial
ownership shall be determined without regard to such agreement or arrangement),
directly or indirectly, of (A) more than 50% of the Voting Stock of the Company
that is "beneficially owned" (as defined above) by such group of investors and
(B) more of the Voting Stock of the Company than is at the time "beneficially
owned" (as defined above) by the Principals and their Related Parties in the
aggregate (Voting Stock, in each case, measured by voting power rather than
number of shares).
 
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Restricted Subsidiary of the Company
in a Person, if as a result of such Investment (i) such Person becomes a
Restricted
 
                                      148

 
Subsidiary of the Company or (ii) such Person, in one transaction or a series
of related transactions, is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Restricted Subsidiary of the Company; (d) any
acquisition of assets solely in exchange for the issuance of Equity Interests
(other than Disqualified Stock) of the Company; (e) any Investment existing on
the date of the Exchange Note Indenture (an "Existing Investment") and any
Investment that replaces, refinances or refunds an Existing Investment,
provided that the new Investment is in an amount that does not exceed the
amount replaced, refinanced or refunded and is made in the same Person as the
Investment replaced, refinanced or refunded, (f) advances to employees not in
excess of $5.0 million outstanding at any one time; (g) Hedging Obligations
permitted under clause (vii) of "Certain Covenants--Incurrence of Indebtedness
and Issuance of Preferred Stock;" (h) loans and advances to officers, directors
and employees for business-related travel expenses, moving expenses and other
similar expenses, in each case incurred in the ordinary course of business; (i)
any Investment in a Permitted Business (whether or not an Investment in an
Unrestricted Subsidiary) having an aggregate fair market value, that when taken
together with all other Investments made pursuant to this clause (i), does not
exceed in aggregate amount the sum of (1) 5% of Total Assets at the time of
such Investment (with the fair market value of each Investment being measured
at the time made and without giving effect to subsequent changes in value) plus
(2) 100% of the Net Proceeds from the sale or disposition of any Investment
previously made pursuant to this clause (i) or 100% of the amount of any
dividend, distribution or payment from any such Investment, net of income taxes
paid or payable in respect thereof, in each case up to the amount of the
Investment that was made pursuant to this clause (i) and 50% of the amount of
such Net Proceeds or 50% of such dividends, distributions or payments, in each
case received in excess of the amount of the Investments made pursuant to this
clause (i); (j) guarantees (including Guarantees) of Indebtedness permitted
under "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock;" (k) any Investment acquired by the Company or any of its
Restricted Subsidiaries (A) in exchange for any other Investment or accounts
receivable held by the Company or any such Restricted Subsidiary in connection
with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or accounts receivable
or (B) as a result of the transfer of title with respect to any secured
Investment in default as a result of a foreclosure by the Company or any of its
Restricted Subsidiaries with respect to such secured Investment; (l) that
portion of any Investment by the Company or a Restricted Subsidiary in a
Permitted Business to the extent that the Company or such Restricted Subsidiary
will receive in a substantially concurrent transaction an amount in cash equal
to the amount of such Investment (or the fair market value of such Investment),
net of any obligation to pay taxes or other amounts in respect of the receipt
of such cash; and (m) any Investment made by the Company or any Restricted
Subsidiary in an Unrestricted Subsidiary with the proceeds of any equity
contribution to or sale of Equity Interest by the Company or any Restricted
Subsidiary, provided that such proceeds shall not increase the amount available
pursuant to clause (c) of the first paragraph of the covenant described above
under "--Certain Covenants--Restricted Payments;" provided that the receipt of
such cash does not carry any obligation by the Company or such Restricted
Subsidiary to repay or return such cash; provided, however, that with respect
to any Investment, the Company may, in its sole discretion, allocate all or any
portion of any Investment to one or more of the above clauses so that the
entire Investment would be a Permitted Investment.
 
"Permitted Liens" means (i) Liens securing Indebtedness under Credit Facilities
that was permitted by the terms of the Exchange Note Indenture to be incurred;
(ii) Liens in favor of the Company; (iii) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the
Company or any Restricted Subsidiary of the Company; provided that such Liens
were in existence prior to the contemplation of such merger or consolidation
and do not extend to any assets other than those of the Person merged into or
consolidated with the Company; (iv) Liens on property existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary of the Company,
provided that such Liens were in existence prior to the contemplation of such
acquisition; (v) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vi) Liens incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance or other kinds of social security; (vii)
Liens existing on the date of the Exchange Note Indenture; (viii) Liens for
taxes, assessments or governmental charges or claims that are not yet
 
                                      149

 
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded, provided that any reserve or
other appropriate provision as shall be required in conformity with GAAP shall
have been made therefor; (ix) Liens on assets of Subsidiary Guarantors to
secure Senior Indebtedness of such Subsidiary Guarantors that was permitted by
the Exchange Note Indenture to be incurred; (x) Liens incurred in the ordinary
course of business of the Company or any Restricted Subsidiary of the Company
with respect to obligations that (a) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or such Restricted
Subsidiary; (xi) Liens on assets of Foreign Subsidiaries to secure Indebtedness
that was permitted by the Exchange Note Indenture to be incurred; (xii)
statutory liens of landlords, mechanics, suppliers, vendors, warehousemen,
carriers or other like Liens arising in the ordinary course of business; (xiii)
judgment Liens not giving rise to an Event of Default so long as any
appropriate legal proceeding that may have been duly initiated for the review
of such judgment shall not have been finally terminated or the period within
which such legal proceeding may be initiated shall not have expired; (xiv)
easements, rights-of-way, zoning and similar restrictions and other similar
encumbrances or title defects incurred or imposed, as applicable, in the
ordinary course of business and consistent with industry practices which, in
the aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto (as such
property is used by the Company or its Subsidiaries) or interfere with the
ordinary conduct of the business of the Company or such Subsidiaries; provided,
however, that any such Liens are not incurred in connection with any borrowing
of money or any commitment to loan any money or to extend any credit; (xv)
Liens to secure Indebtedness (including Capital Lease Obligations) permitted by
clause (iv) of the second paragraph of the covenant entitled "Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock" and
other purchase money Liens to finance property or assets of the Company or any
Restricted Subsidiary acquired in the ordinary course of business; provided
that such Liens are only secured by such property or assets so acquired or
improved (including, in the case of the acquisition of Capital Stock of a
Person who becomes a Restricted Subsidiary, Liens on the assets of the Person
whose Capital Stock was so acquired); (xvi) Liens securing Indebtedness under
Hedging Obligations, provided that such Liens are only secured by property or
assets that secure the Indebtedness subject to the Hedging Obligation; (xvii)
Liens to secure Indebtedness permitted by clause (xi) of the second paragraph
of the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred
Stock;" and (xviii) Liens on the Equity Interests of Unrestricted Subsidiaries
securing obligations of Unrestricted Subsidiaries not otherwise prohibited by
the Indenture.
 
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); provided that: (i) the principal amount (or
accreted value, if applicable) of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest and premium, if any, on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Senior Notes, such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Senior
Notes on terms at least as favorable to the Holders of Senior Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
 
"Principals" means Larry Addington, Bruce Addington and Robert Addington.
 
                                      150

 
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
 
A "Public Market" shall be deemed to exist if (i) a Public Equity Offering has
been consummated and (ii) at least 35% of the total issued and outstanding
common stock of the Company immediately prior to the consummation of such
Public Equity Offering has been distributed by means of an effective
registration statement under the Securities Act.
 
"Related Party" with respect to any Principal means (A) any controlling
stockholder of such Principal, any Subsidiary of such Principal, or in the case
of an individual, any spouse or immediate family member of such Principal or
(B) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding a more than 50%
controlling interest of which consist of such Principal and/or such other
Persons referred to in the immediately preceding clause (A).
 
"Restricted Investment" means an Investment other than a Permitted Investment.
 
"Restricted Subsidiary" of a Person means any Subsidiary of the referent Person
that is not an Unrestricted Subsidiary.
 
"Senior Credit Facilities" means that certain Senior Credit Agreement, dated as
of September 2, 1998, by and among the Company, the Subsidiary Guarantors,
Warburg Dillon Read LLC, as Arranger and Syndication Agent, UBS AG, Stamford
Branch, as Administrative Agent, and the other lenders party thereto, including
any related notes, guarantees, collateral documents, letters of credit,
instruments and agreements executed in connection therewith (and any
appendices, exhibits or schedules to any of the foregoing), and in each case as
amended, modified, supplemented, restated, renewed, refunded, replaced,
restructured, repaid or refinanced from time to time (whether with the original
agents and lenders or other agents and lenders or otherwise, and whether
provided under the original credit agreement or other credit agreements or
otherwise).
 
"Senior Indebtedness" means any Indebtedness of the Company or any of its
Restricted Subsidiaries (other than intercompany Indebtedness that is not
contractually subordinated to any other Indebtedness).
 
"Senior Subordinated Note Indenture" means between State Street Bank and Trust
Company as trustee governing the Senior Subordinated Notes.
 
"Senior Subordinated Notes" mean the Senior Subordinated Notes of the Company
due 2006, to be issued concurrently herewith.
 
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
 
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
 
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or Exchange
Note Trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (b) the only general partners of which are such Person or of
one or more Subsidiaries of such Person (or any combination thereof).
 
 
                                      151

 
"Subsidiary Guarantee" means a guarantee endorsed on the Senior Notes by a
Subsidiary Guarantor.
 
"Subsidiary Guarantors" means each of (i) the Company's Domestic Subsidiaries
at the date of the closing of the Acquisition, other than Yankeetown Dock
Corporation and the Subsidiaries of Yankeetown Dock Corporation at the date of
the Exchange Note Indenture and (ii) any other subsidiary that executes a
Subsidiary Guarantee in accordance with the provisions of the Exchange Note
Indenture, and their respective successors and assigns.
 
"Technology Sharing Agreement" means that certain agreement dated as of April
29, 1998 between the Company and Addington Enterprises, Inc., as the same may
be extended or renewed from time to time without alteration of the material
terms thereof.
 
"Total Assets" means the total assets of the Company and its Restricted
Subsidiaries on a consolidated basis determined in accordance with GAAP, as
shown on the most recently available consolidated balance sheet of the Company
and its Restricted Subsidiaries.
 
"Transaction Documents" means the documents related to (i) the Acquisitions,
(ii) the Senior Credit Facilities and (iii) the offering of the Senior Notes
and the Senior Subordinated Notes.
 
"Unrestricted Subsidiary" means any Subsidiary that is designated by the Board
of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution; but
only to the extent that such Person: (a) has no Indebtedness other than Non-
Recourse Debt; (b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (c) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any obligation (x) to subscribe for additional
Equity Interests in Unrestricted Subsidiaries or (y) to maintain or preserve
such Person's net worth; and (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any
of its Restricted Subsidiaries; provided, however, that the Company and its
Restricted Subsidiaries may guarantee the performance of Unrestricted
Subsidiaries in the ordinary course of business except for guarantees of
Obligations in respect of borrowed money. Any such designation by the Board of
Directors shall be evidenced to the Exchange Note Trustee by filing with the
Exchange Note Trustee a certified copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by the covenant
described above under the caption "Certain Covenants--Restricted Payments."
 
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
 
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at
any date, the number of years obtained by dividing (i) the sum of the products
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof, by (b) the number of
years (calculated to the nearest one-twelfth) that will elapse between such
date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
 
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
 
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all
of the outstanding Capital Stock or other ownership interests of which (other
than directors' qualifying shares) shall at the time be owned by such Person or
by one or more Wholly Owned Subsidiaries of such Person and one or more Wholly
Owned Subsidiaries of such Person.
 
                                      152

 
                       DESCRIPTION OF OTHER INDEBTEDNESS
 
The Senior Credit Facility
 
General
 
The Company has entered into a Senior Credit Agreement dated as of September 2,
1998 and amended and restated as of December 14, 1998 with UBS AG, Stamford
Branch ("UBS"), an affiliate of the Initial Purchaser, pursuant to which UBS
and a syndicate of financial institutions (the "Lenders") provided the Company
with (i) a $575.0 million senior secured term loan facility consisting of (a) a
Term Loan A Facility in an aggregate principal amount of $325.0 million and (b)
a Term Loan B Facility in an aggregate amount of $250.0 million (collectively
the "Term Loan Facility") and (ii) a $300.0 million senior secured Revolving
Credit Facility (the "Revolving Credit Facility" and, together with the Term
Loan Facility, the "Senior Credit Facility"). The Revolving Credit Facility
includes a $225.0 million sublimit for the issuance of letters of credit.
 
Security
 
Indebtedness of the Company under the Senior Credit Facility is secured by a
perfected first priority security interest in (i) all of the capital stock of
the Company and its Subsidiaries; (ii) all of the capital stock of each of the
entities comprising the businesses acquired in the Recent Acquisitions; and
(iii) substantially all accounts receivable, inventory, property, plant and
equipment, intangibles, contract rights, other personal property and real
property of the Company, its Subsidiaries and the businesses acquired in the
Recent Acquisitions. Holdings and each of the Company's Subsidiaries has
guaranteed the Senior Credit Facility.
 
Interest
 
Indebtedness of the Company under the Senior Credit Facility shall bear
interest, at the option of the Company, at a rate as follows: LIBOR plus the
Applicable LIBOR Spread or ABR plus the Applicable ABR Spread. LIBOR borrowings
may have interest periods of one, two, three or six months at the election of
the Company. The "Applicable LIBOR Spread" will initially be (i) under the
Revolving Credit Facility, 3.00% per annum; (ii) under the Term Loan A
Facility, 3.00% per annum; and (iii) under the Term Loan B Facility, 3.50% per
annum. Thereafter, the Applicable LIBOR Spread will be determined pursuant to a
grid-based test adjusted in accordance with the financial performance of the
Company. The "Applicable ABR Spread" initially will be (i) under the Revolving
Credit Facility, 2.00% per annum; (ii) under the Term Loan A Facility, 2.00%
per annum; and (iii) under the Term Loan B Facility, 2.50% per annum.
Thereafter, the Applicable ABR Spread will be described pursuant to a grid-
based test adjusted in accordance with the financial performance of the
Company. "ABR" (Alternate Base Rate) is the higher of the Prime Rate of the
reference bank set forth in the Senior Credit Facility documentation and the
Federal Funds effective rate plus 0.5%.
 
Maturity
 
The Term Loan Facility matures on September 30, 2005. The Revolving Credit
Facility matures on December 31, 2003.
 
Fees
 
The Company has agreed to pay the Lenders unused commitment fees of 0.50% per
annum on the undrawn committed amount under the Revolving Credit Facility,
payable quarterly in cash.
 
The Company has agreed to pay the issuing bank per annum letter of credit fees
equal to the Applicable LIBOR Spread on the undrawn face amounts of outstanding
letters of credit, payable quarterly in arrears.
 
                                      153

 
Fronting fees of 0.25% will be payable to the issuing bank along with customary
issuance and administrative fees.
 
Covenants
 
The Senior Credit Facility contains certain customary covenants including,
without limitation, restrictions on the ability of the Company and its
Subsidiaries to (i) incur additional indebtedness, pay certain dividends and
make certain other restricted payments and investments; (ii) make acquisitions
or dispose of assets; (iii) create liens; (iv) engage in transactions with
affiliates; (v) issue disqualified capital stock; (vi) merge, consolidate or
transfer substantially all of their respective assets, and (vii) make capital
expenditures. In addition, the Company is required to maintain compliance with
certain financial tests, including a maximum leverage ratio of 4.00, decreasing
over time to 2.75 in December 2001, a minimum interest coverage ratio of 2.50,
increasing over time to 3.50 in December 2001 and thereafter, and a minimum net
worth of negative $125.0 million plus 50% of consolidated net income from
October 1, 1998 plus 100% of the proceeds of equity issuances and capital
contributions.
 
Events of Default
 
The Senior Credit Facility contains customary events of default including,
without limitation: (i) the non-payment of principal, interest, fees or other
amounts when due under the loans issued under the Senior Credit Facility; (ii)
certain changes in control and ownership of the Company; (iii) cross defaults
to certain other indebtedness; (iv) certain events of bankruptcy and
insolvency; (v) judgment defaults; and (vi) failure of any guaranty or security
agreement supporting the Credit Facility to be in full force and effect.
 
Optional and Mandatory Prepayment and Commitment Reductions
 
The Company may prepay and reduce in whole or in part the Senior Credit
Facility at any time without penalty, subject to reimbursement of the Lender's
breakage costs and payments of any and all accrued interest.
 
The Company will be required, subject to certain exceptions, to prepay the
Senior Credit Facility with (i) 75.0% of annual excess cash flow, reduced to
50.0% in any fiscal year where the year-end leverage ratio is less than 3.0:1,
(ii) 100.0% of the net proceeds of asset sales and other asset dispositions by
the Company, (iii) 100.0% of the net proceeds of the issuance or incurrence of
debt or sale lease-back by the Company, and (iv) 50.0% of the net proceeds from
any issuance of equity securities. "Excess cash flow" is defined to mean (A)
the sum of operating cash flow, net decrease in working capital and cash
received from any life insurance or "key man policies" minus (B) the sum of
cash interest expense, capital lease expense, principal payments on
indebtedness, capital expenditures, income taxes and certain dividends, cash
paid for acquisitions to the extent funded from internally generated funds, and
net increases in working capital. Mandatory prepayments will be applied pro
rata among the outstanding amounts of the Term Loans. Any excess amount to be
applied against the Term Loans over the then outstanding amount of the Term
Loans shall be applied to the Revolving Credit Facility.
 
Loans made pursuant to the Revolving Credit Facility (the "Revolving Credit
Loans") will be prepaid to the extent the aggregate extensions of credit under
the Revolving Credit Facility exceed the commitments then in effect. Any excess
amount to be applied against the Revolving Credit Loans over the then
outstanding amount of such Revolving Credit Loans will be applied to cash
collateralize outstanding Letters of Credit.
 
The Senior Subordinated Credit Facility
 
The Company has entered into a Senior Subordinated Credit Agreement, dated as
of September 2, 1998 (the "Bridge Credit Facility") with UBS, pursuant to which
UBS and a syndicate of financial institutions provided the Company with a
$500.0 million secured loan facility. The outstanding principal balance under
the Bridge Credit Facility is approximately $10.0 million. Pursuant to the
Senior Credit Facility, the Company is
 
                                      154

 
permitted to repay the Bridge Credit Facility with the proceeds of the
disposition of certain assets (as defined in the Senior Credit Facility). In
the event that the Company does not repay the Bridge Credit Facility on or
before March 31, 1999, UBS is entitled to receive 2.5% of the common stock of
Holdings.
 
Surety Bonds
 
Federal and state laws require surety bonds to secure the Company's obligations
to reclaim lands disturbed for mining, to pay federal and state workers'
compensation and to satisfy other miscellaneous obligations. The amount of
these bonds varies constantly, depending upon, among other things, the amount
of acreage disturbed, the degree to which each property has been reclaimed and
the number of persons employed by the Company. Under federal law, partial bond
release for reclamation bonds is provided as mined lands (i) are backfilled and
graded to approximate original contour, (ii) are re-vegetated and (iii) achieve
pre-mining vegetative productivity levels on a sustained basis for a period of
five to ten years.
 
As of September 30, 1998, the Company (inclusive of Triton) had outstanding
surety bonds with third parties for post-mining reclamation totaling $524.4
million. Surety bonds valued at an additional $123.3 million are in place for
federal and state workers' compensation obligations and other miscellaneous
obligations.
 
Zeigler IRBs
 
Charleston County, South Carolina
 
On August 21, 1997, Charleston County, South Carolina, issued $30.8 million of
Industrial Revenue Refunding Bonds, Series 1997, due August 1, 2028 (the
"Charleston Bonds"). The Charleston Bonds will be paid from: (i) revenues
derived from or in connection with a Loan Agreement between Charleston County,
South Carolina, and Zeigler, dated as of August 1, 1997; and (ii) funds drawn
under an irrevocable letter of credit issued on behalf of Zeigler by UBS. The
letter of credit provides for drawings up to (i) an amount sufficient to pay
the principal of the Charleston Bonds when due at maturity (not to exceed $30.8
million), plus (ii) an amount equal to up to forty-five (45) days' interest
accrued on the Charleston Bonds (not to exceed 10% per annum). The Charleston
Bonds bear interest at daily, weekly, flexible or term rate as designated by
the Company, with such rate determined by the remarketing agent at the rate of
interest that would cause them to have a market value as of the date of
determination equal to 100% of their principal amount, provided that, as long
as a letter of credit is in place, such interest rate shall not exceed 10% per
annum. The Charleston Bonds are subject to various optional and mandatory
tender and redemption provisions upon the occurrence of certain events.
 
Peninsula Ports Authority of Virginia
 
On August 20, 1997, the Peninsula Ports Authority of Virginia (the "Port
Authority") issued $115.0 million of Port Facility Refunding Revenue Bonds
(Zeigler Coal Project), Series 1997, due May 1, 2022 (the "Port Authority Bonds
and together with the Charleston Bonds, the "Zeigler Bonds"). The Port
Authority Bonds will be paid from: (i) revenues derived from or in connection
with a Financing Agreement between the Port Authority and Zeigler, dated as of
August 1, 1997; and (ii) funds drawn under an irrevocable letter of credit
issued on behalf of Zeigler by UBS. The letter of credit provides for drawings
up to (i) an amount sufficient to pay the principal of the Port Authority Bonds
when due at maturity (not to exceed $115.0 million), plus (ii) an amount equal
to up to forty-five (45) days' interest accrued on the Port Authority Bonds
(not to exceed 10% per annum). The Port Authority Bonds bear interest at daily,
weekly, flexible or term rate as designated by the Company, with such rate
determined by the remarketing agent at the rate of interest that would cause
the Port Authority Bonds to have a market value as of the date of determination
equal to 100% of their principal amount, provided that, as long as a letter of
credit is in place, such interest rate shall not exceed 10% per annum. The Port
Authority Bonds are not secured by a mortgage or a security interest in any
property of the Company or it Subsidiaries. The Port Authority Bonds are
subject to various optional and mandatory tender and redemption provisions upon
the occurrence of certain events.
 
The Senior Subordinated Notes
 
The Senior Subordinated Notes are senior subordinated obligations of the
Company and will mature December 15, 2006.
 
 
                                      155

 
Interest on the Senior Subordinated Notes will accrue at a rate of 11 1/2 %,
and be payable semiannually in arrears on June 15 and December 15 of each year,
commencing June 15, 1999. The Senior Subordinated Notes are guaranteed on a
senior subordinated basis by the Guarantors.
 
The Senior Subordinated Notes are redeemable, at the Company's option, in whole
or in part, on or after December 15, 2002 at specified redemption prices,
together with accrued and unpaid interest and Liquidated Damages, if any, to
the date of redemption. Prior to that date, the Company may redeem the Notes in
whole or in part subject to payment of a make-whole premium. Upon the
occurrence of a Change of Control (as defined in the Senior Subordinated Note
Indenture), the Company is required to make an offer to repurchase the Senior
Subordinated Notes at a price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest.
 
The Senior Subordinated Note Indenture contains restrictive covenants that,
among other things, limit the ability of the Company and its subsidiaries to:
dispose of assets; engage in mergers and consolidations; engage in certain
transactions with subsidiaries and affiliates; incur or guarantee additional
indebtedness; pay dividends or make other payments or investments; and limit
the ability of subsidiaries to make certain distributions.
 
Defaults under the Senior Subordinated Note Indenture includes (i) failure to
pay interest on the Senior Subordinated Notes within 30 days after such
payments are due; (ii) failure to repay principal when due at its maturity
date, upon optional redemption, upon required repurchase, upon acceleration or
otherwise; (iii) failure to comply for 340 days after notice with the Company's
repurchase obligations upon the occurrence of a Change of Control and failure
to comply for 60 days after notice with the other covenants contained in the
Senior Subordinated Notice Indenture; (iv) the default by the Company or any
Significant Subsidiary (as defined in the Senior Subordinated Note Indenture)
in respect of any indebtedness above specified levels; (v) certain events of
bankruptcy; (vi) certain judgments against the Company or any Significant
Subsidiary; (vii) any Guarantee (as defined in the Senior Subordinated Note
Indenture) ceasing to be in full force and effect (except as contemplated by
the terms thereof); and (viii) the denial or disaffirmation by any Guarantor
(as defined in the Senior Subordinated Note Indenture) of its obligations under
the applicable indenture or any Guarantee, which denial or disaffirmation
continues for 10 days.
 
                                      156

 
                    CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
 
The following is a general discussion of certain U.S. federal income and estate
tax consequences of the acquisition, ownership and disposition of Notes by an
initial beneficial owner of Notes that, for U.S. federal income tax purposes,
is not a "U.S. person" (a "Non-U.S. Holder"). This discussion is based upon the
U.S. federal tax law now in effect, which is subject to change, possibly
retroactively.
 
When we use the term "U.S. person," we generally mean a holder of Notes who
(for U.S. Federal income tax purposes):
 
  .  is a citizen or resident of the United States;
 
  .  is a corporation or partnership (including entities treated as
     corporations or partnerships for federal income tax purposes) created or
     organized in or under the laws of the United States or any state thereof
     or the District of Columbia, unless, in the case of a partnership,
     Treasury Regulations provide otherwise;
 
  .  is an estate, the income of which is subject to U.S. Federal income
     taxation regardless of its source; or
 
  .  is a trust whose administration is subject to the primary supervision of
     a U.S. court and which has one or more U.S. persons who have the
     authority to control all substantial decisions of the trust.
 
The tax treatment applicable to each holder of the Notes may vary depending
upon the particular situation of such holder. U.S. persons acquiring the Notes
are subject to different rules than those discussed below. In addition, certain
other holders (including insurance companies, tax exempt organizations,
financial institutions and broker-dealers) may be subject to special rules not
discussed below. We advise you to consult with your own tax advisor regarding
the tax consequences to you of the acquisition, ownership and sale of the
Notes, including the federal, state, local, foreign, and other tax consequences
of such acquisition, ownership and sale and of potential changes in applicable
tax laws.
 
Interest
 
Interest paid by the Company to a Non-U.S. Holder will not be subject to U.S.
federal income or withholding tax if such interest is not effectively connected
with the conduct of a trade or business within the United States by such Non-
U.S. Holder and if such Non-U.S. Holder:
 
  .  does not actually or constructively own 10% of the total combined voting
     power of all classes of stock of the Company;
 
  .  is not a "controlled foreign corporation" (within the meaning of the
     U.S. Internal Revenue Code of 1986, as amended (the "Code")), with
     respect to which the Company is a "related person" (within the meaning
     of the Code); and
 
  .  certifies, under penalties of perjury, that it is not a U.S. person and
     provides its name and address in an appropriate form (currently Internal
     Revenue Service Form W-8) to the Company or its paying agent (or, a
     security clearing organization, bank or other financial institution that
     holds the Notes on your behalf in the ordinary course of its trade or
     business certifies on your behalf that it has received such
     certification from you and provides a copy to the Company or its agent).
 
If you are not qualified for an exemption under these rules, interest paid to
you on the Notes may be subject to withholding tax at the rate of 30% (or any
lower applicable treaty rate). The payment of interest effectively connected
with your U.S. trade or business, however, would not be subject to a 30%
withholding tax so long as you provide the Company or its agent an adequate
certification (currently Internal Revenue Service Form 4224), but such interest
would be subject to U.S. federal income tax on a net basis at the rates
applicable to U.S. persons generally (and, if you are a corporation, may also
be subject to a 30% branch profits tax).
 
                                      157

 
Gain on Disposition
 
If you are a Non-U.S. Holder you will generally not be subject to U.S. federal
income tax on gain recognized on a sale, redemption or other disposition of a
Note unless any of the following is true:
 
  .  your investment in the Notes is effectively connected with a U.S. trade
     or business that is conducted by you;
 
  .  if you are a Non-U.S. Holder who is a nonresident alien individual and
     you hold the Note as a capital asset, you are present in the United
     States for 183 or more days in the taxable year within which such sale,
     redemption or other disposition takes place and certain other
     requirements are met; or
 
  .  you are subject to provisions of U.S. tax law applicable to certain U.S.
     expatriates.
 
If you have a U.S. trade or business and the investment in the Notes is
effectively connected with such U.S. trade or business, the payment of the
sales proceeds with respect to the Notes would be subject to U.S. federal
income tax on a net basis at the rates applicable to U.S. persons generally
(and, if you are a corporation, may also be subject to a 30% branch profits
tax).
 
Federal Estate Taxes
 
If interest on the Notes is exempt from withholding of U.S. federal income tax
under the rules described above, the Notes will not be included in the estate
of a deceased Non-U.S. Holder for U.S. federal estate tax purposes.
 
Information Reporting and Backup Withholding
 
The Company will, where required, report to the holders of Notes and the
Internal Revenue Service the amount of any interest paid on the Notes in each
calendar year and the amounts of tax withheld, if any, from those payments.
 
In the case of payments of interest to Non-U.S. Holders, temporary Treasury
regulations provide that the 31% backup withholding tax and certain information
reporting requirements will not apply to payments for which the requisite
certification, as described above, has been received or an exemption has
otherwise been established; provided that neither the Company nor its payment
agent has actual knowledge that the holder is a U.S. person or that the
conditions of any other exemption are not in fact satisfied. Under temporary
Treasury regulations, these information reporting and backup withholding
requirements will apply, however, to the gross proceeds paid to a Non-U.S.
Holder on the disposition of the Notes by or through a U.S. office of a United
States or foreign broker, unless the holder certifies to the broker under
penalties of perjury as to its name, address and status as a foreign person or
the holder otherwise establishes an exemption. As a general matter, information
reporting and backup withholding will not apply to a payment of the proceeds of
a disposition of the Notes by or through a foreign office of a foreign broker.
Information reporting (but not backup withholding) will apply, however, to a
payment of the proceeds of a sale of Notes by a foreign office of a broker
that:
 
  .  is a U.S. person;
 
  .  derives 50% or more of its gross income for certain periods from the
     conduct of a trade or business in the United States; or
 
  .  is a "controlled foreign corporation" within the meaning of the Code.
 
Even if a broker meets one of these three conditions, information reporting
will not apply if the broker has documentary evidence in its records that the
holder is not a U.S. person and certain other conditions are met.
 
                                      158

 
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-U.S.
Holder's U.S. federal income tax liability provided that the required
information is furnished to the Internal Revenue Service.
 
You should be aware that the Treasury Department promulgated revised final
regulations regarding the withholding and information reporting rules discussed
above. In general, the final regulations do not significantly change the
substantive withholding and information reporting requirements but unify
current certification procedures and forms. The final regulations are generally
effective for payments made after December 31, 1999, subject to certain
transition rules. We strongly urge prospective Non-U.S. Holders to consult
their own tax advisors for information on the impact, if any, of the new final
regulations.
 
                                      159

 
                             PLAN OF DISTRIBUTION
 
Any broker-dealer who holds Transfer Restricted Securities that were acquired
for the account of such broker-dealer as a result of market-making activities
or other trading activities (other than Transfer Restricted Securities
acquired directly from the Company or any of its affiliates) may exchange such
Transfer Restricted Securities pursuant to the Exchange Offer. Each broker-
dealer that receives Notes for its own account pursuant to the Exchange Offer
(each, a "Participating Broker-Dealer") must acknowledge that it will deliver
a prospectus in connection with any resale of such Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of Notes received in
exchange for Old Notes where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities (other than directly from the Company or any of its
affiliates). To the extent any Participating Broker-Dealer notifies the
Company, or causes the Company to be notified in writing that such
Participating Broker-Dealer is a Restricted Broker-Dealer, the Company has
agreed that for a period of one year from the date on which the Exchange Offer
is consummated or such shorter period as will end when all Transfer Restricted
Securities covered by the Exchange Offer Registration Statement have been sold
pursuant thereto, it will make this Prospectus, as amended or supplemented,
available to any Restricted Broker-Dealer for use in connection with any
resale of Notes, and will promptly send additional copies of this Prospectus
and any amendment or supplement to this Prospectus to any such Restricted
Broker-Dealer that requests such documents at any time during such period.
 
This Prospectus may not be used for resales of Notes by any affiliate of the
Company, or any person with respect to Old Notes that were acquired directly
from the Company or any of its affiliates, any person that is participating or
intends to participate in a distribution of the Notes, or any person that has
any understanding or arrangement of participate in a distribution of Notes.
 
The Company will not receive any proceeds from any sale of Notes by broker-
dealers. Notes received by broker-dealers for their own account pursuant to
the Exchange Offer may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions, through the
writing of options on the Notes, or a combination of such methods of resale,
at prevailing market prices at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer or the purchasers of any such Notes. Any broker-dealer that resells
Notes that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such
Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of Notes and any commissions
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that,
by acknowledging that it will deliver any be delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
 
The Company has agreed to pay all expenses incident to the Exchange Offer
(other than commissions and concessions of any broker-dealers), subject to
certain prescribed limitations, and will indemnify the holders of the Old
Notes against certain liabilities, including certain liabilities that may
arise under the Securities Act.
 
By its acceptance of the Exchange Offer, any broker-dealer that receives Notes
pursuant to the Exchange Offer hereby agrees to notify the Company prior to
using the Prospectus in connection with the sale or transfer of Notes, and
acknowledges and agrees that, upon receipt of notice from the Company of the
happening of any event which makes any statement in the Prospectus untrue in
any material respect or which requires the making of any changes in the
Prospectus in order to make the statements therein not misleading or which may
impose upon the Company disclosure obligations that may have a material
adverse effect on the Company (which notice the Company agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of the
Prospectus until the Company has notified such broker-dealer that delivery of
the Prospectus may resume and has furnished copies of any amendment or
supplement to the Prospectus to such broker-dealer.
 
                                      160

 
The Notes will constitute a new issue of securities with no established trading
market. The Company does not intend to list the Notes on any national
securities exchange or to seek approval for quotation through any automated
quotation system. The Company has been advised by the Initial Purchaser that
following completion of the Exchange Offer, the Initial Purchaser may make a
market in the Notes. In addition, the Initial Purchaser may bid for, and
purchase, the Notes on the open market. These activities may stabilize or
maintain the market price of the Notes above independent market levels. The
Initial Purchaser is not obligated to make a market for, bid for or purchase
the Notes, and any market-making activities with respect to the Notes may be
discontinued at any time without notice. Accordingly, no assurance can be given
that an active public or other market will develop for the Notes or as to the
liquidity of or the trading market for the Notes. If a trading market does not
develop or is not maintained, holders of the Notes may experience difficulty in
reselling the Notes or may be unable to sell them at all. If a market for the
Notes develops, any such market may cease to continue at any time. If a public
trading market develops for the Notes, future trading prices of the Notes will
depend on many factors, including, among other things, prevailing interest
rates, the Company's results of operations and the market for similar
securities and other factors, including the financial condition of the Company.
 
                                      161

 
                                 LEGAL MATTERS
 
Certain legal matters relating to the Exchange Offer will be passed upon for
the Company by Latham & Watkins, New York, New York, and Brown, Todd & Heyburn
PLLC, Lexington, Kentucky.
 
                                   ENGINEERS
 
The information appearing in this Prospectus concerning estimates of the
Company's proven and probable coal reserves was prepared by Marshall Miller,
SESI, Weir and Norwest and has been included herein upon the authority of those
firms as experts.
 
                                      162

 
                             AVAILABLE INFORMATION
 
The Company has filed with the SEC a Registration Statement on Form S-4
(together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
Notes being offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement. For further information with respect to the
Company and the Notes, reference is made to the Registration Statement.
Statements contained in this prospectus and to the contents of any contract or
other document are not necessarily complete, and, where such contract or other
document is an exhibit to the Registration Statement, each such statement is
qualified in all respects by the provisions in such exhibit, to which
reference is hereby made. The Registration Statement can be inspected and
copied at the Public Reference Section of the SEC located at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
regional public reference facilities maintained by the SEC located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and
Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material, including copies of all or any portion of the Registration
Statement, can be obtained from the Public Reference Section of the SEC at
prescribed rates. Such material may also be accessed electronically by means
of the SEC's home page on the Internet (http://www.sec.gov).
 
From and after the effective date of the Registration Statement of which the
Prospectus is a part, so long as the New Notes are outstanding, the Company
will be required to file periodic reports and other information with the SEC
pursuant to certain provisions of the Exchange Act. During such period, the
Company will furnish to the holders of the New Notes copies of all periodic
reports filed by the Company with the SEC.
 
                                      163

 
                         INDEX TO FINANCIAL STATEMENTS
 


                                                                           Page
                                                                           ----
                                                                        
AEI Resources Holding, Inc. and Predecessor (AEI Holding Company, Inc.)
 Consolidated Financial Statements
  Report of Arthur Andersen LLP, Independent Public Accountants........... F-3
  Consolidated Balance Sheets as of December 31, 1996 and 1997 and
   September 30, 1998 (unaudited)......................................... F-4
  Consolidated Statements of Operations for the years ended December 31,
   1995, 1996 and 1997 and the nine months ended September 30, 1997 and
   1998 (unaudited)....................................................... F-5
  Consolidated Statements of Stockholders' Equity (Deficit) for the years
   ended December 31, 1995, 1996 and 1997 and the nine months ended
   September 30, 1998 (unaudited) ........................................ F-6
  Consolidated Statements of Cash Flows for the years ended December 31,
   1995, 1996 and 1997 and the nine months ended September 30, 1997 and
   1998 (unaudited)....................................................... F-7
  Notes to Consolidated Financial Statements.............................. F-8
AEI Holding Company, Inc. Consolidated Financial Statements
  Consolidated Balance Sheets as of September 30, 1998 (unaudited)........ F-37
  Consolidated Statements of Operations for the nine months ended
   September 30, 1997
   and 1998 (unaudited)................................................... F-38
  Consolidated Statements of Stockholder's Equity (Deficit) for the nine
   months ended
   September 30, 1998 (unaudited)......................................... F-39
  Consolidated Statements of Cash Flows for the nine months ended
   September 30, 1997
   and 1998 (unaudited)................................................... F-40
  Notes to Consolidated Financial Statements.............................. F-41
Addington Coal Operations (the Predecessor Business to AEI Holding
 Company, Inc.) Combined Financial Statements
  Report of Arthur Andersen LLP, Independent Public Accountants........... F-48
  Combined Statement of Operating Revenues and Expenses for the ten months
   ended
   November 1, 1995....................................................... F-49
  Combined Statement of Parent Investment for the ten months ended
   November 1, 1995....................................................... F-50
  Combined Statement of Cash Flows for the ten months ended November 1,
   1995................................................................... F-51
  Notes to Combined Financial Statements.................................. F-52
Zeigler Coal Holding Company
  Report of Deloitte & Touche LLP, Independent Auditors................... F-57
  Consolidated Balance Sheets as of December 31, 1996 and 1997 and June
   30, 1998 (unaudited) .................................................. F-58
  Consolidated Statements of Operations for the years ended December 31,
   1995, 1996 and 1997 and the six months ended June 30, 1997 and 1998
   (unaudited)............................................................ F-60
  Consolidated Statements of Cash Flows for the years ended December 31,
   1995, 1996 and 1997 and the six months ended June 30, 1997 and 1998
   (unaudited)............................................................ F-61
  Consolidated Statements of Shareholders' Equity for the years ended
   December 31, 1995, 1996 and 1997 and the six months ended June 30, 1998
   (unaudited)............................................................ F-62
  Notes to Consolidated Financial Statements.............................. F-63
The Cyprus Subsidiaries
  Report of PricewaterhouseCoopers LLP, Independent Accountants........... F-78
  Combined Statements of Assets, Liabilities and Parent Investment as of
   December 31, 1996 and 1997 and June 30, 1998 (unaudited)............... F-79
  Combined Statements of Operating Revenues and Expenses for the years
   ended December 31, 1995, 1996 and 1997 and the six months ended June
   30, 1997 and 1998 (unaudited).......................................... F-80

 
                                      F-1

 


                                                                          Page
                                                                          -----
                                                                       
  Combined Statements of Parent Investment for the years ended December
   31, 1995, 1996 and 1997 and the six months ended June 30, 1997 and
   1998 (unaudited) .....................................................  F-81
  Combined Statements of Cash Flows for the years ended December 31,
   1995, 1996 and 1997 and the six months ended June 30, 1997 and 1998
   (unaudited)...........................................................  F-82
  Notes to Combined Financial Statements.................................  F-83
Leslie Resources Financial Statements
  Report of Arthur Andersen LLP, Independent Public Accountants..........  F-93
  Report of Faesy, Schmitt & Company, PSC, Independent Public
   Accountants...........................................................  F-94
  Combined Balance Sheets as of December 31, 1996 and 1997...............  F-95
  Combined Statements of Operations and Retained Earnings for the years
   ended December 31, 1996 and 1997......................................  F-96
  Combined Statements of Cash Flows for the years ended December 31, 1996
   and 1997..............................................................  F-97
  Notes to Combined Financial Statements.................................  F-98
Mid-Vol Leasing, Inc. and Affiliates
  Report of Arthur Andersen LLP, Independent Public Accountants.......... F-107
  Combined Balance Sheets as of December 31, 1996 and 1997 and June 30,
   1998 (unaudited)...................................................... F-108
  Combined Statements of Operations and Retained Earnings for the years
   ended December 31, 1995, 1996 and 1997 and the six months ended June
   30, 1997 and 1998 (unaudited)......................................... F-109
  Combined Statements of Cash Flows for the years ended December 31,
   1995, 1996 and 1997 and the six months ended June 30, 1997 and 1998
   (unaudited)........................................................... F-110
  Notes to Combined Financial Statements................................. F-111
Kindill Holding, Inc.
  Report of Deloitte & Touche LLP, Independent Auditors.................. F-119
  Consolidated Balance Sheets as of December 31, 1996 and 1997 and June
   30, 1998 (unaudited).................................................. F-120
  Consolidated Statements of Income for the years ended December 31, 1996
   and 1997 and the six months ended June 30, 1997 and 1998 (unaudited).. F-121
  Consolidated Statements of Stockholders' Equity for the years ended
   December 31, 1996 and 1997 and the six months ended June 30, 1998
   (unaudited)........................................................... F-122
  Consolidated Statements of Cash Flows for the years ended December 31,
   1996 and 1997 and the six months ended June 30, 1997 and 1998
   (unaudited) .......................................................... F-123
  Notes to Consolidated Financial Statements............................. F-124
Martiki Coal Corporation
  Report of Deloitte & Touche LLP, Independent Auditors.................. F-132
  Balance Sheets as of December 31, 1997 and September 30, 1998.......... F-133
  Statements of Operations for the seven months ended July 31, 1996
   (predecessor), the five months ended December 31, 1996, the year ended
   December 31, 1997 and the nine months ended September 30, 1998
   (successor)........................................................... F-134
  Statements of Stockholders Equity for the seven months ended July 31,
   1996 (predecessor), the five months ended December 31, 1996, the year
   ended December 31, 1997 and the nine months ended September 30, 1998
   (successor)........................................................... F-135
  Statements of Cash Flows for the seven months ended July 31, 1996
   (predecessor), the five months ended December 31, 1996, the year ended
   December 31, 1997 and the nine months ended September 30, 1998
   (successor)........................................................... F-136
  Notes to Financial Statements.......................................... F-137

 
                                      F-2

 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Shareholders of
AEI Resources Holding, Inc.:
 
We have audited the accompanying consolidated balance sheets of AEI Resources
Holding, Inc. (see Note 1), as of December 31, 1996 and 1997, and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AEI Resources
Holding, Inc. (see Note 1) as of December 31, 1996 and 1997 and the results of
its operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
 
                                            Arthur Andersen LLP
 
Louisville, Kentucky
March 20, 1998 (except with
respect to the matters
discussed in Notes 1a and 17c,
as to which date is December
14, 1998)
 
                                      F-3

 
              AEI RESOURCES HOLDING, INC. AND PREDECESSOR (NOTE 1)
 
                          CONSOLIDATED BALANCE SHEETS
            As of December 31, 1996 and 1997 and September 30, 1998
 


                                                December 31,
                                              ------------------  September 30,
                                                1996      1997        1998
                                              --------  --------  -------------
                                                                   (Unaudited)
                                                      (In Thousands)
                                                         
                   ASSETS
Current Assets:
  Cash and cash equivalents.................. $    453  $ 83,616   $   54,891
  Short-term investments.....................      --        401          108
  Accounts receivable (including amounts due
   from related parties of $4,814, $7,951 and
   $2,094, respectively).....................   18,941    29,939      148,881
  Inventories................................   14,336    22,658      138,985
  Prepaid expenses and other.................    4,908     6,562       30,683
  Assets held for sale.......................      --        --       307,692
                                              --------  --------   ----------
    Total current assets.....................   38,638   143,176      681,240
                                              --------  --------   ----------
Property, Plant and Equipment, at cost,
 including mineral reserves and mine
 development and contract costs..............   76,654   129,685    2,111,074
  Less--accumulated depreciation and
   amortization..............................  (10,284)  (23,027)     (43,984)
                                              --------  --------   ----------
                                                66,370   106,658    2,067,090
                                              --------  --------   ----------
Debt issuance costs, net.....................      214    12,713       52,088
Advance royalties............................      968     2,179       31,184
Other non-current assets, net................      740       667       11,615
                                              --------  --------   ----------
    Total assets............................. $106,930  $265,393   $2,843,217
                                              ========  ========   ==========
    LIABILITIES AND STOCKHOLDERS' EQUITY
                  (DEFICIT)
Current Liabilities:
  Accounts payable (including amounts due to
   related parties of $6,094, $3,301 and
   $3,108, respectively)..................... $ 20,640  $ 30,410   $  123,221
  Revolving line of credit...................    8,584       --           --
  Current portion of long-term debt
   (including amounts due to related parties
   of $32, $-- and $--, respectively)........    5,778     1,903      329,058
  Current portion of capital leases..........    5,937     5,705        4,739
  Current portion of reclamation and mine
   closure costs.............................    2,000     2,100       26,322
  Deferred income taxes......................      --      5,199       24,162
  Retiree and employee benefits..............      --        --        56,544
  Accrued expenses and other.................    7,250    12,802      153,192
                                              --------  --------   ----------
    Total current liabilities................   50,189    58,119      717,238
                                              --------  --------   ----------
Non-Current Liabilities:
  Long-term debt and related obligations,
   less current portion (including amounts
   due to related parties of $8,683, $-- and
   $--, respectively)........................   35,474   204,539    1,091,792
  Capital leases, less current portion.......    8,372     4,822          288
  Reclamation and mine closure costs, less
   current portion...........................    9,111     9,431      324,327
  Deferred income taxes......................      --      5,933      210,926
  Employee benefits..........................    1,678        46      503,952
  Other non-current liabilities..............    1,781       577       64,517
                                              --------  --------   ----------
    Total non-current liabilities............   56,416   225,348    2,195,802
                                              --------  --------   ----------
    Total liabilities........................  106,605   283,467    2,913,040
                                              --------  --------   ----------
Commitments and Contingencies (see notes)
Stockholders' Equity (Deficit):
  Common stock...............................      --          1            0
  Additional capital.........................    2,418     7,193          --
  Retained earnings (deficit)................   (2,093)  (25,268)     (69,824)
                                              --------  --------   ----------
    Total stockholders' equity (deficit).....      325   (18,074)     (69,823)
                                              --------  --------   ----------
    Total liabilities and stockholders'
     equity (deficit)........................ $106,930  $265,393   $2,843,217
                                              ========  ========   ==========

 
  The accompanying notes to consolidated financial statements are an integral
                         part of these balance sheets.
 
                                      F-4

 
              AEI RESOURCES HOLDING, INC. AND PREDECESSOR (NOTE 1)
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
              For the Years Ended December 31, 1995, 1996 and 1997
               and Nine Months Ended September 30, 1997 and 1998
 


                                                             Nine Months Ended
                                                               September 30,
                                                             ------------------
                            1995      1996         1997        1997      1998
                           -------  --------  -------------- --------  --------
                                                                (Unaudited)
                                              (In Thousands)
                                                        
Revenues:
  Coal mining............  $24,068  $104,804     $163,980    $114,270  $367,438
  Equipment sales, rental
   and repair (including
   amounts from related
   parties of $90,
   $14,333, $6,634 and
   $5,677 and $112,
   respectively).........    6,376    16,033        8,086       6,358     2,145
  Other (including
   amounts from related
   parties of $467, $607,
   $2,381, $2,432 and
   $347, respectively)...    1,250     2,363        3,188       3,453     6,581
                           -------  --------     --------    --------  --------
    Total revenues.......   31,694   123,200      175,254     124,081   376,164
                           -------  --------     --------    --------  --------
Costs and expenses:
  Cost of operations
   (including amounts to
   related parties of
   $1,396, $19,866,
   $25,575, $17,918 and
   $14,711,
   respectively).........   25,396    97,101      145,203     100,736   309,482
  Depreciation, depletion
   and amortization......    1,401     6,945       10,755       6,910    28,207
  Selling, general and
   administrative........    2,178     9,025       13,870       9,890    19,794
                           -------  --------     --------    --------  --------
    Total costs and
     expenses............   28,975   113,071      169,828     117,536   357,483
                           -------  --------     --------    --------  --------
    Income from
     operations..........    2,719    10,129        5,426       6,545    18,681
Interest and other income
 (expense):
  Interest expense
   (including amounts to
   related parties of $--
   , $427, $1,382, $1,276
   and $--,
   respectively).........   (1,043)   (5,527)      (9,192)     (5,265)  (29,845)
  Gain on sale of
   assets................      114       305          338          25     1,233
  Other, net.............       17        97           59        (611)    1,286
                           -------  --------     --------    --------  --------
                              (912)   (5,125)      (8,795)     (5,851)  (27,326)
                           -------  --------     --------    --------  --------
    Income (loss) before
     minority interest,
     income taxes and
     extraordinary item..    1,807     5,004       (3,369)        694    (8,645)
Less--Minority interest..       59       (59)         --          --        --
                           -------  --------     --------    --------  --------
    Income (loss) before
     income taxes and
     extraordinary item..    1,748     5,063       (3,369)        694    (8,645)
Income tax provision.....      --        --        17,516       1,398      (935)
                           -------  --------     --------    --------  --------
    Income (loss) before
     extraordinary item..    1,748     5,063      (20,885)       (704)   (7,710)
Extraordinary loss from
 extinguishment of debt
 (net of
 $--, $--, $869, $-- and
 $1,302 tax benefit,
 respectively)...........      --        --        (1,303)        --     (3,039)
                           -------  --------     --------    --------  --------
    Net income (loss)....  $ 1,748  $  5,063     $(22,188)   $   (704) $(10,749)
                           =======  ========     ========    ========  ========
Unaudited pro forma
 information (Note 20):
  Income (loss) before
   income taxes and
   extraordinary item....  $ 1,748  $  5,063     $ (3,369)   $    694
  Unaudited pro forma
   income tax expense
   (benefit).............      664     1,924       (1,280)        719
  Extraordinary item, net
   of tax benefit........      --        --        (1,303)        --
                           -------  --------     --------    --------
  Unaudited pro forma net
   income (loss).........  $ 1,084  $  3,139     $ (3,392)   $    (25)
                           =======  ========     ========    ========

 
  The accompanying notes to consolidated financial statements are an integral
                           part of these statements.
 
                                      F-5

 
              AEI RESOURCES HOLDING, INC. AND PREDECESSOR (NOTE 1)
 
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
             For the Years Ended December 31, 1995, 1996 and 1997
                   and Nine Months Ended September 30, 1998
 


                                   Common Stock  Retained
                                   -------------  Earnings  Additional
                                   Shares Amount (Deficit)   Capital    Total
                                   ------ ------ ---------  ---------- --------
                                          (Dollar amounts in thousands)
                                                        
Balance at January 1, 1995........    --   $--   $    --     $   200   $    200
  1995 net income.................    --    --        528      1,220      1,748
  Owners' distribution, net.......    --    --        --      (6,679)    (6,679)
                                   ------  ----  --------    -------   --------
Balance at January 1, 1996........    --    --        528     (5,259)    (4,731)
  1996 net income (loss)..........    --    --     (2,621)     7,684      5,063
  Owners' distribution, net.......    --    --        --          (7)        (7)
                                   ------  ----  --------    -------   --------
Balance at January 1, 1997........    --    --     (2,093)     2,418        325
  Issued 2 shares of $.01 par
   value common stock on October
   20, 1997.......................      2   --        --         --         --
  Issued 98 shares of $.01 par
   value common stock on November
   12, 1997.......................     98   --        --         --         --
  Deferred tax benefit............    --    --        --       5,515      5,515
  Stock split of 528 to 1 on
   December 9, 1997............... 52,700     1       --          (1)       --
  1997 net income (loss)..........    --    --    (23,175)       987    (22,188)
  Owners' distribution, net.......    --    --        --      (1,726)    (1,726)
                                   ------  ----  --------    -------   --------
Balance at December 31, 1997...... 52,800     1   (25,268)     7,193    (18,074)
  Issued 2 shares of $.01 par
   value common stock on May 28,
   1998 (unaudited)...............      2   --        --         --         --
  Issued 2 shares of $.01 par
   value common stock on July 27,
   1998 (unaudited)...............      2   --        --         --         --
  Nine months ended September 30,
   1998 net loss (unaudited)......    --    --    (10,749)       --     (10,749)
  Charge to equity (unaudited)....    --    --    (43,807)    (7,193)   (51,000)
  Deferred tax benefit
   (unaudited)....................    --    --     10,000        --      10,000
                                   ------  ----  --------    -------   --------
Balance at September 30, 1998
 (unaudited)...................... 52,804  $  1  $(69,824)   $   --    $(69,823)
                                   ======  ====  ========    =======   ========

 
 
 
  The accompanying notes to consolidated financial statements are an integral
                           part of these statements.
 
                                      F-6

 
              AEI RESOURCES HOLDING, INC. AND PREDECESSOR (NOTE 1)
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the Years Ended December 31, 1995, 1996 and 1997
               and Nine Months Ended September 30, 1997 and 1998
 


                                    December 31,             September 30,
                              ---------------------------  -------------------
                               1995      1996      1997      1997      1998
                              -------  --------  --------  --------  ---------
                                                              (Unaudited)
                                             (In Thousands)
                                                      
Cash Flows From Operating
 Activities:
 Net income (loss)........... $ 1,748  $  5,063  $(22,188) $   (704) $ (10,749)
 Adjustments to reconcile net
  income (loss) to net cash
  provided by (used in)
  operating activities
  Depreciation, depletion and
   amortization..............   1,401     6,945    10,755     6,910     28,207
  Amortization of finance
   costs included in interest
   expense...................       6        65       198        24      3,556
  Prepayment penalties on
   debt refinancing..........     --        --      1,600       --         --
  Loan cost write-offs from
   debt refinancing..........     --        --        572       --       4,341
  Provision for deferred
   income taxes..............     --        --     16,647       --         --
  Gain on sale of assets.....    (114)     (305)     (338)      (25)    (1,233)
 Changes in assets and
  liabilities:
  (Increase) decrease in:
   Short-term investments....     --        --       (401)      --         293
   Receivables...............   1,046    (6,079)   (7,951)  (11,287)       171
   Inventories...............  (2,212)   (3,050)   (6,173)   (6,517)    (6,565)
   Prepaid expenses and
    other....................    (962)   (1,408)     (835)     (409)    (4,616)
   Other non-current assets..    (561)     (372)   (2,177)   (1,071)      (150)
 Increase (decrease) in:
  Accounts payable...........  (1,693)    9,518     4,191     4,905     (2,007)
  Accrued expenses and
   other.....................     816        66    (1,354)    3,355    (35,419)
  Deferred taxes.............     --        --        --        --      (2,237)
  Other non-current
   liabilities...............   1,186    (5,669)   (2,726)   (3,189)    (3,666)
                              -------  --------  --------  --------  ---------
    Total adjustments........  (1,087)     (289)   12,008    (7,304)   (19,325)
                              -------  --------  --------  --------  ---------
    Net cash provided by
     (used in) operating
     activities..............     661     4,774   (10,180)   (8,008)   (30,074)
                              -------  --------  --------  --------  ---------
Cash Flows From Investing
 Activities:
 Net proceeds from sale of
  assets.....................     400     1,589       549       144      3,270
 Additions to property, plant
  and equipment and mine
  development and contract
  costs......................  (6,477)  (14,092)  (32,214)  (18,340)   (33,257)
 Acquisition of coal-mining
  companies including debt
  retirement, net of cash
  received...................     --        --     (6,625)      --    (877,027)
                              -------  --------  --------  --------  ---------
    Net cash used in
     investing activities....  (6,077)  (12,503)  (38,290)  (18,196)  (907,014)
                              -------  --------  --------  --------  ---------
Cash Flows From Financing
 Activities:
 Borrowings on long-term
  debt.......................   3,173     3,629   265,327    12,045  1,160,000
 Repayments on long-term
  debt.......................    (436)   (4,150)  (98,243)   (7,219)  (167,506)
 Net borrowings (payments) on
  revolving line of credit...   4,326     4,258    (8,584)    5,061     19,641
 Net borrowings from
  (repayments to)
  stockholders...............   1,133     7,315    (8,715)   20,407        --
 Repayments on capital
  leases.....................    (410)   (3,617)   (3,782)   (2,804)    (5,500)
 Payments for debt issuance
  costs......................     --        --    (12,673)     (302)   (47,272)
 Prepayment penalties on debt
  refinancing................     --        --     (1,600)      --         --
 Charge to equity for MTI
  purchase...................     --        --        --        --     (51,000)
 Other changes in owners'
  equity (deficit), net......  (1,536)      (87)      (97)     (321)       --
                              -------  --------  --------  --------  ---------
    Net cash provided by
     financing activities....   6,250     7,348   131,633    26,867    908,363
                              -------  --------  --------  --------  ---------
    Net increase (decrease)
     in cash and cash
     equivalents.............     834      (381)   83,163       663    (28,725)
                              -------  --------  --------  --------  ---------
Cash and Cash Equivalents,
 beginning of period.........     --        834       453       453     83,616
                              -------  --------  --------  --------  ---------
Cash and Cash Equivalents,
 end of period............... $   834  $    453  $ 83,616  $  1,116  $  54,891
                              =======  ========  ========  ========  =========

 
  The accompanying notes to consolidated financial statements are an integral
                           part of these statements.
 
                                      F-7

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            December 31, 1995, 1996 and 1997 and September 30, 1998
                             (Dollars in thousands)
 
1. ORGANIZATIONAL TRANSACTIONS AND BASIS OF PRESENTATION
 
a. Recent 1998 Events
 
During May 1998, the owners of AEI Holding Company, Inc. (AEI HoldCo.) (Larry
Addington and Addington Enterprises (AEI)) established a new company, Coal
Ventures, Inc. (CVI--a Delaware company) and in June 1998 transferred their
shares of AEI HoldCo. to CVI in exchange for similar proportionate CVI shares
thereby making CVI the owner of AEI HoldCo. On June 25, 1998, CVI increased
their authorized common shares to 150,000. On June 29, 1998, pursuant to a May
28, 1998 stock purchase and sale agreement with Cyprus Amax Coal Company
(Cyprus), CVI acquired various Cyprus Subsidiaries, a coal mining business with
operations in Kentucky, West Virginia, Indiana and Tennessee. The purchase
price was $98,000 plus a working capital adjustment as well as payments for
purchased and leased equipment and a royalty owed to Cyprus for future
production. This acquisition was accounted for as a purchase.
 
On July 10, 1998, CVI acquired the capital stock of Mid-Vol Leasing, Inc., Mega
Minerals, Inc. and Premium Processing, Inc. (collectively, Mid-Vol), a coal
mining business with operations in West Virginia for the purchase price of
$35,000 plus a working capital adjustment as well as production royalty
payments. This acquisition was accounted for as a purchase.
 
During August 1998, CVI changed its name to AEI Resources, Inc. (Resources) and
on August 5, 1998 (via a subsidiary) submitted a cash tender offer to acquire
all of the common stock of Zeigler Coal Holding, Inc. (Zeigler), a diversified
publicly held coal mining and energy business with operations primarily in
Kentucky, West Virginia, Ohio, Illinois, and Wyoming. The cash purchase price
for the stock was approximately $600,000, and Resources assumed approximately
$255,000 of Zeigler's debt. This acquisition closed on September 2, 1998 and
was accounted for as a purchase. Also during August 1998, the owners of
Resources established a new Company, AEI Resources Holding, Inc. (ARHI)
(collectively, the Company) and transferred their shares of Resources to ARHI
in exchange for similar proportionate ARHI shares thereby making ARHI the owner
of Resources.
 
On September 2, 1998, the Company acquired the Capital Stock of Kindill
Holding, Inc. (Kindill) (a related party) for the cash purchase price of
$11,000 plus assumption of approximately $50,000 of Kindill's debt. Kindill is
a coal mining business with operations in Indiana. This acquisition was
accounted for as a purchase.
 
On September 2, 1998, the Company reacquired the 22.5% minority interest in
Bowie Resources, Ltd. (See Note 12) for the purchase price of $11,500. This
acquisition was accounted for as a purchase.
 
On November 6, 1998, the Company acquired the Capital Stock of Martiki Coal
Corporation (Martiki), a subsidiary of MAPCO, for the cash purchase price of
$32,000. Martiki is a coal mining business with operations in eastern Kentucky.
This acquisition was accounted for as a purchase.
 
Refer to Note 17c for descriptions of financing transactions related to these
acquisitions.
 
b. 1997 Organizational Transactions
 
The accompanying annual consolidated financial statements of Resources have
been prepared pursuant to two agreements: the Shareholder Exchange Agreement
dated October 20, 1997 (Exchange Agreement) and the Asset Purchase Agreement
dated December 18, 1997 (MTI Agreement). See basis of presentation in Note 1c.
 
The Exchange Agreement is between AEI Holding Company, Inc., a Delaware
corporation formed on September 19, 1997 (as Transferee/Buyer), and Addington
Enterprises, Inc. (AEI), a Kentucky corporation (as Transferor) and Larry
Addington (as Transferor), and Harold Sergent (as Seller) for their 77.5%
ownership interest in Bowie Resources, Limited (BRL), a Colorado corporation.
The Exchange Agreement was consummated on
 
                                      F-8

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
November 12, 1997, whereby AEI HoldCo. issued 98 common shares (par value $.01)
as consideration for: (1) AEI's coal mining operations and certain corporate
net assets and (2) Larry Addington's (69.8%) ownership interest in BRL.
Additionally, AEI HoldCo. purchased Harold Sergent's 7.7% ownership interest in
BRL for $2,000. AEI is owned by Larry Addington (80%), Robert Addington (10%)
and Bruce Addington (10%), who are brothers. The coal mining businesses
transferred by AEI included the net assets of its Addington Mining and
corporate divisions as well as its wholly-owned subsidiaries, Tennessee Mining,
Inc. and Ikerd-Bandy Co., Inc. AEI retained certain non-coal mining properties
as well as technology related assets which were disposed in the MTI agreement
(see below).
 
The Exchange Agreement was prepared in connection with, and its consummation
was contingent upon, the closing of the $200,000 Senior Notes Indenture (Senior
Notes) of AEI HoldCo. (Note 7a). The Senior Notes were offered in a private
placement and AEI HoldCo. has agreed to file a registration statement (under
the US Securities Act) relating to an exchange offer for the Senior Notes which
would provide for their resale. NationsBanc Montgomery Securities, Inc. was the
initial purchaser of the Senior Notes, with such initial purchase occurring on
November 12, 1997.
 
The MTI Agreement is between Mining Technologies, Inc., a newly formed
subsidiary of AEI HoldCo. (as purchaser) and AEI (as seller) for AEI's
ownership interest in its North American (N.A.) mining technologies division.
The purchase price of $51,000 (cash) was delivered at closing on January 2,
1998. The net assets acquired include mining equipment (primarily Highwall
Mining Systems), contract mining agreements, and the intellectual property for
the N.A. Highwall Mining Systems (patents, trademarks, etc.). AEI retained
ownership of the non-N.A. intellectual property.
 
The Exchange and MTI transactions described above were treated for accounting
purposes as a transfer of entities and net assets under common control with
accounting similar to that of a pooling of interests. Accordingly, the
historical cost basis of the underlying assets and liabilities transferred
(from AEI and BRL) were carried over from the transferring entity to AEI
HoldCo. Due to common control, the MTI cash purchase price of $51,000 paid by
AEI HoldCo. to AEI was recorded as a charge to equity when paid in January
1998. In connection with the Senior Notes offering, $2,000 of loan proceeds
were used by AEI HoldCo. to acquire 7.7% of BRL common stock from Harold
Sergent. This purchase was accounted for as an acquisition of minority interest
using purchase accounting.
 
After the consummation of the Exchange Agreement and MTI Agreement, AEI HoldCo.
is owned by AEI (50%) and Larry Addington (50%). In addition, Addington Mining,
Inc. (AMI), Tennessee Mining Inc. (TMI), Ikerd-Bandy Co., Inc. (IB) and Mining
Technologies, Inc. (MTI) are wholly-owned subsidiaries of AEI HoldCo. while BRL
is 77.5% owned by AEI HoldCo. and 22.5% owned by Mitsui Matsushima (Note 12).
 
c. Basis of Presentation
 
The accompanying financial statements include those of AEI Resources, Inc.
which includes AEI HoldCo. and the Cyprus Subsidiaries acquired on June 29,
1998 (see Note 1a). AEI HoldCo. consists of its predecessor operations which
include the mining technologies division of Addington Enterprises, Inc. that
was acquired by AEI HoldCo. on January 2, 1998 (the "MTI Transaction"). The
predecessor operations of AEI HoldCo. also include AEI and its coal mining
divisions and subsidiaries (AMI, TMI and IB), plus Bowie Resources, Limited.
The mining technologies division of AEI included herein excludes the non-North
American intellectual property. The accompanying annual financial statements
represent the historical accounts of the businesses transferred and sold to AEI
HoldCo. pursuant to the Exchange and MTI Agreements, all of which were under
the common control of Larry Addington. The accompanying September 30, 1998
financial statements also include the purchase accounting and post acquisition
operations of the following significant acquisitions since their date of
acquisition: Leslie Resources (January 1998), Cyprus Subsidiaries (June 1998),
Mid-Vol (July 1998), Zeigler (September 1998) and Kindill (September 1998).
 
                                      F-9

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
The mining operations of AEI HoldCo. commenced in early 1995 following the BRL
acquisition (see Note 3a) and increased significantly in November 1995
following the AEI acquisition (see Note 3b). The accompanying consolidated
financial statements include the relevant financial results (AEI HoldCo.
predecessor operations) of AEI and BRL since their acquisitions under the
control of Larry Addington. Significant "intercompany" transactions and
accounts have been eliminated in combination.
 
Various allocations and carve-out adjustments have been made in the preparation
of the accompanying consolidated financial statements. Such allocations have
been recorded to segregate the historical accounts to reflect the businesses
transferred. Management believes that the method used for allocations and
carve-out adjustments is reasonable.
 
As of December 31, 1995 and 1996, AEI HoldCo. owned 90.1% of BRL, and 9.9% is
considered minority interest. As of December 31, 1997 AEI HoldCo. owned 77.5%
of BRL and 22.5% is considered minority interest (see Note 12). No minority
interest is recorded in the accompanying balance sheets as of December 31, 1996
or 1997 or September 30, 1998 due to BRL having deficit equity.
 
d. Interim Financial Information
 
The interim financial statements as of September 30, 1998 and for the nine
months ended September 30, 1997 and 1998 are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, the unaudited
interim financial statements contain all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation. The
results of operations for the interim periods are not necessarily indicative of
the results for the entire fiscal year.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
 
a. Management's Use of Estimates
 
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
 
b. Company Environment and Risk Factors
 
The Company's principal business activities consist of surface and deep mining
and marketing of bituminous coal, performance of contract mining for third
parties, construction and licensing of mining equipment, as well as leasing and
repairing mining equipment. These operations are primarily located in Kentucky,
Indiana, West Virginia, Tennessee and Colorado.
 
The Company, in the course of its business activities, is exposed to a number
of risks including: the possibility of the termination or alteration of coal
sales contracts, fluctuating market conditions of coal and transportation
costs, competitive industry and over capacity, changing government regulations,
unexpected maintenance and equipment failure, employee benefits cost control,
misestimates of proven and probable coal reserves, satisfactory labor
relations, loss of key employees, satisfactory resolution of the year 2000
issue and the ability of the Company to obtain financing, necessary mining
permits and control of adequate recoverable mineral reserves. In addition,
adverse uncontrollable (wet) weather and geological conditions tend to increase
mining costs, sometimes substantially. Precipitation is generally highest at
most of the Company's mining operations in early spring and late fall.
 
                                      F-10

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
The Company is exposed to risks associated with a highly leveraged
organization. Such risks include: increased vulnerability to adverse economic
and industry conditions, limited ability to fund future working capital,
capital expenditures, business acquisitions or other corporate requirements,
possible liquidity problems as well as financing and credit constraints.
Management believes it has adequate financing resources (including cash
equivalents, cash generated from operations and additional borrowings) to meet
its needs in 1998.
 
The Company's current business plans include significant growth in its coal
mining operations, primarily through acquisitions. The Company faces numerous
risks in the successful identification, consummation and post-acquisition
integration of such acquisitions.
 
c. Inventories
 
Inventories are stated at average cost, which approximates first-in, first-out
(FIFO) cost, and does not exceed market. Components of inventories consist of
coal, deferred overburden and supplies and parts (Note 4). Coal inventories
represent coal contained in stockpiles and exposed in the pit. Deferred
overburden represents the costs to remove the earthen matter (i.e., overburden)
covering the coal seam in surface mining. Costs to remove overburden are
accumulated and deferred on a pro-rata basis as overburden is removed and
eventually charged to cost of operations when the coal is sold. The calculation
of deferred overburden requires significant estimates and assumptions,
principally involving engineering estimates of overburden removal and coal seam
characteristics.
 
d. Advance Royalty Payments (included in Prepaid Expenses and Other and Other
Non-Current Assets)
 
The Company is required, under certain royalty lease agreements, to make
minimum royalty payments whether or not mining activity is being performed on
the leased property. These minimum payments are recoupable once mining begins
on the leased property. The Company capitalizes these minimum royalty payments
and amortizes the deferred costs once mining activities begin or expenses the
deferred costs when the Company has ceased mining or has made a decision not to
mine on such property. Included in prepaid expenses and other is $1,529 and
$3,491 for 1996 and 1997, respectively, relating to advanced royalties.
Included in other non-current assets is $973 and $2,179 for 1996 and 1997,
respectively, relating to advanced royalties.
 
In 1997, TMI, a subsidiary of AEI HoldCo., paid $2,000 to Addington Resources,
Inc. (ARI) for full settlement of royalties due under an option agreement dated
August 4, 1995 (see Note 3b). The difference between the settlement amount and
royalties previously recognized is recorded as an advanced royalty. At December
31, 1997, $1,086 is included as an advanced royalty in prepaid expenses and
other related to this settlement.
 
e. Depreciation, Depletion and Amortization
 
Property, plant and equipment are recorded at cost, including construction
overhead and interest, where applicable. Expenditures for major renewals and
betterments are capitalized while expenditures for maintenance and repairs are
expensed as incurred. Depreciation, depletion and amortization are provided
using either the straight-line or units of production method with estimated
useful lives under the straight-line method comprising substantially the
following ranges:
 


                                                                         Years
                                                                        --------
                                                                     
   Buildings........................................................... 10 to 45
   Mining and other equipment and related facilities...................  2 to 20
   Transportation equipment............................................   2 to 7
   Furniture and fixtures..............................................  3 to 10

 
                                      F-11

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
Mineral reserves and mine development costs (included in property, plant and
equipment) are amortized using the units-of-production method, based on
estimated recoverable reserves. Coal sales contract related costs are amortized
as tons are delivered, based on contracted tonnage requirements.
 
Financing costs (included in other non-current assets amounting to $214 and
$12,713 for 1996 and 1997, respectively) are being amortized using the
effective interest method, over the life of the related debt, or using the
straight-line method, over the life of the related debt, if the result
approximates the effective interest method.
 
f. Restricted Cash (Included in Other Non-Current Assets)
 
The Company pays amounts as required by various royalty agreements. Certain of
these agreements have been disputed by third parties, requiring that cash be
paid into an escrow account until the rightful recipient is determined.
Included in other non-current assets is $161 and $93 for 1996 and 1997,
respectively, relating to restricted cash.
 
g. Coal Mine Reclamation and Mine Closure Costs
 
The Company estimates its future cost requirements for reclamation of land
where it has conducted surface and deep mining operations, based on its
interpretation of the technical standards of regulations enacted by the U.S.
Office of Surface Mining, as well as state regulations.
 
The Company accrues for the cost of final mine closure and related exit costs
over the estimated useful mining life of the developed property or, if
purchased, at the date of acquisition. These costs relate to reclaiming the pit
and support acreage at surface mines and sealing portals at deep mines. Other
costs common to both types of mining are related to reclaiming refuse and
slurry ponds as well as holding period and related termination/exit costs. The
Company accrues for current mine disturbance which will be reclaimed prior to
final mine closure. The establishment of the final mine closure reclamation
liability and the current disturbance is based upon permit requirements and
requires various estimates and assumptions, principally associated with cost
and production levels. Annually, the Company reviews its entire reclamation
liability and makes necessary adjustments, including mine plan and permit
changes and revisions to cost and production levels to optimize mining and
reclamation efficiency. The economic impact of such adjustments is recorded to
cost of coal sales. Although the Company's management believes it is making
adequate provisions for all expected reclamation and other costs associated
with mine closures, future operating results would be adversely affected if
such accruals were later determined to be insufficient.
 
h. Income Taxes
 
For 1995 and 1996 and part of 1997 (see below), AEI and BRL were S corporations
under the Internal Revenue Code and similar state statutes. As a result, AEI
and BRL were not subject to income taxes and their taxable income or loss was
reported in the stockholders' individual tax returns. Accordingly, the
historical net income (loss) presented in the accompanying financial statements
during the S corporation periods is exclusive of an income tax provision (See
Notes 11 and 20).
 
As discussed in Note 12, in April 1997, BRL's shareholders entered into an
agreement to sell collectively 22.5% of their shares of BRL common stock. Upon
consummation of this agreement, BRL's S corporation status was terminated. Upon
such termination, BRL was required to record deferred taxes for differences in
book and tax bases in assets and liabilities. The net deferred tax liability in
April 1997 was $1,600 and was recorded as an increase to income tax provision.
 
As discussed in Note 1, in connection with the consummation of the Exchange
Agreement in November 1997, the mining businesses transferred from AEI (as an S
corporation) required that deferred taxes be recorded by
 
                                      F-12

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
AEI HoldCo. (as a C corporation). The net deferred tax liability in November
1997 was $17,963 and was recorded as an increase to income tax provision.
 
The provision for income taxes includes the change in tax status matters as
described above plus federal, state and local income taxes currently payable
and those deferred because of temporary differences between financial statement
and tax basis of assets and liabilities. The Company records income taxes under
the liability method. Under this method, deferred income taxes are recognized
for the estimated future tax effects of differences between the tax basis of
assets and liabilities and their financial reporting amounts as well as net
operating loss carryforwards and tax credits based on enacted tax laws.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
 
i. Revenue Recognition
 
Most of the Company's revenues have been generated under long-term coal sales
contracts with electric utilities or other coal-related organizations,
primarily in the eastern United States. Revenues are recognized on coal sales
in accordance with the sales agreement, which is usually when the coal is
shipped to the customer and title is passed. The Company also rents and sells
equipment and provides repair and contract mining services, and the revenue
from such rental, sale and service is recognized when earned. Revenue from the
construction of mining equipment is recognized on a percentage of completion
basis. The Company grants credit to its customers based on their
creditworthiness and generally does not secure collateral for its receivables.
No allowance for doubtful accounts is recorded for 1996 or 1997 as management
does not believe it is necessary. Historically, accounts receivable write-offs
have been insignificant.
 
Included in 1995 revenues is $6,000 related to a sale of equipment purchased
for immediate resale. A gross profit on sale of approximately $2,800 was
realized.
 
j. Stockholders' Equity (Deficit)
 
The historical owners' equity accounts (retained earnings (deficit) and
additional capital) for legal entities (BRL) which have been carried over from
the transferor (Note 1b) have remained unchanged as presented within the
accompanying consolidated statements of stockholders' equity (deficit).
 
The businesses transferred from AEI have operated as divisions and,
accordingly, the historical equity account changes (earnings and losses and
owners' contributions and distributions) have been presented within additional
capital in the accompanying consolidated statements of stockholders' equity
(deficit) until November 12, 1997 at which time AEI HoldCo. became a legal
entity.
 
The common stock activity through December 31, 1997, represents that of AEI
HoldCo. The 2 shares of $.01 par value common stock issued on October 20, 1997
represent the initial organizational shares. On November 12, 1997 in
conjunction with the consummation of the Exchange Agreement (see Note 1), AEI
HoldCo. issued 98 additional shares of $.01 par value common stock bringing the
total issued and outstanding shares to 100. On December 9, 1997, AEI HoldCo.
increased authorized common shares from 1,000 to 100,000 and declared a 528 to
1 stock split bringing the issued and outstanding shares to 52,800. The
consolidated operations of AEI HoldCo. after the consummation of the Exchange
Agreement (Note 1) on November 12, 1997, are included in retained earnings
(deficit) in the accompanying consolidated statements of stockholders' equity
(deficit).
 
As described in Notes 2h and 11, in connection with the consummation of the
Exchange Agreement on November 12, 1997, the mining businesses transferred from
AEI required that deferred taxes be recorded by AEI HoldCo. Because a portion
of the mining assets transferred from AEI were stepped up for tax purposes,
 
                                      F-13

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
but not book (similar to a taxable pooling), the resulting deferred tax benefit
of approximately $5,500 was recorded with a corresponding increase in
additional capital.
 
As discussed in Note 1, on January 2, 1998, AEI HoldCo. made a payment of
$51,000 for the purchase of MTI which was recorded as a charge to equity in
January 1998. In addition, as described in Note 11, a deferred tax benefit of
approximately $10,000 was recorded in connection with this MTI transaction with
a corresponding increase to equity.
 
The following unaudited pro forma information gives effect to the equity
adjustments recorded in connection with the MTI transaction ($51,000 payment
and $10,000 deferred tax benefit) as if it had occurred on December 31, 1997:
 


                                  As Reported Pro Forma Adjustments Pro Forma
                                  ----------- --------------------- ---------
                                                           
   Stockholders' equity
    (deficit)....................  $(18,074)        $(51,000)       $(59,074)
                                                      10,000

 
k. Asset Impairment
 
If facts and circumstances suggest that a long-lived asset may be impaired, the
carrying value is reviewed. If this review indicates that the value of the
asset will not be recoverable, as determined based on projected undiscounted
cash flows related to the asset over its remaining life, then the carrying
value of the asset is reduced to its estimated fair value.
 
l. Reclassifications
 
Certain reclassifications of prior year amounts were made to conform with the
current year presentation with no effect on previously reported net income
(loss) or stockholders' equity (deficit).
 
m. Statements of Cash Flows
 
For purposes of the statements of cash flows, the Company considers investments
having maturities of three months or less at the time of the purchase to be
cash equivalents.
 
Supplemental disclosure:
 


                                                                Nine Months
                                            December 31     Ended September 30,
                                         ------------------ --------------------
                                         1995  1996   1997    1997       1998
                                         ---- ------ ------ --------- ----------
                                                                (Unaudited)
                                                       
   Cash paid for interest, net of
    capitalized interest of $243, $246,
    $467, $150 and $6,118,
    respectively.......................  $791 $5,357 $7,193 $   4,826 $   14,159
   Income taxes paid...................   --     --     --        --         645

 
Two capital lease transactions aggregating $6,587 in new debt and increases to
property, plant and equipment have been excluded from the 1995 Statement of
Cash Flows. The 1997 Statement of Cash Flows is exclusive of non-cash deferred
tax asset and equity increase of $5,515, non-cash property additions of $2,253,
non-cash capitalized loan fees of $238, non-cash transfers of inventory items
to development costs of $1,062 and settlement of a note (included in other
assets) for property and mine development work valued at $1,220.
 
The impact of the acquisition of ARI's mining and technology business as
described in Note 3b, at a net cost of $24,780 has been excluded from the 1995
Statement of Cash Flows. In addition, the distribution to owners of non-coal
mining properties of $5,220 has been excluded from the 1995 Statement of Cash
Flows.
 
                                      F-14

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
3. ACQUISITIONS
 
a. Bowie Resources, Limited
 
Bowie Resources, Limited (BRL) was incorporated on November 4, 1994 and
purchased the Bowie #1 mine from Cyprus Orchard Valley Coal Corporation on
December 22, 1994 for $200 plus assumption of reclamation liabilities estimated
at $4,200. Mining activities as well as revenue and expense reporting commenced
during 1995. On January 6, 1995, BRL purchased the Bowie #2 mine from Coors
Energy for $1,100 and minimum royalty amounts payable from 1997 to 2014. These
transactions have been accounted for as a purchase in the accompanying
financial statements. The incorporation of BRL on November 4, 1994 represents
the commencement of coal mining business under the common control of Larry
Addington which were transferred to AEI HoldCo. pursuant to the Exchange
Agreement.
 
b. Addington Enterprises, Inc.
 
On September 22, 1995, in a related party transaction, AEI entered into a stock
purchase agreement with Addington Resources, Inc. (ARI) whereby AEI agreed to
purchase all the issued and outstanding shares of common stock of ARI's coal
mining and technology subsidiaries. In addition, pursuant to an option
agreement dated August 4, 1995, AEI agreed to purchase from ARI all the issued
and outstanding stock of the ARI subsidiary, TMI, in exchange for a royalty AEI
will pay to ARI based on tons of coal delivered under a certain coal sales
contract (see Note 2d). The stockholders of AEI had formerly been executive
officers and minority owners of ARI.
 
These agreements were consummated on November 2, 1995, at which time AEI
approved and adopted a plan of merger which provided for the merger, in
addition to other dormant subsidiaries, of AMI, MTI and TMI into AEI and the
cancellation of the subsidiaries' common stock.
 
These transactions to acquire the coal mining and technology businesses from
ARI have been accounted for as a purchase in the accompanying financial
statements. Total coal mining assets and liabilities acquired were $52,614 and
$40,235, respectively, at a cost of $12,379. Total technology assets and
liabilities acquired were $20,275 and $7,874, respectively, at a cost of
$12,401.
 
Pursuant to the stock purchase agreement with ARI, AEI assumed certain
liabilities and contingencies of the acquired subsidiaries that are reflected
in the net assets acquired and accompanying notes. Further, AEI has granted
indemnification for performance guarantees made by ARI in connection with the
sale of certain ARI coal-related subsidiaries in previous years as well as
guarantees relating to certain mineral lease royalty obligations and workers'
compensation benefits. The Company believes no significant obligation will
result relating to the ARI indemnification. The obligations of AEI under the
above agreement were transferred to AEI HoldCo. pursuant to the Exchange
Agreement.
 
The retention of non-coal mining properties has been accounted for as a
distribution of net assets to owners of $5,220 effective November 2, 1995.
Accordingly, the accompanying financial statements exclude such balances and
activities related to non-coal mining properties.
 
c. Purchase of Ikerd-Bandy Co., Inc.
 
In October 1997, AEI acquired all of the outstanding capital stock of Ikerd-
Bandy Co., Inc., a coal mining company with operations in eastern Kentucky, for
the purchase price of approximately $12,300 (including $4,700 in debt and $300
in related fees and expenses). This transaction has been accounted for as a
purchase and the operations of Ikerd-Bandy have been included with those of the
Company since the date of acquisition.
 
 
                                      F-15

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
The following unaudited pro forma information for the periods shown below gives
effect to the acquisition of Ikerd-Bandy as if it had occurred at the beginning
of each period:
 


                                                            1996        1997
                                                         (unaudited) (unaudited)
                                                         ----------- -----------
                                                               
   Revenues.............................................  $162,217    $208,661
   Income (loss) before extraordinary items.............     3,375     (20,245)
   Net income (loss)....................................     3,375     (21,548)

 
The unaudited pro forma information assumes that the Company owned the
outstanding shares of Ikerd-Bandy at the beginning of the periods presented and
includes adjustments for depreciation, depletion and amortization, interest
expense and an inventory adjustment to conform to the Company's accounting
policies. The unaudited pro forma financial data is presented for information
purposes only and is not necessarily indicative of the results of operations
that actually would have been achieved had the acquisition been consummated at
the beginning of these periods, and is not intended to be a projection of
future results.
 
4. INVENTORIES
 
As of December 31, 1996 and 1997 and September 30, 1998 inventories consisted
of the following:
 


                                                                   September 30,
                                                                       1998
                                                    1996    1997    (Unaudited)
                                                   ------- ------- -------------
                                                          
   Coal........................................... $ 1,920 $ 3,995   $ 51,424
   Deferred overburden............................   4,796  10,768     50,850
   Supplies and parts.............................   7,620   7,895     36,711
                                                   ------- -------   --------
                                                   $14,336 $22,658   $138,985
                                                   ======= =======   ========

 
5. PROPERTY, PLANT AND EQUIPMENT
 
Property, plant and equipment, including mineral reserves and mine development
and contract costs, at December 31, 1996 and 1997 are summarized by major
classification as follows:
 


                                                             1996      1997
                                                           --------  --------
                                                               
   Land................................................... $  1,570  $  1,670
   Mining and other equipment and related facilities......   50,194    58,923
   Mine development and contract costs....................   10,511    24,177
   Mineral reserves.......................................    6,045    15,992
   Transportation equipment...............................    2,958     4,001
   Furniture and fixtures.................................      462       201
   Mine development in process............................    2,277    22,150
   Construction work in process...........................    2,637     2,571
                                                           --------  --------
                                                             76,654   129,685
   Less accumulated depreciation, depletion and
    amortization..........................................  (10,284)  (23,027)
                                                           --------  --------
   Net property, plant and equipment...................... $ 66,370  $106,658
                                                           ========  ========

 
Included in property, plant and equipment is $4,914 for 1996 and $24,721 for
1997 related to development and construction projects for which depreciation,
depletion and amortization have not yet commenced. During the development
phase, mining revenues are recorded as a reduction in development costs. The
Company reviews the realization of these projects on a periodic basis.
 
                                      F-16

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
6. ACCRUED EXPENSES AND OTHER
 
Accrued expenses as of December 31, 1996 and 1997 and September 30, 1998
consisted of the following:
 


                                                                   September 30,
                                                     1996   1997       1998
                                                    ------ ------- -------------
                                                                    (unaudited)
                                                          
   Payroll, Bonus and Vacation..................... $1,690 $ 5,385   $ 41,808
   Interest........................................    702   2,701     18,509
   Royalties.......................................  1,107   1,081     13,189
   Property Taxes..................................    950   1,386      5,194
   Production and Sales Taxes......................    817   1,182      7,831
   Workers Compensation (Including Black Lung)
    and Insurance..................................    711     484      7,306
   Other...........................................  1,273     583     59,355
                                                    ------ -------   --------
                                                    $7,250 $12,802   $153,192
                                                    ====== =======   ========

 
7. DEBT
 
a. Issuance of Senior Notes, Bridge Financing, New Credit Facility and Debt
Extinguishment
 
As discussed in Note 1, in November 1997, AEI HoldCo. issued an Offering
Memorandum to obtain $200,000 in debt in the form of 10 percent Senior Notes,
maturing in 2007, in a private placement. The Senior Notes Indenture was
consummated on November 12, 1997. Virtually all of the AEI HoldCo.'s
outstanding long-term debt as well as bridge financing (see below) at November
12, 1997 was retired with proceeds from the Senior Notes. Other uses of Senior
Note proceeds included the following: debt issuance costs, debt retirement
costs, acquisition of MTI (Note 1), acquisition of BRL 7.7% minority interest
(Note 1) and acquisition of Leslie Resources (Note 17a).
 
Upon a change in control (as defined), AEI HoldCo. will be required to make an
offer to purchase all outstanding Senior Notes at 101% of the principal amount.
The Senior Notes will be unconditionally guaranteed by each of AEI HoldCo.'s
current and future subsidiaries, other than BRL (Note 19). In addition to
containing various financial covenants, the Indenture will restrict, among
other things, additional indebtedness, issuance of preferred stock, dividend
payments, sale of subsidiaries and affiliate transactions.
 
During October 1997, in anticipation of closing of the Senior Notes Indenture,
AEI HoldCo. entered into a $50,000 secured bridge financing arrangement with
NationsBank of Texas, N.A. The bridge financing was used to refinance existing
term loans and lines of credit as well as for the acquisition of Ikerd-Bandy
Co., Inc. discussed in Note 3c. This bridge note had a term of 90 days and was
assigned to AEI HoldCo. as part of the Exchange Agreement (Note 1). The bridge
note was repaid by AEI HoldCo. with the proceeds obtained through the Senior
Notes.
 
If the registration statement for the exchange offer is not filed or declared
effective within the time periods allotted in the Senior Notes Offering
Memorandum dated November 6, 1997 (such effective date being March 31, 1998),
AEI HoldCo. will be required to pay liquidated damages to Senior Notes holders
at a weekly rate of 5c per one thousand dollars outstanding (aggregating to $10
per week) for the first 90 days and increasing 5c each 90 days thereafter until
capping at a rate of 50c per one thousand dollars outstanding. AEI HoldCo. has
filed an initial registration statement with the Securities and Exchange
Commission on January 29, 1998; however, it is uncertain when this filing will
become effective.
 
                                      F-17

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
AEI HoldCo. has entered into a Loan and Security Agreement (the "New Credit
Agreement") with NationsBank of Texas, N.A., as administrative agent, and other
lending institutions (the "Lenders"), which provides the Company with a $50,000
credit facility (the "New Credit Facility"), guaranteed by the subsidiaries of
AEI HoldCo. (excluding BRL). The New Credit Facility includes a $5,000 sub-
limit for the issuance of standby letters of credit. Consummation of the New
Credit Agreement was simultaneous with that of the Senior Notes Indenture. In
addition to containing various financial covenants, the New Credit Facility
will restrict, among other things, additional indebtedness, sale of assets,
business combinations, debt prepayments, dividends and affiliate transactions.
In connection with financing the acquisition of MTI (Note 1), on January 2,
1998, AEI HoldCo. borrowed $25,000 on the New Credit Facility. Interest
payments on outstanding principal balances are due quarterly. The interest rate
is variable based on the prime rate, the federal funds rate, default versus
non-default status on the New Credit Facility and AEI HoldCo.'s net debt to
EBITDA ratio (9.25% for the initial interest payment) as of December 31, 1997
and June 30, 1998. AEI HoldCo. was not in compliance with certain of the
covenants of the New Credit Agreement, however, management does not believe it
will result in a material adverse impact to the financial position or liquidity
of AEI HoldCo.
 
Indebtedness of AEI HoldCo. under the New Credit Facility is secured by all of
the capital stock of AEI HoldCo., 77.5% of the capital stock of BRL and all the
capital stock of each of the subsidiaries of AEI HoldCo., other than BRL. The
Lenders also receive a security interest in all other present and future assets
and properties of the Company and its subsidiaries, except for BRL. In the
event that BRL receives any proceeds under the New Credit Facility, such BRL
Loans shall be evidenced by a promissory note executed by BRL in favor of the
Company in a form acceptable to the Lenders and shall be secured by liens on
all of the present and future assets of BRL. The BRL Note and such liens shall
be pledged to the Lenders. The Senior Notes are effectively subordinated to the
borrowings outstanding under the New Credit Facility. The New Credit Facility
matures in 2002.
 
Upon early extinguishment of the Company's previously outstanding credit
facility and bridge financing, the Company expensed in November 1997
approximately $1,600 of prepayment penalties and bridge financing costs and
$571 of deferred debt issuance costs. In connection with the financing
transactions described above, the Company has paid a fee of $4,375 to a related
party.
 
b. Long-Term Debt
 
Long-Term debt as of December 31, 1996 and 1997 consisted of the following:
 


                                                                1996     1997
                                                               ------- --------
                                                                 
   Senior Notes, unsecured, bearing interest at 10% with
    interest payable semi-annually beginning May 1998,
    maturing November 2007 (Note 7a).........................  $   --  $200,000
   Notes payable to former owners of Ikerd-Bandy (Note 3c),
    unsecured, discounted at 10% with monthly payments of $83
    through March 2004.......................................      --     4,647
   Payable to credit corporation, with monthly principal and
    interest payments of $264, bearing interest at 5.05%, due
    December 1998............................................    1,564    1,173
   Aggregate borrowings, (including $8,715 and $--,
    respectively, due to related parties) secured and
    unsecured, bearing interest from 5.57% to 12%, all
    retired in November 1997 with proceeds from $200,000
    Senior Notes maturing in 2007............................   39,513      --
   Other, unsecured, bearing interest from 9% to 10%, due
    through 2003.............................................      175      622
                                                               ------- --------
     Total...................................................   41,252  206,442
     Less Current Portion....................................    5,778    1,903
                                                               ------- --------
                                                               $35,474 $204,539
                                                               ======= ========

 
 
                                      F-18

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
Principal maturities of long-term debt as of December 31, 1997 are as follows:
 


   Year Ended December 31,
   -----------------------
                                                                    
   1998............................................................... $  1,903
   1999...............................................................      722
   2000...............................................................      787
   2001...............................................................      858
   2002...............................................................      937
   Thereafter.........................................................  201,235
                                                                       --------
                                                                       $206,442
                                                                       ========

 
c. Revolving Line of Credit
 
During 1996 and through October 1997, the Company operated under a financing
agreement with a bank which included a revolving line of credit up to $15,000
based on eligible accounts receivable and coal inventory and a term note
maturing October 2003 and secured by substantially all of the Company's assets.
As of December 31, 1996, $8,584 was outstanding under this line of credit,
$3,584 of which was at the prime-driven rate (8.75%), and $5,000, of which was
at the LIBOR-driven rate (8.25%). As of December 31, 1996, $28,198 was
outstanding under the term note bearing interest of 8.801%. During October
1997, this line of credit and term note were retired with proceeds from a
bridge financing arrangement provided by NationsBank of Texas, N.A. (Note 7a).
 
d. Letters of Credit
 
As of December 31, 1997 the Company had letters of credit amounting to $384 to
cover certain self-insured insurance claims.
 
See Note 17c for 1998 debt financing transactions.
 
8. COMMITMENTS AND CONTINGENCIES
 
a. Coal Sales Contracts
 
As of December 31, 1997, the Company had commitments to deliver scheduled base
quantities of coal annually to seven customers. The contracts expire in 1998,
2002, 2003, 2004 and 2005, with the Company contracted to supply a minimum of
approximately 37.3 million tons of coal over the remaining lives of the
contracts at prices which are at or above market. Certain of the contracts have
sales price adjustment provisions, subject to certain limitations and
adjustments, based on changes in specified production costs. Larry Addington
has guaranteed the Company's obligations under one of the coal sales contracts.
 
b. Leases
 
Lease Cost
 
The Company has various operating and capital leases for mining, transportation
and other equipment. Lease expense for the years ended December 31, 1995, 1996
and 1997 was approximately $800, $6,000 and $9,600 (net of amount capitalized
in mine development cost of $1,800 in 1997), respectively. Property under
capital leases included in property, plant, and equipment in the accompanying
balance sheets at December 31, 1996 and 1997 was approximately $21,200, and
$21,400, respectively, less accumulated depreciation of approximately $2,780,
and $5,810, respectively. Depreciation of assets under capital leases is
included in depreciation expense.
 
                                      F-19

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
The Company also leases coal reserves under agreements that call for royalties
to be paid as the coal is mined. Total royalty expense for the years ended
December 31, 1995, 1996 and 1997 was approximately $1,900, $11,200, and
$13,600, respectively. Certain agreements require minimum annual royalties to
be paid regardless of the amount of coal mined during the year. However, such
agreements are generally cancelable at the Company's discretion. The assets of
the Bowie #2 mine are held as collateral for one of these agreements.
 
Approximate future minimum lease and royalty payments are as follows:
 


                                                               Operating Capital
   Year Ended December 31,                           Royalties  Leases   Leases
   -----------------------                           --------- --------- -------
                                                                
   1998.............................................  $5,409    $12,316  $6,438
   1999.............................................   3,480     10,663   3,005
   2000.............................................   3,155      9,670     397
   2001.............................................   2,372      8,012     397
   2002.............................................   2,421      3,090   1,632
   Thereafter.......................................  22,533      1,150     --
                                                                         ------
   Total minimum lease payments.....................                     11,869
   Less--amount representing interest...............                      1,342
                                                                         ------
   Present value of minimum lease payments..........                     10,527
   Less--current portion............................                      5,705
                                                                         ------
                                                                         $4,822
                                                                         ======

 
Lease Income
 
During 1996, the Company leased mining equipment to related and non-related
parties. Approximately $3,970 and $1,700, respectively, for 1996 from these
leases is included in revenues. The leases expired during 1996.
 
c. Legal Matters
 
The Company is named as defendant in various actions in the ordinary course of
its business. These actions generally involve disputes related to contract
performance, property boundaries, mining rights, blasting damages, personal
injuries and royalty payments, as well as other civil actions that could result
in additional litigation or other adversary proceedings.
 
On June 14, 1996, Robert C. Billips, d/b/a Peter Fork Mining Company, sued the
Company in the Circuit Court of Pike County, Kentucky, claiming the Company
breached a lease with Billips in Pike County, Kentucky, caused Billips to lose
business opportunities, and committed waste on Billips' property. The Company
has admitted that it entered into a lease with Billips, but denies that it
breached the lease, caused a loss of business opportunities, or committed
waste. Instead, the Company claims that it mined all minable and merchantable
coal (as defined in the lease) on the leased property, and, therefore, had no
further obligations under the lease. Legal discovery is underway and a trial
date has been set for September 1998. The Company intends to defend the claims
vigorously, and, at this time, it is not possible to predict the likely outcome
of the claims.
 
Through December 31, 1997, TMI is in arrears in delivering coal under a certain
coal supply contract with TVA. TMI intends to prospectively ship all tons for
which it is currently in arrears. TMI does not believe the ultimate outcome of
this matter will result in a material adverse impact upon the financial
position of the Company.
 
While the final resolution of any matter may have an impact on the Company's
financial results for a particular reporting period, management believes that
the ultimate disposition of these matters will not have a materially adverse
effect upon the financial position of the Company.
 
                                      F-20

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
d. Commissions
 
On January 30, 1997 (and amended on February 5, 1997), the Company entered into
a five year Sales and Agency Agreement, whereby the Company pays a 20c per ton
commission on two separate coal sales contracts. Additionally, the Company pays
a 25c per ton commission on a third coal sales contract. The costs are expensed
as the coal is delivered.
 
e. Contract Mining Agreements
 
In May 1997, the Company entered into a contract mining agreement with Martiki
Coal Corporation. The Company provides mining services to Martiki for $13.00
per ton, and continues for the lesser of three years or until all mineable coal
is removed. This contract has no minimum tonnage requirements and may be
terminated by either party.
 
Effective November 1997, the Company entered into an agreement with Mid-Vol
Leasing, Inc. (Note 17c) whereby the Company would surface mine all mineable
coal from certain properties owned by Mid-Vol Leasing. The Company is to
produce and deliver 50,000 to 60,000 tons a month (pending mining conditions
but at a minimum 120,000 tons over any three consecutive months) for a base
rate of $23.00 per ton. The Company is responsible for all costs of mining
including haulage to the loadout facility and reclamation of mined properties.
 
f. Environmental Matters
 
Based upon current knowledge, the Company believes that it is in material
compliance with environmental laws and regulations as currently promulgated
(also, see Note 2g). However, the exact nature of environmental control
problems, if any, which the Company may encounter in the future cannot be
predicted, primarily because of the increasing number, complexity and changing
character of environmental requirements that may be enacted by federal and
state authorities.
 
g. Performance Bonds
 
The Company has outstanding performance bonds of approximately $75,000 as of
December 31, 1997, to secure workers' compensation, reclamation and other
performance commitments.
 
h. Bonus
 
During 1997 the Company had an informal bonus arrangement in place for certain
of its employees whereby a cash bonus, determined in the sole discretion of the
Company, was to be paid near year-end. The Company has paid approximately
$2,000 in December 1997 and had accrued approximately $2,800 at December 31,
1997.
 
i. Employment Agreements
 
During 1997 and continuing through early 1998, the Company has entered into
employment agreements with individuals for various officer positions. These
agreements expire through February 2001 and contain termination benefits and
other matters.
 
                                      F-21

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
9. MAJOR CUSTOMERS
 
The Company had sales to the following major customers that in any period
exceeded 10% of revenues:
 


                                1995                      1996                           1997
                         ------------------- ------------------------------ ------------------------------
                                  Percentage          Percentage  Year End           Percentage  Year End
                                   of Total            of Total  Receivable           of Total  Receivable
                         Revenues  Revenues  Revenues  Revenues   Balance   Revenues  Revenues   Balance
                         -------- ---------- -------- ---------- ---------- -------- ---------- ----------
                                                                        
American Eagle..........  $4,156      13%    $27,019      22%      $2,350   $20,776      12%      $1,411
Cinergy.................      NA       NA     22,547      18%         593    23,464      13%       4,055
TVA.....................   3,648      12%     21,577      18%       6,603    60,457      34%       7,687
Coors...................   7,902      25%         NA       NA          NA        NA       NA          NA
Cyprus--Amax............   6,000      19%         NA       NA          NA        NA       NA          NA
Georgia Power...........      NA       NA         NA       NA          NA    19,593      11%       2,427

 
10. WORKERS' COMPENSATION AND BLACK LUNG
 
The operations of the Company are subject to the Federal Coal Mine Health and
Safety Act of 1969, as amended, and the related state workers' compensation
laws. These laws provide for the payment of benefits to disabled workers and
their dependents, including lifetime benefits for pneumoconiosis (black lung).
 
In connection with the acquisition described in Note 3a, the Company entered
into an insurance policy to cover workers compensation and black lung claims.
The Company is not obligated for pre-acquisition claims.
 
In connection with the acquisition described in Note 3b, the Company entered
into an insurance policy to cover any post-acquisition workers' compensation
and black lung claims. This policy, however, does not cover pre-existing claims
and claims incurred prior to November 2, 1995 and yet to be reported. The
estimated undiscounted obligations for these acquired self-insured claims are
included in accrued expenses and other (Note 6) and long term employee benefits
in the accompanying combined balance sheets.
 
11. INCOME TAXES
 
As discussed in Note 2h, during April 1997 BRL initially recorded a net
deferred tax liability of $1,600 in connection with its change in tax status.
In addition, during November 1997, the mining businesses transferred from AEI
initially recorded a net deferred tax liability of $17,963 in connection with
its change in tax status. Also as described in Note 2j, a portion of the mining
business assets transferred from AEI were stepped up for tax purposes, but not
book (similar to a taxable pooling). Therefore, the resulting deferred tax
benefit of approximately $5,500 was recorded with a corresponding increase in
equity. Presented below are income tax disclosures as of and for the year ended
December 31, 1997. Prior to 1997, the business operated as an S corporation,
and no corporate income taxes were recorded.
 
Income tax expense in 1997 is entirely deferred (no current payable) with
federal tax expense calculated as 34% and state tax expense calculated as 4%
(net of federal benefits and apportionment factors) of pretax loss during the C
corporation periods plus the effect of the change in tax status as discussed
above.
 
                                      F-22

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
The following table presents the difference between the actual tax provision
and the amounts obtained by applying the statutory U.S. federal income tax rate
of 34% to the 1997 loss before income taxes.
 


                                                                      Amount
                                                                      -------
                                                                   
   Federal provision computed at statutory rate...................... $(1,145)
   State income tax (net of federal tax benefits and apportionment
    factors) computed at statutory rate..............................    (135)
   Change in tax status..............................................  19,563
   Federal and state tax effect on S corporation period earnings.....    (679)
   Other.............................................................     (88)
                                                                      -------
                                                                      $17,516
                                                                      =======

 
Significant components of the Company's deferred tax assets and liabilities at
December 31, 1997 are summarized as follows:
 
                                                                   
   Deferred Tax Assets:
     Net operating loss carryforwards................................... $9,353
     Accrued reclamation and other......................................  4,560
     Other..............................................................    681
                                                                         ------
       Total Deferred Tax Assets........................................ 14,594
                                                                         ------
   Deferred Tax Liabilities:
     Mine development costs............................................. 15,591
     Plant and equipment................................................  1,903
     Inventories........................................................  3,587
     Advanced royalties and other prepaids..............................  2,241
     Mineral reserves...................................................  1,752
     Other..............................................................    652
                                                                         ------
       Total Deferred Tax Liabilities................................... 25,726
                                                                         ------
       Net Deferred Tax Liability....................................... 11,132
       Less current liability...........................................  5,199
                                                                         ------
       Long-term liability.............................................. $5,933
                                                                         ======

   
 
BRL has carryforwards for net operating losses (NOL) of $14,689 and may only be
used by BRL, and if not used will expire in 2012. AEI HoldCo. has NOL
carryforwards of $8,692 which, if not used, will expire in 2017. NOL
carryforwards may also be limited under certain ownership changes.
 
Upon consummation in January 1998 of the MTI Agreement described in Note 1, the
technology business transferred from AEI (as an S corporation) required that a
deferred tax asset of $150 be recorded with a corresponding decrease in income
tax provision for the change in tax status. In addition, because the tax basis
of the MTI net assets transferred were stepped up for tax purposes, but not
book (similar to a taxable pooling), the resulting deferred tax benefit of
approximately $10,000 was recorded in January 1998 with a corresponding
increase in equity.
 
12. BOWIE RESOURCES, LTD.
 
In April 1997, BRL's shareholders (Larry Addington (90%) and Harold Sergent
(10%)) entered into an agreement to sell collectively 22.5% of their shares of
BRL common stock to Mitsui Matasushima (Mitsui).
 
                                      F-23

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
In connection with the Mitsui transaction, the Company entered into a
Shareholders Agreement with Mitsui which includes BRL stock transfer and lien
restrictions, right of first refusal on share trades and a reciprocal put
clause. The reciprocal put would be triggered in the event of a Board of
Directors impasse (as defined) and provides for conditions whereby the Company
may be required to purchase from Mitsui their BRL shares or sell to Mitsui the
Company's BRL shares based on the fair market value of the shares. The Mitsui
transaction also contained a Marketing Agreement between BRL and Mitsui whereby
Mitsui received the exclusive right to market BRL coal within Japan and market
up to 22.5% of excess available BRL production.
 
In November 1997, in connection with the Offering Memorandum described in Note
1, the Company purchased a 7.7% ownership interest in BRL from Harold Sergent
for $2,000, bringing the Company's total interest in BRL to 77.5%. See Note 1a.
 
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
The book values of cash and cash equivalents, accounts receivables and accounts
payable are considered to be representative of their respective fair values
because of the immediate short-term maturity of these financial instruments.
The book value of the Company's debt instruments approximate fair value given
the refinancing in November, 1997.
 
14. RELATED PARTY TRANSACTIONS AND BALANCES
 
The Company has dealt with certain companies or individuals which are related
parties either by having stockholders in common or because they are controlled
by stockholders/officers of the Company or by relatives of
stockholders/officers of the Company. In addition to related party transactions
and balances described elsewhere, the following related party transactions and
balances are summarized and approximated as follows below:
 


                                                          1995   1996    1997
                                                         ------ ------- -------
                                                               
   Revenues, costs and expenses:
     Equipment Sales.................................... $  --  $ 7,010 $ 5,502
     Repair and Maintenance Income......................    --    2,954     781
     Property sales.....................................    --      --      145
     Equipment Rental Income............................     90   4,369     336
     Management Fee Income..............................     24     165     199
     Flight fee income..................................    443     442     590
     Cancellation fee income............................    --      --    1,592
     Trucking expense...................................  1,396  13,521  18,308
     Repair and maintenance expense.....................    --    4,916   4,791
     Equipment rental expense...........................    --    1,429   2,016
     Consultant fees....................................    --      180     135
     Interest expense...................................    --      427   1,382
     Commission expense.................................    185      91      31
     Administrative and miscellaneous expense...........     18      58     294
   Assets:
     Accounts receivable................................  2,804   4,814   7,951
   Liabilities:
     Accounts payable...................................    --    6,094   3,301
     Interest payable...................................    --      393     --
     Commission payable.................................     33      19     --

 
                                      F-24

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
The Company leases mining equipment and aircraft as well as constructs, repairs
and sells equipment to related parties. The Company employs related parties for
trucking, consulting, equipment rental and repair and other administrative
services. In addition, BRL has guaranteed certain contractual obligations of a
related party. Equipment sales (listed above) are primarily to a related party
in Australia (majority-owned by Larry Addington) that performs contract mining
using the Highwall Miner.
 
In 1997, the Company earned $1,592 in fees when a related party cancelled a
mining arrangement with the Company.
 
15. NEW ACCOUNTING STANDARDS
 
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of (SFAS No. 121). The new
standard requires that long-lived assets and certain identified intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In performing such
impairment reviews, companies are required to estimate the sum of future cash
flows from an asset and compare such amount to the asset's carrying amount. Any
excess of carrying amount over expected cash flows will result in a possible
write-down of an asset to its fair value. Adopting SFAS No. 121 had no impact
on the Company's financial position or results of operations.
 
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, (SFAS No. 130) became effective during 1998. SFAS No. 130 establishes
standards for the reporting and display of comprehensive income and its
components in financial statements. Comprehensive income generally represents
all changes in shareholders' equity except those resulting from investments by
or distributions to shareholders. Implementation of SFAS No. 130 has no impact
on the Company as the Company does not currently have any transactions which
give rise to differences between net income and comprehensive income.
 
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information, (SFAS No. 131) will be implemented in
the financial statements for the year ended December 31, 1998. SFAS No. 131
requires publicly-held companies to report financial and descriptive
information about operating segments in financial statements issued to
shareholders for interim and annual periods. SFAS No. 131 also requires
additional disclosures with respect to products and services, geographic areas
of operation and major customers. The adoption of this SFAS is not expected to
have a material impact on the financial statements of the Company.
 
In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits" was issued which improves and standardizes
disclosures by eliminating certain existing reporting requirements and adding
new disclosures. The statement addresses disclosure issues only and does not
change the measurement of recognition provisions specified in previous
statements. The statement supersedes SFAS No. 87, "Employers' Accounting for
Pensions," SFAS No. 88, "Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits" and SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." The
Company intends to adopt this statement for its 1998 fiscal year-end.
 
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133") was issued which establishes accounting and reporting
standards for derivative instruments and for hedging activities. This Statement
amends FASB Statement No. 52, Foreign Currency Translation, to permit special
accounting for a hedge of a foreign currency forecasted transaction with a
derivative. It supersedes FASB Statements No. 80, Accounting for Future
Contracts, No. 105, Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, and No. 119, Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments. It amends
 
                                      F-25

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments,
to include in Statement No. 107 the disclosure provisions about concentrations
of credit risk from FASB Statement No. 105. This Statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. The Company is
evaluating the requirements of SFAS No. 133 and the effect, if any, on the
Company's current reporting and disclosures.
 
Effective January 1, 1999, the Company will adopt Statement of Position (SOP)
98-5 Reporting on the Costs of Start-Up Activities. The new statement requires
that the costs of start-up activities be expensed as incurred. The Company has
not yet evaluated the impact of this statement on its results of operations or
financial position.
 
16. DEFINED CONTRIBUTION PLAN
 
The Company has a qualifying 401(k) savings plan covering substantially all
employees. Under the plan, the Company is not required to make any
contributions and no contributions were made for the years ended December 31,
1995, 1996 or 1997.
 
17. EVENTS SUBSEQUENT TO DECEMBER 31, 1997
 
a. Purchase of Leslie Resources
 
In December 1997, AEI HoldCo. reached an agreement to acquire the stock of
Leslie Resources, Inc. and Leslie Resources Management, Inc., (collectively,
Leslie Resources) a coal mining business with operations in eastern Kentucky,
for the purchase price of $22,100 (including $10,800 in debt and $300 in
related fees and expenses). This agreement was consummated in January 1998 and
was accounted for as a purchase.
 
b. Stock Options
 
Subsequent to year-end, AEI HoldCo. increased authorized shares of AEI HoldCo.
to 104,000 and approved a stock option plan (the "Plan") whereby up to 75,000
common shares of AEI HoldCo. may be offered to various employees and advisors.
The rights and obligations of AEI HoldCo. under its stock option plan were
assumed by Resources upon its acquisition of all the outstanding capital stock
of AEI HoldCo. on June 26, 1998 (Note 1a), and were assumed by AEI Resources
Holding, Inc. ("ARHI") upon its acquisition of all the outstanding capital
stock of Resources on August 4, 1998. As of September 30, 1998, there were
options outstanding under the Plan for approximately 73,000 shares of capital
stock of ARHI. Approximately 41% of these options are fully exercisable within
120 days after the option grant date with the remaining 59% being exercisable
over the course of the next ten years unless vesting is accelerated pursuant to
the terms of the option. The option exercise price is based on fair value and
its exercise will contain various restrictions. The Company will account for
its stock options under APB 25 with disclosures pursuant to SFAS No. 123.
 
c. Debt Financing
 
The Company has funded the acquisitions of Cyprus Subsidiaries, Mid-Vol,
Kindill and Zeigler (see Note 1a) with short-term (bridge) financing arranged
by UBS AG, an affiliate of Warburg Dillon Read LLC. The financing facility for
the Cyprus Subsidiaries and Mid-Vol acquisitions was for $200,000 (of which
$160,000 was drawn as of June 30, 1998), maturing June 29, 1999, bearing
interest of LIBOR plus 4.0% and is secured by the net assets of the acquirees.
The bridge financing facility for the Zeigler acquisition closed on
September 2, 1998 and was for $600,000, consisting of a $100,000 senior
unsecured bridge loan to ARHI, bearing interest calculated as LIBOR (reset
monthly) plus 7.0% (increasing 0.50% each 90 days) not to exceed 18.0% per
annum and a $500,000 senior subordinated bridge loan to Resources, bearing
interest calculated as LIBOR (reset monthly) plus 4.75% (increasing 0.50% each
90 days) not to exceed 16.0% per annum, each maturing at the earlier of the
closing date of any permanent financing or within one year following the
closing of the bridge refinancing
 
                                      F-26

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
at which time the bridge loan will convert to a term loan. The financing
facility for the Zeigler acquisition is secured by the assets of Zeigler.
Additionally, on September 2, 1998 the Company closed a $400,000 term loan
(part of the Senior Credit Facility) with UBS AG. The proceeds from the Senior
Credit Facility were used in part to retire the Cyprus/Mid-Vol financing
bridge.
 
On December 14, 1998 Resources issued $150,000 of Senior Subordinated Notes,
due 2006 bearing interest at 11.5% payable semi-annually in arrears. Warburg
Dillon Reed LLC was the initial purchaser of the senior subordinated notes.
Additionally, on December 14, 1998 the Company restructured, and increased
borrowing under the Senior Credit Facility by $175,000. Proceeds from the
Senior Subordinated Notes ($150,000) and the Senior Credit Facility ($175,000)
were used to pay fees and partially retire the $600,000 bridge financing
facility for the Zeigler acquisition.
 
Also on December 14, 1998 the Company sold all issued and outstanding stock of
its subsidiary, Triton Coal Company for $275,000 (the Triton Disposition).
Prior to the closing of the Triton Disposition, all assets and liabilities of
Triton which were not related to the North Rochelle Mine or the Buckskin Mine
were transferred to another subsidiary of the Company. As a result, the Company
retained Triton's assets and liabilities relating to its lignite reserves in
Texas and Arkansas. The Company has agreed to provide certain transition
services to the purchaser of Triton following the closing. Net proceeds from
the Triton Disposition were used to partially retire the remaining amount due
on the bridge financing facility for the Zeigler acquisition.
 
The Senior Credit Facility term loan and revolver (collectively the "Credit
Facility") are with UBS AG (an affiliate of Warburg Dillon Read LLC), as
administrative agent and other lending institutions (lenders). The credit
facility consists of a Term Loan A Facility of $325,000 (5 years at LIBOR +
3%), a Term Loan B Facility of $250,000 (6 years at LIBOR + 3.5%) (the "term
loan facilities") and a $300,000 senior secured revolving credit facility with
interest at LIBOR + 3%, payable over 5 years. The Credit Facility is
collateralized primarily by capital stock of the Company and its subsidiaries,
including the capital stock of the acquired entities comprising the Acquired
Business, as defined, along with all accounts receivable, inventory and other
personal and real property of the Company. The Credit Facility also contains
various financial covenants which, among other things, limits additional
indebtedness, dividend and other payments and affiliate transactions as well as
meeting certain financial ratios (including, but not limited to interest
coverage, minimum net worth, maximum capital expenditures and maximum debt to
EBITDA, as defined). In addition, the credit facilities are required to be
prepaid with either 75% of annual Excess Cash Flow, as defined, proceeds from
the incurrence of additional debt, proceeds from asset sales or dispositions
above certain defined thresholds or 50% of the net proceeds from the issuance
of equity securities.
 
In addition, as part of the financing reorganization on December 14, 1998, the
10% Senior Notes of AEI HoldCo. due November 2007 (Note 7a) were exchanged for
10.5% Senior Notes due November 2005 of Resources and AEI HoldCo. as co-
issuers. Additionally, the old indenture was modified to eliminate
substantially all of the covenants and certain related definitions and events
of default.
 
On November 6, 1998 Resources borrowed $43,500 under the senior secured
revolving credit facility which was used to fund the Martiki acquisition
($32,000) and for working capital needs ($11,500).
 
                                      F-27

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
As of September 30, 1998, long-term debt (excluding capital leases) consisted
of the following:
 


                                                          Actual     Pro forma
                                                        ----------  -----------
                                                                    (Unaudited)
                                                              
Zeigler acquisition bridge facility.................... $  600,000  $      --
Senior Subordinated Notes due 2006.....................        --      150,000
Senior Credit Facility:
 Term Loan A...........................................    150,000     325,000
 Term Loan B...........................................    250,000     250,000
 Revolving Credit Facility.............................        --       43,500
10%/10.5% Senior Notes (Note 7a).......................    200,000     200,000
Zeigler Industrial Revenue Bonds--Peninsula Ports
 Authority of Virginia ($115,000) due 2022 and
 Charleston County, South Carolina ($30,800) due 2028..    145,800     145,800
AEI HoldCo. Credit Facility (Note 7a)..................     19,600         --
Aggregate Notes payable to sellers of Cyprus
 Subsidiaries ($25,641), Mid-Vol ($15,000), Leslie
 Resources ($9,094) & Ikerd-Bandy ($4,715) ............     54,450      54,450
Other..................................................      1,000       1,000
                                                        ----------  ----------
  Total................................................  1,420,850   1,169,750
  Less--current portion................................   (329,058)   (24,458)
                                                        ----------  ----------
  Long-term debt....................................... $1,091,792  $1,145,292
                                                        ==========  ==========

 
The Pro forma entries reflect the December 14, 1998 transactions to paydown the
bridge facility via issuance of the Senior Subordinated Notes, increase in the
Term A Senior Credit Facility, and proceeds from the Triton disposition.
Additionally, the pro formas reflect borrowing under the Revolving Credit
Facility which was primarily used to fund the Martiki acquisition (see Note 1a)
and the paydown of the AEI HoldCo. Credit Facility.
 
                                      F-28

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
18. SEGMENT DATA
 
The Company operates in three principal industry segments--coal mining,
equipment sales, rental and repair and other. Included in the segment "other"
is the Company's railcar earnings, royalty fee and management fee income.
Operating earnings for each segment includes all costs and expenses directly
related to the segment before financing charges and corporate allocations.
Corporate items principally represent general and administrative costs.
Identifiable assets are those used in the operations of each business segment.
Corporate assets consist primarily of cash and unamortized financing costs.
Information about the Company's operations for each segment is as follows:
 
Financial Data by Business Segment
 


                                                             September 30,
                                                           ------------------
                               1995      1996      1997      1997      1998
                              -------  --------  --------  --------  --------
                                                              (Unaudited)
                                                      
Revenues:
  Coal mining................ $24,068  $104,804  $163,980  $114,270  $367,438
  Equipment sales, rental and
   repair....................   6,376    16,033     8,086     6,358     2,145
  Other......................   1,250     2,363     3,188     3,453     6,581
                              -------  --------  --------  --------  --------
                               31,694   123,200   175,254   124,081   376,164
                              -------  --------  --------  --------  --------
Income (loss) before income
 taxes and
 extraordinary item:
  Coal mining................     475     9,193    15,761    12,320    29,780
  Equipment sales, rental and
   repair....................   3,176     6,670       794     2,198     1,273
  Other......................     308     4,057      (370)    1,974     1,542
                              -------  --------  --------  --------  --------
    Operating earnings.......   3,959    19,920    16,185    16,492    32,595
  Corporate expenses.........  (1,514)  (10,273)  (10,090)  (10,533)  (11,395)
  Interest expenses..........  (1,043)   (5,527)   (9,192)   (5,265)  (29,845)
  Unallocated................     405       884      (272)      --        --
                              -------  --------  --------  --------  --------
                                1,807     5,004    (3,369)      694    (8,645)
                              -------  --------  --------  --------  --------
Identifiable assets:
  Coal mining................            90,070   147,216
  Equipment sales, rental and
   repair....................             6,228    14,031
  Other......................               438       611
  Corporate assets...........            10,194   103,535
                                       --------  --------
                                        106,930   265,393
                                       --------  --------
Capital expenditures:
  Coal mining................   3,277    11,103    28,969
  Equipment sales, rental and
   repair....................   3,200     2,642     3,196
  Other......................     --        347        49
                              -------  --------  --------
                                6,477    14,092    32,214
                              -------  --------  --------
Depreciation, depletion and
 amortization:
  Coal mining................   1,006     6,217     9,858
  Equipment sales, rental and
   repair....................     395       578       640
  Other......................     --        150       257
                              -------  --------  --------
                                1,401     6,945    10,755
                              -------  --------  --------

 
                                      F-29

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
19. SUBSIDIARY GUARANTEES
 
The following tables summarize the financial position, operating results and
cash flows for the Company and Predecessor regarding its guarantor and non-
guarantor subsidiaries for the AEI HoldCo. 10% Senior Notes (Note 7) as of
December 31, 1996 and 1997 and September 30, 1998 and for the three years in
the period ended December 31, 1997 and nine months ended September 30, 1997 and
1998. Each of the Guarantor subsidiaries is a wholly-owned subsidiary of AEI
HoldCo. and each has fully and unconditionally guaranteed the Senior Notes
(Note 7) on a joint and several basis. Separate financial statements and other
disclosures concerning the Guarantor subsidiaries are not presented because the
Company has determined that they are not material to investors. BRL is the only
non-guarantor subsidiary. AEI Holding Company, Inc. was organized in September
1997 and commenced operations on November 12, 1997. AEI Resources, Inc. was
organized in June 1998.
 


                                           AEI Holding Company, Inc.
                                     -------------------------------------
                             AEI
                          Resources,      AEI                      Non-
                          Inc. (Non-    Holding     Guarantor   Guarantor   Combining
                          Guarantor) Company, Inc. Subsidiaries Subsidiary Adjustments  Total
                          ---------- ------------- ------------ ---------- ----------- --------
                                                                     
December 31, 1995:
Operating Results
 (1995):
Revenues................     $--         $--         $14,516     $17,178     $   --    $ 31,694
Costs and expenses......      --          --          12,670      16,305         --      28,975
                             ----        ----        -------     -------     -------   --------
 Income from
  operations............      --          --           1,846         873         --       2,719
Interest and other
 income (expense).......      --          --            (626)       (286)        --        (912)
                             ----        ----        -------     -------     -------   --------
Income before minority
 interest...............      --          --           1,220         587         --       1,807
Less--Minority
 interest...............      --          --             --          --           59         59
                             ----        ----        -------     -------     -------   --------
Net income (loss).......     $--         $--         $ 1,220     $   587     $   (59)  $  1,748
                             ====        ====        =======     =======     =======   ========
Cash Flows (1995):
Cash flows from
 operating activities:
Net income (loss).......     $--         $--         $ 1,220     $   587     $   (59)  $  1,748
Total adjustments to
 reconcile net income
 (loss) to net cash
 provided by (used in)
 operating activities...      --          --          (2,193)      1,047          59     (1,087)
                             ----        ----        -------     -------     -------   --------
Net cash provided by
 (used in) operating
 activities.............      --          --            (973)      1,634         --         661
Net cash used in
 investing activities...      --          --          (3,126)     (2,951)        --      (6,077)
Net cash provided by
 financing activities...      --          --           4,510       1,740         --       6,250
                             ----        ----        -------     -------     -------   --------
Net increase in cash and
 cash equivalents.......      --          --             411         423         --         834
Cash and cash
 equivalents, beginning
 of year................      --          --             --          --          --         --
                             ----        ----        -------     -------     -------   --------
Cash and cash
 equivalents, end of
 year...................     $--         $--         $   411     $   423     $   --    $    834
                             ====        ====        =======     =======     =======   ========
December 31, 1996:
Balance Sheet:
Total current assets....     $--         $--         $35,707     $ 3,106     $  (175)  $ 38,638
Properties, net.........      --          --          50,387       8,488       7,495     66,370
Other assets............      --          --           1,614       7,803      (7,495)     1,922
                             ----        ----        -------     -------     -------   --------
 Total assets...........     $--         $--         $87,708     $19,397     $  (175)  $106,930
                             ====        ====        =======     =======     =======   ========
Total current
 liabilities including
 current portion of
 long-term debt and
 capital leases.........     $--         $--         $45,244     $ 5,120     $  (175)  $ 50,189
Long-Term debt and
 capital leases, less
 current Portion........      --          --          30,916      12,930         --      43,846
Other liabilities.......      --          --           8,330       4,240         --      12,570
                             ----        ----        -------     -------     -------   --------
 Total liabilities......      --          --          84,490      22,290        (175)   106,605
                             ----        ----        -------     -------     -------   --------
Total stockholders'
 equity (deficit).......      --          --           3,218      (2,893)        --         325
                             ----        ----        -------     -------     -------   --------
Total liabilities and
 shareholders' equity
 (deficit)..............     $--         $--         $87,708     $19,397     $  (175)  $106,930
                             ====        ====        =======     =======     =======   ========

 
 
                                      F-30

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 


                                          AEI Holding Company, Inc.
                                    -------------------------------------
                             AEI
                          Resources
                            (Non-        AEI                      Non-
                          Guarantor    Holding     Guarantor   Guarantor   Combining
                          Entities) Company, Inc. Subsidiaries Subsidiary Adjustments  Total
                          --------- ------------- ------------ ---------- ----------- --------
                                                                    
Operating Results
 (1996):
Revenues................    $--       $    --       $109,165    $15,357    $ (1,322)  $123,200
Costs and expenses......     --            --         96,981     17,412      (1,322)   113,071
                            ----      --------      --------    -------    --------   --------
 Income (loss) from
  operations............     --            --         12,184     (2,055)        --      10,129
Interest and other
 income (expense).......     --            --         (4,500)      (625)        --      (5,125)
                            ----      --------      --------    -------    --------   --------
 Income (loss) before
  minority interest.....     --            --          7,684     (2,680)        --       5,004
Less-Minority interest..     --            --            --         --          (59)       (59)
                            ----      --------      --------    -------    --------   --------
 Net income (loss)......    $--       $    --       $  7,684    $(2,680)   $     59   $  5,063
                            ====      ========      ========    =======    ========   ========
Cash Flows (1996):
Cash flows from
 operating activities:
Net income (loss).......    $--       $    --       $  7,684    $(2,680)   $     59   $  5,063
Total adjustments to
 reconcile net income
 (loss) to net cash used
 in operating
 activities.............     --            --             84       (314)        (59)      (289)
                            ----      --------      --------    -------    --------   --------
Net cash provided by
 (used in) operating
 activities.............     --            --          7,768     (2,994)        --       4,774
Net cash used in
 investing activities...     --            --        (10,577)    (1,926)        --     (12,503)
Net cash provided by
 financing activities...     --            --          2,801      4,547         --       7,348
                            ----      --------      --------    -------    --------   --------
Net decrease in cash and
 cash equivalents.......     --            --             (8)      (373)        --        (381)
Cash and cash
 equivalents, beginning
 of year................     --            --            411        423         --         834
                            ----      --------      --------    -------    --------   --------
Cash and cash
 equivalents, end of
 year...................    $--       $    --       $    403    $    50    $    --    $    453
                            ====      ========      ========    =======    ========   ========
December 31, 1997:
Balance Sheet:
Total current assets....    $--       $ 93,022      $ 55,900    $ 4,063    $ (9,809)  $143,176
Properties, net.........     --          2,464        75,682     28,512         --     106,658
Other assets............     --         71,290         7,115      5,952     (68,798)    15,559
                            ----      --------      --------    -------    --------   --------
 Total assets...........    $--       $166,776      $138,697    $38,527    $(78,607)  $265,393
                            ====      ========      ========    =======    ========   ========
Total current
 liabilities including
 current portion of
 long-term debt and
 capital leases.........    $--       $ 13,525      $ 47,980    $ 6,423    $ (9,809)  $ 58,119
Long-Term debt and
 capital leases, less
 current Portion........     --        202,314         7,047     27,170     (27,170)   209,361
Other liabilities.......     --            604        22,770     10,530     (17,917)    15,987
                            ----      --------      --------    -------    --------   --------
 Total liabilities......     --        216,443        77,797     44,123     (54,896)   283,467
                            ----      --------      --------    -------    --------   --------
Total Stockholders'
 equity (deficit).......     --        (49,667)       60,900     (5,596)    (23,711)   (18,074)
                            ----      --------      --------    -------    --------   --------
Total liabilities and
 owners' equity
 (deficit)..............    $--       $166,776      $138,697    $38,527    $(78,607)  $265,393
                            ====      ========      ========    =======    ========   ========
Operating Results
 (1997):
Revenues................    $--       $     83      $158,160    $17,563    $   (552)  $175,254
Costs and expenses......     --          4,314       147,389     18,677        (552)   169,828
                            ----      --------      --------    -------    --------   --------
 Income (loss) from
  operations............     --         (4,231)       10,771     (1,114)        --       5,426
Interest and other
 income (expense).......     --           (582)       (7,291)      (922)        --      (8,795)
                            ----      --------      --------    -------    --------   --------
 Income (loss) before
  income taxes and
  extraordinary item....     --         (4,813)        3,480     (2,036)        --      (3,369)
Income tax provision
 (benefit)..............     --           (799)       17,845        470         --      17,516
                            ----      --------      --------    -------    --------   --------
 Income (loss) before
  extraordinary item....     --         (4,014)      (14,365)    (2,506)        --     (20,885)
Extraordinary loss from
 extinguishment of debt
 (net of tax benefit)...     --         (1,040)          --        (263)        --      (1,303)
                            ----      --------      --------    -------    --------   --------
 Net income (loss)......    $--       $ (5,054)     $(14,365)   $(2,769)   $    --    $(22,188)
                            ====      ========      ========    =======    ========   ========

 
 
                                      F-31

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


                             AEI            AEI Holding Company, Inc.
                          Resources   -------------------------------------
                            (Non-          AEI                      Non-
                          Guarantor      Holding     Guarantor   Guarantor   Combining
                          Entities)   Company, Inc. Subsidiaries Subsidiary Adjustments   Total
                          ----------  ------------- ------------ ---------- ----------- ----------
                                                                      
Cash Flows (1997):
Cash flows from
 operating activities:
Net income (loss).......  $      --     $ (5,054)     $(14,365)   $(2,769)   $     --   $  (22,188)
Total adjustments to
 reconcile net income
 (loss) to net cash
 provided by (used in)
 operating activities...         --       (1,004)       12,411        601          --       12,008
                          ----------    --------      --------    -------    ---------  ----------
Net cash used in
 operating activities...         --       (6,058)       (1,954)    (2,168)         --      (10,180)
Net cash used in
 investing activities...         --         (223)      (22,039)   (16,028)         --      (38,290)
Net cash provided by
 financing activities...         --       87,577        25,449     18,607          --      131,633
                          ----------    --------      --------    -------    ---------  ----------
Net increase (decrease)
 in cash and cash
 equivalents............         --       81,296         1,456        411          --       83,163
Cash and cash
 equivalents, beginning
 of period..............         --          --            403         50          --          453
                          ----------    --------      --------    -------    ---------  ----------
Cash and cash
 equivalents, end of
 period.................  $      --     $ 81,296      $  1,859    $   461    $     --   $   83,616
                          ==========    ========      ========    =======    =========  ==========
September 30, 1998
 (unaudited):
Balance Sheet:
Total current assets....  $  584,239    $ 26,194      $ 86,761    $ 6,215    $ (22,169) $  681,240
Properties, net.........   1,913,480         852       116,380     36,378          --    2,067,090
Other assets............      24,081     146,979        10,834      6,076      (93,083)     94,887
                          ----------    --------      --------    -------    ---------  ----------
 Total assets...........  $2,521,800    $174,025      $213,975    $48,669    $(115,252) $2,843,217
                          ==========    ========      ========    =======    =========  ==========
Total current
 liabilities, including
 current portion of
 long-term debt and
 capital leases.........  $  631,297    $ 29,529      $ 71,276    $ 7,305    $ (22,169) $  717,238
Long-term debt and
 capital leases, less
 current portion........     883,399     200,000         8,681     40,102      (40,102)  1,092,080
Other liabilities.......   1,076,927          85        33,599     10,722      (17,611)  1,103,722
                          ----------    --------      --------    -------    ---------  ----------
 Total liabilities......   2,591,623     229,614       113,556     58,129      (79,882)  2,913,040
Total shareholders'
 equity (deficit).......     (69,823)    (55,589)      100,419     (9,460)     (35,370)    (69,823)
                          ----------    --------      --------    -------    ---------  ----------
Total liabilities and
 shareholders' equity
 (deficit)..............  $2,521,800    $174,025      $213,975    $48,669    $(115,252) $2,843,217
                          ==========    ========      ========    =======    =========  ==========
Operating Results
 (September 30, 1998)
 (unaudited):
Revenues................  $  157,285    $    478      $205,252    $20,093    $  (6,944) $  376,164
Costs and expenses......     143,542      10,141       187,028     23,716       (6,944)    357,483
                          ----------    --------      --------    -------    ---------  ----------
 Income (loss) from
  operations............      13,743      (9,663)       18,224     (3,623)         --       18,681
Interest and other
 income (expense).......     (12,527)    (12,916)       (1,641)      (242)         --      (27,326)
                          ----------    --------      --------    -------    ---------  ----------
 Income (loss) before
  income taxes..........       1,216     (22,579)       16,583     (3,865)         --       (8,645)
Income tax provision
 (benefit)..............        (749)       (186)          --         --           --         (935)
                          ----------    --------      --------    -------    ---------  ----------
 Income(loss) before
  extraordinary item....       1,965     (22,393)       16,583     (3,865)         --       (7,710)
Extraordinary loss from
 debt restructure.......      (2,422)       (617)          --         --           --       (3,039)
                          ----------    --------      --------    -------    ---------  ----------
 Net Income (loss)......  $     (457)   $(23,010)     $ 16,583    $(3,865)   $     --   $  (10,749)
                          ==========    ========      ========    =======    =========  ==========
Cash Flows (September
 30, 1998) (unaudited):
Cash Flows from
 Operating Activities:
Net income (loss).......  $     (457)   $(23,010)     $ 16,583    $(3,865)   $     --   $  (10,749)
Total adjustments to
 reconcile net income
 (loss) to net cash
 provided by (used in)
 operating activities...      (9,578)     (4,116)       (7,290)     1,659          --      (19,325)
                          ----------    --------      --------    -------    ---------  ----------
Net cash provided by
 (used in) operating
 activities.............     (10,035)    (27,126)        9,293     (2,206)         --      (30,074)
Net cash used in
 investing activities...    (874,238)    (64,766)       43,054    (11,064)         --     (907,014)
Net cash provided by
 financing activities...     928,784      19,274       (52,627)    12,932          --      908,363
                          ----------    --------      --------    -------    ---------  ----------
 Net increase (decrease)
  in cash and cash
  equivalents...........      44,511     (72,618)         (280)      (338)         --      (28,725)
Cash and Cash
 Equivalents, beginning
 of period..............         --       81,296         1,859        461          --       83,616
                          ----------    --------      --------    -------    ---------  ----------
Cash and Cash
 Equivalents, end of
 period.................  $   44,511    $  8,678      $  1,579    $   123    $     --   $   54,891
                          ==========    ========      ========    =======    =========  ==========

 
 
                                      F-32

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 


                                        AEI Holding Company, Inc.
                                   -----------------------------------
                            AEI
                         Resources
                           (Non-   AEI Holding                 Non-
                         Guarantor  Company,    Guarantor   Guarantor   Combining
                         Entities)    Inc.     Subsidiaries Subsidiary Adjustments  Total
                         --------- ----------- ------------ ---------- ----------- --------
                                                                 
September 30, 1997
 (unaudited):
Operating Results:
Revenues................   $--        $--        $110,710    $13,376      $ (5)    $124,081
Costs and expenses......    --         --         103,570     13,971        (5)     117,536
                           ----       ----       --------    -------      ----     --------
 Income (loss) from
  operations............    --         --           7,140       (595)      --         6,545
Interest and other
 income (expenses) .....    --         --          (5,250)      (601)      --        (5,851)
                           ----       ----       --------    -------      ----     --------
 Income (loss) before
  income taxes..........    --         --           1,890     (1,196)      --           694
 Income tax provision...    --         --             --       1,398       --         1,398
                           ----       ----       --------    -------      ----     --------
 Net income (loss)......   $--        $--        $  1,890    $(2,594)     $--      $   (704)
                           ====       ====       ========    =======      ====     ========
Cash Flows (September
 30, 1997) (unaudited):
Cash Flows from
 Operating Activities:
Net income (loss).......   $--        $--        $  1,890    $(2,594)     $--      $   (704)
Total adjustments to
 reconcile net income
 (loss) to net cash
 provided by (used in)
 operating activities...    --         --          (8,981)     1,677       --        (7,304)
                           ----       ----       --------    -------      ----     --------
Net cash provided by
 (used in) operating
 activities.............    --         --          (7,091)      (917)      --        (8,008)
Net cash used in
 investing activities...    --         --         (11,685)    (6,511)      --       (18,196)
Net cash provided by
 financing activities...    --         --          18,768      8,099       --        26,867
                           ----       ----       --------    -------      ----     --------
Net increase (decrease)
 in cash and cash
 equivalents............    --         --              (8)       671       --           663
Cash and Cash
 Equivalents, beginning
 of period..............    --         --             403         50       --           453
                           ----       ----       --------    -------      ----     --------
Cash and Cash
 Equivalents, end of
 period.................   $--        $--        $    395    $   721      $--      $  1,116
                           ====       ====       ========    =======      ====     ========

 
20. UNAUDITED PRO FORMA INFORMATION
 
A pro forma adjustment has been made to historical net income (loss) to reflect
a provision for federal, state and local income taxes during the respective S
corporation periods (see Note 2h) using a combined effective rate of 38%.
 
21. INTERIM EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
 
a. Acquisition Pro forma Data
 
As described in Notes 1 & 17, the Company closed the following significant
acquisitions during 1998: Leslie Resources--January 1998, Cyprus Subsidiaries--
June 1998, Mid-Vol--July 1998, Kindill--September 1998, Zeigler--September 1998
and Martiki--November 1998. In addition, as discussed in Note 3, the Company
acquired Ikerd-Bandy in October 1997.
 
The following unaudited pro forma information for the nine months ended
September 30, 1998 and the year ended December 31, 1997, shown below, gives
effect to the acquisitions of Ikerd-Bandy, Leslie Resources, Cyprus
Subsidiaries, Mid-Vol, Kindill, Zeigler and Martiki as if they had occurred on
January 1, 1997. The operations of such acquirees have been included within the
Company from their respective acquisition dates through September 30, 1998.
 


                                          December 31, 1997 September 30, 1998
                                          ----------------- ------------------
                                                      (unaudited)
                                                      
   Revenues..............................    1,395,200          1,031,700
   Income (loss) before extraordinary
    items................................      (92,600)           (17,400)
   Net Loss..............................      (93,900)           (20,400)

 
 
                                      F-33

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The unaudited pro forma information assumes that The Company owned the
outstanding shares of Ikerd-Bandy, Leslie Resources, Cyprus Subsidiaries, Mid-
Vol, Kindill, Zeigler and Martiki at the beginning of 1997 and includes
adjustments for depreciation, depletion and amortization, interest expense and
adjustments to conform to the Company's accounting policies. The unaudited pro
forma financial data is presented for information purposes only and is not
necessarily indicative of the results of operations that actually would have
been achieved had the acquisitions been consummated on January 1, 1997, and is
not intended to be a projection of future results.
 
The purchase accounting entries recorded from the aforementioned acquisitions
are preliminary and are expected to be finalized in 1998 for Ikerd-Bandy and
Leslie Resources and 1999 for Cyprus Subsidiaries, Mid-Vol, Kindill, Zeigler
and Martiki.
 
b. Addcar(TM) Highwall Mining System Lease Agreement
 
Effective May 1998, AEI HoldCo. entered into an agreement with Independence
Coal Company, Inc. (Independence) whereby AEI HoldCo. (as lessor) shall lease
an Addcar(TM) Highwall Mining System to Independence (as lessee) for a term of
24 months from initial set up or until all mineable coal from the lessee's
Twilight mine is recovered, for $220 per month subject to various terms and
conditions.
 
Additionally, effective September, 1998 AEI HoldCo. leased to Independence a
second Addcar(TM) Highwall Mining System and agreed to lease a third System in
January, 1999. Each lease is for 2 years and requires a $4,125 prepaid rental
payment upon delivery, and at the lessee's option each may be extended for a
third year with a rental prepayment of $1,547. Additionally, a monthly rental
payment of $37 for each system is payable by the lessee. Payment terms are
subject to various terms and conditions.
 
c. Debt Extinguishments
 
On June 29, 1998, the Company replaced its New Credit Facility (Note 7a),
receiving relief for all prior covenant violations. The current Credit Facility
has various covenants, including an interest coverage ratio, which has an
initial measurement date of September 30, 1998. As of September 30, 1998, the
Company is in compliance with the new covenants. Upon this change in debt
structure, the Company expensed as an extraordinary item in June 1998
approximately $617 of deferred debt issuance costs.
 
On September 2, 1998, in connection with the borrowing under the Senior Credit
Facility Term Loan (Note 17c), the Cyrus/Mid-Vol financing bridge was retired.
The Company expensed as an extraordinary item in September 1998 approximately
$3,724 of deferred debt issuance costs related to this bridge financing.
 
d. Litigation Settlement
 
In August, 1998 the Company settled with Robert C. Billips, d/b/a Peter Fork
Mining Company (Note 8c) for an initial cash payment of $150 and payments over
the next 49 years estimated at a present value of $250. The Company has
sufficient contingency accruals to cover the settlement.
 
e. Acquiree Litigation
 
In connection with the acquisition of the Cyprus Subsidiaries (Note 1) the
Company became potentially liable under a suit filed in the Circuit Court of
Perry County, Kentucky in 1996 by Joseph D. Weddington and Kentucky Land &
Exploration Company ("Kentucky Land"). Kentucky Land has asserted claims to
approximately 1,425 acres of property upon which the Company mines coal. Based
on a prior federal appellate court decision, the Company believes that it is
likely to prevail. The Company does not believe the ultimate outcome of this
matter will result in a material adverse effect on the financial position of
the Company and its Subsidiaries, taken as a whole.
 
                                      F-34

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
In October, 1998 Cyprus Amax Coal Company filed a complaint against the Company
alleging that under the terms of the purchase agreement, the Company is
responsible for certain long-term disability coverage to current and former
employees of the acquired Cyprus Subsidiaries. The Company contends that the
obligations in question were retained by the seller and intends to defend the
claims vigorously. At this time, it is not possible to determine the likely
outcome of the claim, but the Company does not believe the ultimate outcome of
this matter will result in a material effect on the financial position of the
Company and its Subsidiaries taken as a whole.
 
The acquirees have been named as defendant in various actions in the ordinary
course of business. These actions generally involve disputes relating to
contract performance, mining activities and related matters as well as other
civil actions. While the final resolution of any matter may have an impact on
the Company's financial results for a particular reporting period, management
believes that the ultimate disposition of these matters will not have a
materially adverse effect upon the financial position of the Company.
 
f. Sales Commitment and Contingency
 
Under a ten-year contract dated July 1, 1998, the Company is required to sell
coal from its Bowie #2 mine to TVA. The Company cannot satisfy the delivery
requirements in full if it is unable to lease certain reserves located on
federal land in Colorado. The failure to do so could materially adversely
impact the profitability of the Bowie #2 mine.
 
g. Net Assets Held for Sale
 
At the time of the Zeigler acquisition, the Company identified various items
which it would resell including the Wyoming coal mines and non coal mining
activities. Net assets held for sale in the accompanying financial statements
includes net assets related to the Triton Disposition (see Note 17c), the Pier
IX Terminal in Newport News, Virginia, the Shipyard River Terminal in
Charleston, South Carolina, and items related to power marketing and fuel
technology.
 
On December 18, 1998, the Company sold the Pier IX and Shipyard River Terminals
and related assets (the "Pier Disposition") for an aggregate purchase price of
$35,000.
 
Through an energy trading subsidiary, Zeigler began entering into power and gas
forward contracts and options for trading purposes in 1997. These forward
contracts and options were recorded at their estimated fair market values by
the Company at the date of purchase. At September 30, 1998, open net contract
and option positions were not material and did not represent significant credit
related exposure.
 
h. Employee Benefits Management, Inc.
 
Employee Benefits Management, Inc. (EBMI), a renamed Subsidiary of the Company,
was recapitalized on December 8, 1998 in the State of Delaware whereby it
authorized 1,000 shares of Class A stock and 176 shares of Class B stock. The
Class A stock was issued on December 8, 1998 to AEI (1 share) and to Fairview
Land Company (999 shares) (a wholly owned subsidiary of the Company). Fairview
also contributed $1,700 cash to EBMI.
 
The Class B shares were issued on December 18, 1998 to seven subsidiaries of
the Company. In exchange for the Class B shares, the seven subsidiaries
contributed an aggregate of $357,384 in intercompany subordinated debt
securities to EBMI. Such debt securities are payable in full in December 2008
by Bluegrass Coal Development (another wholly owned subsidiary) with interest
payable quarterly at 7.25%. Additionally, the seven subsidiaries contributed
$357,084 in vested post retirement benefit obligations (SFAS 106 obligations)
to EBMI.
 
                                      F-35

 
                  AEI RESOURCES HOLDING, INC. AND PREDECESSOR
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
On December 29, 1998 the seven subsidiaries holding Class B shares of EBMI
aggregately sold their shares to Employers Risk Services, Inc. (ERSI) (an
unrelated party) for $300. ERSI will assist in managing the SFAS 106
obligations of EBMI.
 
All voting rights of EBMI are vested solely in the holders of the Class A
Common Stock, except that the holders of the Class B Common Stock shall be
entitled as a class to elect one of the six directors of EBMI.
 
The Class B Shares can be put to EBMI after July 1, 2007 for the lesser of 15%
of EBMI's net worth or $7,000. EBMI has the right to call the Class B Shares
after January 1, 2008 for the lesser of 15.75% of EBMI's net worth or $7,350.
 
i. R & F Coal Company Disposition
 
On December 21, 1998, R & F Coal Company (R & F), a subsidiary of the Company,
sold coal mining assets including inventories, property, equipment and a coal
supply contract for approximately $7,600.
 
j. Energy Resources, LLC
 
In January 1999, the Company acquired 95% of Energy Resources, LLC from the
Harold Sergent family for $3.0 million. The acquisition was accounted for as a
purchase.
 
 
                                      F-36

 
                           AEI HOLDING COMPANY, INC.
 
                          CONSOLIDATED BALANCE SHEETS
                            As of September 30, 1998
 


                                                                September 30,
                                                                     1998
                                                                --------------
                                                                 (Unaudited)
                                                                (In Thousands)
                                                             
                            ASSETS
Current Assets:
  Cash and cash equivalents....................................    $ 10,380
  Short-term investments.......................................         108
  Accounts receivable (including amounts due from related
   parties of $10,350).........................................      44,669
  Inventories..................................................      41,797
  Prepaid expenses and other...................................       8,329
                                                                   --------
    Total current assets.......................................     105,283
                                                                   --------
Property, Plant and Equipment, at cost, including mineral
 reserves and mine development and contract costs..............     184,633
  Less--accumulated depreciation and amortization..............     (31,023)
                                                                   --------
                                                                    153,610
                                                                   --------
Debt issuance costs, net.......................................      11,564
Other non-current assets, net..................................      11,215
                                                                   --------
    Total assets...............................................    $281,672
                                                                   ========
        LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
  Accounts payable (including amounts due to related parties of
   $6,472).....................................................    $ 37,343
  Current portion of long-term debt............................      25,058
  Current portion of capital leases............................       4,739
  Current portion of reclamation and mine closure costs........         977
  Deferred income taxes........................................       4,067
  Accrued expenses and other...................................      22,039
                                                                   --------
    Total current liabilities..................................      94,223
                                                                   --------
Non-Current Liabilities:
  Long-term debt and related obligations, less current
   portion.....................................................     208,393
  Capital leases, less current portion.........................         288
  Reclamation and mine closure costs, less current portion.....      26,633
  Other non-current liabilities................................       4,415
                                                                   --------
    Total non-current liabilities..............................     239,729
                                                                   --------
    Total liabilities..........................................     333,952
                                                                   --------
Commitments and Contingencies (see notes)
Minority interest..............................................         --
Stockholder's Equity (Deficit):
  Common stock.................................................           1
  Additional capital...........................................      17,086
  Retained earnings (deficit)..................................     (69,367)
                                                                   --------
    Total stockholder's equity (deficit).......................     (52,280)
                                                                   --------
    Total liabilities and stockholder's equity (deficit).......    $281,672
                                                                   ========

 
  The accompanying notes to consolidated financial statements are an integral
                          part of this balance sheet.
 
                                      F-37

 
                       AEI HOLDING COMPANY, INC. (NOTE 1)
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
             For the Nine Months Ended September 30, 1997 and 1998
 


                                                            Nine Months Ended
                                                              September 30,
                                                            ------------------
                                                              1997      1998
                                                            --------  --------
                                                               (Unaudited)
                                                             (In Thousands)
                                                                
Revenues:
  Coal mining (including amounts from related parties of
   $-- and $3,381, respectively)........................... $114,270  $221,738
  Equipment sales, rental and repair (including amounts
   from related parties of $5,677 and $297, respectively)..    6,358     2,145
  Other (including amounts from related parties of $2,432
   and $298, respectively).................................    3,453     1,940
                                                            --------  --------
    Total revenues.........................................  124,081   225,823
                                                            --------  --------
Costs and expenses:
  Cost of operations (including amounts to related parties
   of $17,918 and $17,140, respectively)...................  100,736   192,965
  Depreciation, depletion and amortization.................    6,910    14,254
  Selling, general and administrative (including amounts to
   related parties of $366 and $45, respectively)..........    9,890    13,666
                                                            --------  --------
    Total costs and expenses...............................  117,536   220,885
                                                            --------  --------
    Income from operations.................................    6,545     4,938
Interest and other income (expense):
  Interest expense (including amounts to related parties of
   $1,276 and $--, respectively)...........................   (5,265)  (16,857)
  Gain on sale of assets...................................       25       973
  Other, net...............................................     (611)    1,085
                                                            --------  --------
                                                              (5,851)  (14,799)
                                                            --------  --------
    Income (loss) before income taxes and extraordinary
     item..................................................      694    (9,861)
Income tax provision (benefit).............................    1,398      (186)
                                                            --------  --------
    Income (loss) before extraordinary item................     (704)   (9,675)
Extraordinary loss from extinguishment of debt.............      --       (617)
                                                            --------  --------
    Net income (loss)...................................... $   (704) $(10,292)
                                                            ========  ========
Pro forma information (Note 11):
  Income (loss) before income taxes and extraordinary
   item.................................................... $    694
  Unaudited pro forma income tax expense (benefit).........      719
                                                            --------
  Unaudited pro forma net income (loss).................... $    (25)
                                                            ========

 
 
  The accompanying notes to consolidated financial statements are an integral
                           part of these statements.
 
                                      F-38

 
                       AEI HOLDING COMPANY, INC. (NOTE 1)
 
           CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
                  For the Nine Months Ended September 30, 1998
 


                                   Common Stock  Retained
                                   -------------  Earnings  Additional
                                   Shares Amount (Deficit)   Capital    Total
                                   ------ ------ ---------  ---------- --------
                                          (Dollar amounts in thousands)
                                                        
Balance at January 1, 1998........ 52,800  $ 1   $(25,268)   $  7,193  $(18,074)
  Nine months ended September 30,
   1998 net loss (unaudited)......    --   --     (10,292)        --    (10,292)
  Charge to equity (unaudited)....    --   --     (43,807)     (7,193)  (51,000)
  Deferred tax benefit
   (unaudited)....................    --   --      10,000         --     10,000
  Capital Contribution from AEI
   Resources, Inc. (unaudited)....    --   --         --       17,086    17,086
                                   ------  ---   --------    --------  --------
Balance at September 30, 1998
 (unaudited)...................... 52,800  $ 1   $(69,367)   $ 17,086  $(52,280)
                                   ======  ===   ========    ========  ========

 
 
 
  The accompanying notes to consolidated financial statements are an integral
                            part of this statement.
 
                                      F-39

 
                       AEI HOLDING COMPANY, INC. (NOTE 1)
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             For the Nine Months Ended September 30, 1997 and 1998
 


                                                              September 30,
                                                            ------------------
                                                              1997      1998
                                                            --------  --------
                                                               (Unaudited)
                                                             (In Thousands)
                                                                
Cash Flows From Operating Activities:
 Net income (loss)......................................... $   (704) $(10,292)
 Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities
  Depreciation, depletion and amortization.................    6,910    14,254
  Amortization of finance costs included in interest
   expense.................................................       24     1,010
  Loan cost write-offs from debt refinancing...............      --        617
  Gain on sale of assets...................................      (25)     (973)
 Changes in assets and liabilities:
  (Increase) decrease in:
   Short-term investments..................................      --        593
   Receivables.............................................  (11,287)   (4,834)
   Inventories.............................................   (6,517)   (8,734)
   Prepaid expenses and other..............................     (409)   (1,219)
   Other non-current assets................................   (1,071)   (7,885)
 Increase (decrease) in:
  Accounts payable.........................................    4,905      (939)
  Accrued expenses and other...............................    3,355     4,890
  Other non-current liabilities............................   (3,189)   (6,527)
                                                            --------  --------
    Total adjustments......................................   (7,304)   (9,747)
                                                            --------  --------
    Net cash provided by (used in) operating activities....   (8,008)  (20,039)
                                                            --------  --------
Cash Flows From Investing Activities:
 Net proceeds from sale of assets..........................      144     2,909
 Additions to property, plant and equipment and mine
  development and contract costs...........................  (18,340)  (23,660)
 Acquisition of coal-mining companies including debt
  retirement, net of cash received.........................      --    (12,025)
                                                            --------  --------
    Net cash used in investing activities..................  (18,196)  (32,776)
                                                            --------  --------
Cash Flows From Financing Activities:
 Borrowings on long-term debt..............................   12,045       --
 Repayments on long-term debt..............................   (7,219)   (2,778)
 Net borrowings (payments) on revolving line of credit.....    5,061    19,640
 Net borrowings from (repayments to) stockholders..........   20,407       --
 Repayments on capital leases..............................   (2,804)   (3,011)
 Payments for debt issuance costs..........................     (302)     (358)
 Charge to equity for MTI purchase.........................      --    (51,000)
 Capital contributions from AEI Resources, Inc. ...........      --     17,086
 Other changes in stockholder's equity (deficit), net......     (321)      --
                                                            --------  --------
    Net cash provided by (used in) financing activities....   26,867   (20,421)
                                                            --------  --------
    Net increase (decrease) in cash and cash equivalents...      663   (73,236)
                                                            --------  --------
Cash and Cash Equivalents, beginning of period.............      453    83,616
                                                            --------  --------
Cash and Cash Equivalents, end of period................... $  1,116  $ 10,380
                                                            ========  ========

 
 
  The accompanying notes to consolidated financial statements are an integral
                           part of these statements.
 
                                      F-40

 
                           AEI HOLDING COMPANY, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1998
                             (Dollars in thousands)
                                  (Unaudited)
 
1. Basis of Presentation
 
The accompanying interim unaudited financial statements of AEI Holding Company,
Inc. (the "Company") include all adjustments, which are, in the opinion of
management, necessary for a fair presentation. Results for any interim period
are not necessarily indicative of the results that may be achieved in future
periods. The financial information as of this interim date should be read in
conjunction with the Company's annual audited financial statements and notes
thereto as of December 31, 1997 and for the year then ended.
 
The accompanying financial statements include those of AEI Holding Company,
Inc. including its predecessor operations which include the mining technologies
division of Addington Enterprises, Inc. (AEI) that was acquired by the Company
on January 2, 1998 (the "MTI Transaction"). The predecessor operations of the
Company also include AEI's coal mining divisions and subsidiaries, plus Bowie
Resources, Limited. The mining technologies division of AEI included herein
excludes the non-North American intellectual property. The accompanying
financial statements represent the historical accounts of the businesses
transferred and sold to the Company which were under the common control of
Larry Addington (see Note 1 to the 1997 annual financial statements), plus
Leslie Resources, which was acquired in January 1998 (Note 6).
 
On June 26, 1998, the owners of the Company (Larry Addington and AEI)
transferred ownership of their shares in the Company to AEI Resources, Inc.
(Resources) (formerly Coal Ventures Inc.), a newly formed Delaware Corporation
in exchange for similar proportionate common shares of Resources. Accordingly,
the Company became a wholly owned subsidiary of Resources.
 
On September 2, 1998, Resources acquired the 22.5% minority interest in Bowie
Resources, Ltd. from Mitsui Matsushima for the purchase price of $11,500. This
acquisition was accounted for by Resources as a purchase.
 
2. Inventories
 
As of September 30, 1998, inventories consisted of the following:
 


                                                                          1998
                                                                         -------
                                                                      
      Coal.............................................................. $11,247
      Deferred Overburden...............................................  22,582
      Supplies and Parts................................................   7,968
                                                                         -------
                                                                         $41,797
                                                                         =======

 
3. Supplemental Disclosures of Cash Flow Information
 


                                                           Nine Months Ended
                                                           September 30, 1998
                                                           ------------------
                                                             1997     1998
                                                           ------------------
                                                              
      Interest paid, net of $150 and $2,889 capitalized
       for 1998........................................... $  4,826 $  11,055
      Income taxes paid................................... $    --        645

 
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with an original maturity of three months or less at
the date of purchase to be cash equivalents.
 
 
 
 
                                      F-41

 
                           AEI HOLDING COMPANY, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Stockholders' Equity
 
As discussed in Note 6a, the Company made a payment of $51,000 for the MTI
Transaction which was recorded as a charge to equity in January 1998. In
addition, a deferred tax benefit of $10,000 was recorded in connection with
this MTI Transaction with a corresponding increase to equity.
 
The Company approved a stock option plan whereby up to 75,000 common shares may
be offered to various employees and advisors. The rights and obligations of the
Company under its stock option plan were assumed by Resources upon its
acquisition of all the outstanding capital stock of the Company on June 26,
1998, and were later assumed by AEI Resources Holding, Inc. ("ARHI") upon its
acquisition of all the outstanding capital stock of Resources on August 4,
1998. As of September 30, 1998, there were options outstanding under the plan
for approximately 73,000 shares of capital stock of ARHI. Approximately 41% of
these options are fully exercisable within 120 days after the option grant date
with the remaining 59% being exercisable over the course of the next ten years
unless vesting is accelerated pursuant to the terms of the option. The option
purchase price is based on fair value as of February 5, 1998, and its exercise
will contain various restrictions. The Company accounts for its stock options
under APB 25.
 
5. Commitments and Contingencies
 
a. Legal Matters
 
The Company is named as defendant in various actions in the ordinary course of
its business. These actions generally involve disputes related to contract
performance, property boundaries, mining rights, blasting damages, personal
injuries and royalty payments, as well as other civil actions that could result
in additional litigation or other adversary proceedings.
 
In August, 1998 the Company settled with Robert C. Billips, d/b/a Peter Fork
Mining Company for an initial cash payment of $150 and payments over the next
49 years estimated at a present value of $250. The Company has sufficient
contingency accruals to cover the settlement.
Tennessee Mining, Inc. (TMI) is in arrears in delivering coal under a certain
coal supply contract with TVA. TMI intends to prospectively ship all tons for
which it is currently in arrears. TMI does not believe the ultimate outcome of
this matter will result in a material adverse impact upon the financial
position of the Company.
 
While the final resolution of any matter may have an impact on the Company's
financial results for a particular reporting period, management believes that
the ultimate disposition of these matters will not have a materially adverse
effect upon the financial position of the Company.
 
b. Commissions
 
On January 30, 1997 (and amended on February 5, 1997), the Company entered into
a five year Sales and Agency Agreement with Bowie Sales, LLC, whereby the
Company pays a 20c per ton commission on two separate coal sales contracts.
Additionally, the Company pays a 25c per ton commission on a third coal sales
contract. The costs are expensed as the coal is delivered.
 
c. Employment Agreements
 
During 1997 and 1998, the Company entered into employment agreements with
individuals for various officer positions. These agreements expire at various
times through 2001 and contain termination benefits and other provisions. The
rights and obligations of the Company under the agreement were assumed by AEI
Resources, Inc. upon its acquisition of all the outstanding capital stock of
the Company on June 26, 1998.
 
d. Senior Notes Interest
 
The Senior Notes issued on November 12, 1997 contained registration rights
under the Securities Act. If the registration statement for the exchange offer
is not filed or declared effective within the time periods allotted in
 
                                      F-42

 
                           AEI HOLDING COMPANY, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Senior Notes Indenture (such effective date being March 31, 1998), the
Company will be required to pay liquidated damages to Senior Notes holders at a
weekly rate of 5 cents per one thousand dollars outstanding (aggregating to $10
per week) for the first 90 days and increasing 5 cents each 90 days thereafter
until capping at a rate of 50 cents per one thousand dollars outstanding. The
Company has filed an initial registration statement with the Securities and
Exchange Commission on January 29, 1998; however, it is uncertain when the
filing will become effective.
 
e. Addcar(TM) Highwall Mining System Lease Agreement
 
Effective May 1998, the Company entered into an agreement with Independence
Coal Company, Inc. (Independence) whereby the Company (as lessor) shall lease
an Addcar(TM) Highwall Mining System to Independence (as lessee) for a term of
24 months from initial set up or until all mineable coal from the lessee's
Twilight mine is recovered, for $220 per month subject to various terms and
conditions.
 
Additionally, effective September, 1998 AEI HoldCo. leased to Independence a
second Addcar(TM) Highwall Mining System and agreed to lease a third System in
January, 1999. Each lease is for 2 years and requires a $4,125 prepaid rental
payment upon delivery, and at the lessee's option each may be extended for a
third year with a rental prepayment of $1,547. Additionally, a monthly rental
payment of $37 for each system is payable by the lessee. Payment terms are
subject to various terms and conditions.
 
f. Sales Commitment and Contingency
 
Under a ten-year contract dated July 1, 1998, the Company is required to sell
coal from its Bowie mine to TVA. The Company cannot satisfy the delivery
requirements in full if it is unable to lease certain reserves located on
federal land in Colorado. The failure to do so could materially adversely
impact the profitability of the Bowie mine.
 
6. Acquisitions
 
a. Mining Technologies
 
Pursuant to an Asset Purchase Agreement, dated December 18, 1997, between the
Company and AEI, Mining Technologies, Inc., a newly formed subsidiary of the
Company acquired AEI's North American (N.A.) mining technologies division. The
purchase price of $51,000 (cash) was delivered at closing on January 2, 1998.
The net assets acquired include mining equipment (primarily Highwall Mining
Systems), contract mining agreements, and the intellectual property for the
N.A. Highwall Mining Systems (patents, trademarks, etc.). AEI retained
ownership of the non-N.A. intellectual property.
This MTI transaction was treated for accounting purposes as a transfer of net
assets under common control with accounting similar to that of a pooling of
interests. Accordingly, the historical cost basis of the underlying assets and
liabilities transferred (from AEI) were carried over from the transferring
entity to the Company. Due to common control, the MTI cash purchase price of
$51,000 paid by the Company to AEI was recorded as a charge to equity when paid
in January 1998.
 
b. Ikerd-Bandy/Leslie Resources
 
In October 1997, the Company acquired all of the outstanding capital stock of
Ikerd-Bandy Co., Inc. (Ikerd-Bandy), a coal mining company with operations in
eastern Kentucky, for the purchase price of approximately $12,325. This
transaction has been accounted for as a purchase, and the operations of Ikerd-
Bandy have been included with those of the Company since the date of
acquisition through September 30, 1998.
 
                                      F-43

 
                           AEI HOLDING COMPANY, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
In January 1998, the Company acquired all of the outstanding capital stock of
Leslie Resources, Inc. and Leslie Resources Management, Inc. (collectively,
Leslie Resources), a coal mining business with operations in eastern Kentucky,
for the purchase price of $19,300. This transaction has been accounted for as a
purchase and the operations of Leslie Resources have been included with those
of the Company since the date of acquisition through September 30, 1998.
 
The following unaudited pro forma information for the nine months ended
September 30, 1997 shown below, gives effect to the acquisition of Ikerd-Bandy
and Leslie Resources as if they had occurred on January 1, 1997:
 


                                                                   September 30,
                                                                       1997
                                                                   -------------
                                                                
      Revenues....................................................   $221,063
      Net income..................................................        997

 
The unaudited pro forma information assumes that the Company owned the
outstanding shares of Ikerd-Bandy and Leslie Resources at the beginning of 1997
and includes adjustments for depreciation, depletion and amortization, interest
expense and an inventory adjustment to conform to the Company's accounting
policies. The unaudited pro forma financial data is presented for information
purposes only and is not necessarily indicative of the results of operations
that actually would have been achieved had the acquisition been consummated on
January 1, 1997, and is not intended to be a projection of future results.
 
The purchase accounting entries recorded from the acquisitions of Leslie
Resources and Ikerd-Bandy are preliminary and are expected to be finalized in
1998.
 
7. Credit Facility
 
On June 29, 1998, the Company replaced its Credit Facility, receiving relief
for all prior covenant violations. The new Credit Facility has various
covenants, including an interest coverage ratio, which has an initial
measurement date of September 30, 1998. As of September 30, 1998, the Company
is in compliance with the new covenants. Upon the change in debt structure, the
Company expensed as an extraordinary item in June 1998 approximately $617 of
deferred debt issuance costs.
 
8. Subsequent Events
 
As part of a financing reorganization for the Company and Resources planned to
be completed in December 1998, the Company's 10% Senior Notes due November 2007
will be exchanged for Fixed Rate Senior Notes due November 2005 with the
Company and Resources as co-issuers. On November 9, 1998, the Company and
Resources released an Offering Memorandum and Solicitation Statement to
initiate the exchange process. In connection with the exchange offer, the
Company is soliciting consents from Note holders to amend the indenture.
 
In January 1999, the Company's parent contributed to the Company the remaining
22.5% of the issued and outstanding capital stock of Bowie Resources Limited
not already owned by the Company.
 
                                      F-44

 
                           AEI HOLDING COMPANY, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
9. SEGMENT DATA
 
The Company operates in three principal industry segments--coal mining,
equipment sales, rental and repair and other. Included in the segment "other"
is the Company's railcar earnings, royalty fee and management fee income.
Operating earnings for each segment includes all costs and expenses directly
related to the segment before financing charges and corporate allocations.
Corporate items principally represent general and administrative costs.
Information about the Company's operations for each segment is as follows:
 
Financial Data by Business Segment
 


                                                             September 30,
                                                           ------------------
                                                             1997      1998
                                                           --------  --------
                                                              (Unaudited)
                                                               
Revenues:
  Coal mining............................................. $114,270  $221,738
  Equipment sales, rental and repair......................    6,358     2,145
  Other...................................................    3,453     1,940
                                                           --------  --------
                                                            124,081   225,823
                                                           --------  --------
Income (loss) before minority interest, income taxes and
 extraordinary item:
  Coal mining.............................................   12,320    11,042
  Equipment sales, rental and repair......................    2,198     1,273
  Other...................................................    1,974      (596)
                                                           --------  --------
    Operating earnings....................................   16,492    11,719
  Corporate expenses......................................  (10,533)   (4,723)
  Interest expenses.......................................   (5,265)  (16,857)
                                                           --------  --------
                                                                694    (9,861)
                                                           --------  --------

 
                                      F-45

 
                           AEI HOLDING COMPANY, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
10. SUBSIDIARY GUARANTEES
 
The following tables summarize the financial position, operating results and
cash flows for the Company and Predecessor regarding its guarantor and non-
guarantor subsidiaries for the AEI HoldCo. Senior Notes as of September 30,
1998 and for the nine months ended September 30, 1997 and 1998. Each of the
Guarantor subsidiaries is a wholly-owned subsidiary of AEI HoldCo. and each has
fully and unconditionally guaranteed the Senior Notes on a joint and several
basis. Separate financial statements and other disclosures concerning the
Guarantor subsidiaries are not presented because the Company has determined
that they are not material to investors. BRL is the only non-guarantor
subsidiary. AEI Holding Company, Inc. was organized in September 1997 and
commenced operations on November 12, 1997. AEI Resources, Inc. was organized in
June 1998.
 


                                AEI Holding Company, Inc.
                          -------------------------------------
                               AEI                      Non-
                             Holding     Guarantor   Guarantor   Combining
                          Company, Inc. Subsidiaries Subsidiary Adjustments  Total
                          ------------- ------------ ---------- ----------- --------
                                                             
September 30, 1998:
Balance Sheet:
Total current assets....    $ 26,194      $ 86,761    $ 6,215    $ (13,887) $105,283
Properties, net.........         852       116,380     36,378          --    153,610
Other assets............     146,979        10,834      6,076     (141,110)   22,779
                            --------      --------    -------    ---------  --------
 Total assets...........    $174,025      $213,975    $48,669    $(154,997) $281,672
                            ========      ========    =======    =========  ========
Total current
 liabilities, including
 current portion of
 long-term debt and
 capital leases.........    $ 29,529      $ 71,276    $ 7,305    $ (13,887) $ 94,223
Long-term debt and
 capital leases, less
 current portion........     200,000         8,681     40,102      (40,102)  208,681
Other liabilities.......          85        33,599     10,722      (13,358)   31,048
                            --------      --------    -------    ---------  --------
 Total liabilities......     229,614       113,556     58,129      (67,347)  333,952
Total shareholders'
 equity (deficit).......     (55,589)      100,419     (9,460)     (87,650)  (52,280)
                            --------      --------    -------    ---------  --------
Total liabilities and
 shareholders' equity
 (deficit)..............    $174,025      $213,975    $48,669    $(154,997) $281,672
                            ========      ========    =======    =========  ========
Operating Results:
Revenues................    $    478      $205,252    $20,093    $     --   $225,823
Costs and expenses......      10,141       187,028     23,716          --    220,885
                            --------      --------    -------    ---------  --------
 Income (loss) from
  operations............      (9,663)       18,224     (3,623)         --      4,938
Interest and other
 income (expense).......     (12,916)       (1,641)      (242)         --    (14,799)
                            --------      --------    -------    ---------  --------
 Income (loss) before
  income taxes..........     (22,579)       16,583     (3,865)         --     (9,861)
Income tax provision
 (benefit)..............        (186)          --         --           --       (186)
                            --------      --------    -------    ---------  --------
 Income (loss) before
  extraordinary item....     (22,393)       16,583     (3,865)         --     (9,675)
Extraordinary loss from
 debt restructure.......        (617)          --         --           --       (617)
                            --------      --------    -------    ---------  --------
 Net Income (loss)......    $(23,010)     $ 16,583    $(3,865)   $     --   $(10,292)
                            ========      ========    =======    =========  ========
Cash Flows:
Cash Flows from
 Operating Activities:
Net income (loss).......    $(23,010)     $ 16,583    $(3,865)   $     --   $(10,292)
Total adjustments to
 reconcile net income
 (loss) to net cash
 provided by (used in)
 operating activities...      (4,116)       (7,290)     1,659          --     (9,747)
                            --------      --------    -------    ---------  --------
Net cash provided by
 (used in) operating
 activities.............     (27,126)        9,293     (2,206)         --    (20,039)
Net cash provided by
 (used in) investing
 activities.............     (64,766)       43,054    (11,064)         --    (32,776)
Net cash provided by
 (used in) financing
 activities.............      19,274       (52,627)    12,932          --    (20,421)
                            --------      --------    -------    ---------  --------
 Net increase (decrease)
  in cash and cash
  equivalents...........     (72,618)         (280)      (338)         --    (73,236)
Cash and Cash
 Equivalents, beginning
 of period..............      81,296         1,859        461          --     83,616
                            --------      --------    -------    ---------  --------
Cash and Cash
 Equivalents, end of
 period.................    $  8,678      $  1,579    $   123    $     --   $ 10,380
                            ========      ========    =======    =========  ========

 
                                      F-46

 
                           AEI HOLDING COMPANY, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 


                               AEI Holding Company, Inc.
                         -------------------------------------
                              AEI                      Non-
                            Holding     Guarantor   Guarantor   Combining
                         Company, Inc. Subsidiaries Subsidiary Adjustments  Total
                         ------------- ------------ ---------- ----------- --------
                                                            
September 30, 1997:
Operating Results:
Revenues................     $--         $110,710    $13,376      $ (5)    $124,081
Costs and expenses......      --          103,570     13,971        (5)     117,536
                             ----        --------    -------      ----     --------
 Income (loss) from
  operations............      --            7,140       (595)      --         6,545
Interest and other
 income (expenses) .....      --           (5,250)      (601)      --        (5,851)
                             ----        --------    -------      ----     --------
 Income (loss) before
  income taxes..........      --            1,890     (1,196)      --           694
 Income tax provision...      --              --       1,398       --         1,398
                             ----        --------    -------      ----     --------
 Net income (loss)......     $--         $  1,890    $(2,594)     $--      $   (704)
                             ====        ========    =======      ====     ========
Cash Flows:
Cash Flows from
 Operating Activities:
Net income (loss).......     $--         $  1,890    $(2,594)     $--      $   (704)
Total adjustments to
 reconcile net income
 (loss) to net cash
 provided by (used in)
 operating activities...      --           (8,981)     1,677       --        (7,304)
                             ----        --------    -------      ----     --------
Net cash provided by
 (used in) operating
 activities.............      --           (7,091)      (917)      --        (8,008)
Net cash used in
 investing activities...      --          (11,685)    (6,511)      --       (18,196)
Net cash provided by
 financing activities...      --           18,768      8,099       --        26,867
                             ----        --------    -------      ----     --------
Net increase (decrease)
 in cash and cash
 equivalents............      --               (8)       671       --           663
Cash and Cash
 Equivalents, beginning
 of period..............      --              403         50       --           453
                             ----        --------    -------      ----     --------
Cash and Cash
 Equivalents, end of
 period.................     $--         $    395    $   721      $--      $  1,116
                             ====        ========    =======      ====     ========

 
11. PRO FORMA INFORMATION
 
   A pro forma adjustment has been made to historical excess (deficit) of
operating revenues over expenses to reflect a provision (benefit) for federal,
state and local income taxes during the respective S corporation periods using
a combined effective rate of 38%. The 1997 expense is calculated as 38% of the
pretax earnings of AEI only (since BRL's tax status had changed during the
year).
 
                                     F-47

 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Owners of
Addington Coal Operations (the Predecessor Business):
 
We have audited the accompanying combined statements of operating revenues and
expenses, parent investment and cash flows of Addington Coal Operations (the
Predecessor Business, as described in Note 1) for the ten-month period ended
November 1, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provide a reasonable basis
for our opinion.
 
The accompanying combined statements of the predecessor business have been
prepared to reflect the coal mining & technology operations of the businesses
acquired by Addington Enterprises, Inc., which is the Predecessor Business of
AEI Holding Company, Inc. following the consummation of the shareholder
exchange agreement and asset purchase agreement (as described in Note 1) and
are not intended to be a complete presentation of an existing entity's
financial position or results of operations.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operating revenues and expenses and cash
flows of Addington Coal Operations (the Predecessor Business) for the ten-month
period ended November 1, 1995 in conformity with generally accepted accounting
principles.
 
                                          Arthur Andersen LLP
 
Louisville, Kentucky
 February 29, 1996 (except with respect to the matter discussed
 in Note 1, as to which the date is January 2, 1998)
 
                                      F-48

 
              ADDINGTON COAL OPERATIONS (THE PREDECESSOR BUSINESS)
 
         COMBINED STATEMENT OF OPERATING REVENUES AND EXPENSES (NOTE 1)
                   For the Ten Months Ended November 1, 1995
 


                                                                      1995
                                                                 --------------
                                                                 (in thousands)
                                                              
Revenues........................................................    $80,569
Costs and expenses:
  Cost of operations............................................     69,051
  Depreciation, depletion and amortization......................      4,624
  Selling, general and administrative...........................      6,427
                                                                    -------
    Total costs and expenses....................................     80,102
                                                                    -------
    Income from operations......................................        467
Interest and other income (expense):
  Interest expense..............................................       (982)
  Gain (loss) on sale of assets.................................       (541)
  Other, net....................................................        (14)
                                                                    -------
                                                                     (1,537)
                                                                    -------
    Excess (deficit) of operating revenues over expenses before
     income taxes...............................................     (1,070)
Income tax provision (benefit)..................................       (407)
                                                                    -------
    Excess (deficit) of operating revenues over expenses........    $  (663)
                                                                    =======

 
 
The accompanying notes to combined financial statements are an integral part of
                                this statement.
 
                                      F-49

 
              ADDINGTON COAL OPERATIONS (THE PREDECESSOR BUSINESS)
 
                COMBINED STATEMENT OF PARENT INVESTMENT (NOTE 1)
                   For the Ten Months Ended November 1, 1995
 


                                                                      Amount
                                                                  --------------
                                                                  (in thousands)
                                                               
Balance at January 1, 1995.......................................    $31,141
  (Deficit) of operating revenues over expenses..................       (663)
  Other changes in parent investment, net........................     (4,314)
                                                                     -------
Balance at November 1, 1995......................................    $26,164
                                                                     =======

 
 
 
The accompanying notes to combined financial statements are an integral part of
                                this statement.
 
                                      F-50

 
              ADDINGTON COAL OPERATIONS (THE PREDECESSOR BUSINESS)
 
                   COMBINED STATEMENT OF CASH FLOWS (NOTE 1)
                   For The Ten Months Ended November 1, 1995
 


                                                                      1995
                                                                 --------------
                                                                 (in thousands)
                                                              
Cash Flows From Operating Activities:
  Excess (deficit) of operating revenues over expenses..........     $ (663)
  Adjustments to reconcile excess (deficit) of operating
   revenues over
   expenses to net cash provided by (used in) operating
    activities:
   Depreciation, depletion and amortization.....................      4,624
   (Gain) loss on sale of assets................................        541
  Changes in assets and liabilities:
   (Increase) decrease in:
   Receivables..................................................      2,208
   Inventories..................................................        (70)
   Prepaid expenses and other...................................     (1,264)
   Other non-current assets.....................................      3,385
  Increase (decrease) in:
   Accounts payable.............................................      1,011
   Accrued expenses and other...................................      3,448
   Other non-current liabilities................................     (2,758)
                                                                     ------
    Total adjustments...........................................     11,125
                                                                     ------
    Net cash provided by operating activities...................     10,462
                                                                     ------
Cash Flows From Investing Activities:
  Net proceeds from sale of assets..............................      1,170
  Additions to property, plant and equipment and mine
   development costs............................................     (6,081)
                                                                     ------
    Net cash used in investing activities.......................     (4,911)
                                                                     ------
Cash Flows From Financing Activities:
  Borrowings on long-term debt..................................      2,279
  Repayments on long-term debt..................................     (1,390)
  Net payments on revolving line of credit......................     (3,116)
  Proceeds from capital lease borrowings........................      4,752
  Repayments on capital leases..................................       (744)
  Payments for debt issuance costs..............................       (216)
  Other changes in parent investment, net.......................     (6,950)
                                                                     ------
    Net cash provided by used in financing activities...........     (5,385)
                                                                     ------
    Net increase in cash and cash equivalents...................        166
                                                                     ------
Cash and Cash Equivalents, beginning of period..................        218
                                                                     ------
Cash and Cash Equivalents, end of period........................     $  384
                                                                     ======

 
The accompanying notes to combined financial statements are an integral part of
                                this statement.
 
                                      F-51

 
              ADDINGTON COAL OPERATIONS (THE PREDECESSOR BUSINESS)
 
                     NOTES TO COMBINED FINANCIAL STATEMENTS
                                November 1, 1995
                             (Dollars In Thousands)
 
1. BASIS OF PRESENTATION AND ACQUISITION
 
The accompanying combined financial statements of Addington Coal Operations
(the Predecessor Business or the Company) have been prepared to reflect the
coal mining and North American (N.A.) technology operations acquired by
Addington Enterprises, Inc. (AEI) from Addington Resources, Inc. (ARI) on
November 2, 1995. Accordingly, the accompanying combined financial statements
for the ten months ended November 1, 1995 reflect such coal mining and N.A.
technology operations while under the ownership and control of ARI. Significant
"intercompany" transactions and accounts have been eliminated in combination.
 
On November 12, 1997, AEI (as Transferor) consummated a shareholder exchange
agreement (Exchange Agreement) with AEI Holding Company, Inc. (AEI HoldCo. --
as Transferee) and Larry Addington (as Transferor) and Harold Sergent (as
Seller) for their 77.5% interest in Bowie Resources, Limited (BRL) (an entity
under common control). The Exchange Agreement called for AEI HoldCo. to issue
98 common shares (par value $.01) as consideration for: (1) AEI's coal mining
operations and certain corporate net assets and (2) Larry Addington's (69.8%)
ownership interest in BRL. AEI HoldCo. also purchased for $2,000 Harold
Sergent's 7.7% ownership interest in BRL. AEI is owned by Larry Addington
(80%), Robert Addington (10%) and Bruce Addington (10%), who are brothers. The
coal mining businesses transferred by AEI included the net assets of its
Addington Mining and corporate divisions as well as its wholly-owned
subsidiary, Tennessee Mining, Inc. AEI retained certain non-coal mining
properties and technology related assets which were disposed in the MTI
Agreement (see below).
 
The Exchange Agreement was prepared in connection with, and its consummation
was contingent upon, the closing of the $200,000 Senior Notes Indenture (Senior
Notes) of AEI HoldCo. which occurred on November 12, 1997. AEI HoldCo. issued
an Offering Memorandum dated November 6, 1997, to obtain $200,000 in 10 percent
Senior Notes, maturing in 2007, in a private placement. In addition, on
November 6, 1997, AEI HoldCo. entered into a Purchase Agreement which was
consummated on November 12, 1997 with NationsBanc Montgomery Securities, Inc.
related to the Senior Notes. After the consummation of the Exchange Agreement
and MTI agreement, AEI HoldCo. is owned by AEI (50%) and Larry Addington (50%).
In addition, Addington Mining, Inc. (AMI), Tennessee Mining Inc. (TMI) and
Mining Technologies, Inc. (MTI) are wholly-owned subsidiaries of AEI HoldCo.
while BRL is 77.5% owned by AEI HoldCo. and 22.5% owned by Mitsui Matsushima.
 
The MTI Agreement is between Mining Technologies, Inc., a newly formed
subsidiary of AEI HoldCo. (as purchaser) and AEI (as seller) for AEI's
ownership interest in its N.A., mining technologies division. The purchase
price of $51,000 (cash) was delivered at closing on January 2, 1998. The net
assets acquired include mining equipment (primarily Highwall Mining Systems),
coal mining contracts, and the intellectual property for the N.A. Highwall
Mining System (patents, trademarks, etc). AEI retained ownership of the non-
N.A. intellectual property.
 
Due to the significance (using total revenues and assets) of AEI's transferred
business to the aggregate of AEI HoldCo. management has determined for
financial reporting purposes the predecessor of AEI HoldCo. is AEI. AEI's
predecessor is ARI's coal mining and N.A. technology operations. Accordingly,
the accompanying combined financial statements have been prepared to reflect
the 1995 preacquisition (November 2, 1995) mining and N.A. technology
operations of AEI's predecessor and are not intended to be a complete
presentation of an existing entity's financial position or results of
operations. They do not reflect the activities from the non-coal mining
properties.
 
                                      F-52

 
              ADDINGTON COAL OPERATIONS (THE PREDECESSOR BUSINESS)
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
 
 
Various allocations and carve-out adjustments have been made in the preparation
of the accompanying financial statements. Such allocations have been recorded
to segregate the historical accounts to reflect the business acquired by AEI.
Management believes that the method used for allocations and carve-out
adjustments is reasonable.
 
Acquisition by AEI
 
On September 22, 1995, in a related party transaction, AEI entered into a stock
purchase agreement with Addington Resources, Inc. (ARI) whereby AEI agreed to
purchase all the issued and outstanding shares of common stock of ARI's coal
mining and technology subsidiaries. In addition, pursuant to an option
agreement dated August 4, 1995, AEI agreed to purchase from ARI all the issued
and outstanding stock of the ARI subsidiary, TMI, in exchange for a royalty AEI
will pay to ARI based on tons of coal delivered under a certain coal sales
contract. The stockholders of AEI had formerly been executive officers and
minority owners of ARI.
 
These agreements were consummated on November 2, 1995, at which time AEI
approved and adopted a plan of merger which provided for the merger of AMI, MTI
and TMI into AEI and the cancellation of the subsidiaries' common stock.
 
Pursuant to the stock purchase agreement with ARI, AEI assumed certain
liabilities and contingencies of the acquired subsidiaries that are reflected
in the net assets acquired and accompanying notes. Further, AEI has granted
indemnification for performance guarantees made by ARI in connection with the
sale of certain ARI coal-related subsidiaries in previous years as well as
guarantees relating to certain mineral lease royalty obligations and workers'
compensation benefits. The Company believes no significant obligation will
result relating to the ARI indemnification. The obligations of AEI under the
above agreement will be transferred to AEI HoldCo. pursuant to the Exchange
Agreement.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
 
a. Management's Use of Estimates
 
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
 
b. Company Environment and Risk Factors
 
The Company's principal business activities consist of surface mining and
marketing of bituminous coal, performance of contract mining for third parties
and construction, repair and licensing of mining equipment. These operations
are primarily located in Kentucky and Tennessee.
 
The Company, in the course of its business activities, is exposed to a number
of risks including: the possibility of the termination or alteration of coal
sales contracts, fluctuating market conditions of coal and transportation
costs, competitive industry and over-capacity, changing government regulations,
unexpected maintenance and equipment failure, employee benefits cost control,
misestimates of proven and probable coal reserves, satisfactory labor
relations, loss of key employees, satisfactory resolution of the Year 2000
issue and the ability of the Company to obtain necessary mining permits and
control adequate recoverable mineral reserves. In addition, adverse
uncontrollable (wet) weather and geological conditions tend to increase mining
costs, sometimes substantially. Precipitation is generally highest in early
spring and late fall.
 
                                      F-53

 
              ADDINGTON COAL OPERATIONS (THE PREDECESSOR BUSINESS)
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
c. Depreciation and Amortization
 
Property, plant and equipment are recorded at cost, including construction
overhead and interest, where applicable. Expenditures for major renewals and
betterments are capitalized while expenditures for maintenance and repairs are
expensed as incurred. Depreciation and amortization are provided using either
the straight-line or units of production method with estimated useful lives
under the straight-line method comprising substantially the following ranges:
 


                                                                         Years
                                                                        --------
                                                                     
      Buildings........................................................ 10 to 45
      Mining and other equipment and related facilities................  2 to 20
      Transportation equipment.........................................   2 to 7
      Furniture and fixtures...........................................   3 to 7

 
Mineral reserves and mine development costs are amortized using the units-of-
production method, based on estimated recoverable reserves.
 
Financing costs are being amortized using the straight-line method, over the
life of the related debt, which approximates the effective interest method.
 
d. Income Taxes
 
Deferred income taxes are recorded based upon temporary differences between the
financial statement and tax bases of assets and liabilities and net operating
loss carryforwards and tax credits available for income tax purposes.
 
Income tax provision (benefit) for the 1995 period represents 38% of pretax
earnings as allocated by the parent. There are no significant differences
between the statutory and effective tax rates.
 
e. Revenue Recognition
 
Most of the Company's revenues have been generated under long-term coal sales
contracts with electric utilities or other coal-related organizations,
primarily in the eastern United States. Revenues are recognized on coal sales
in accordance with the sales agreement, which is usually when the coal is
shipped to the customer and title passes. The Company also rents equipment and
provides repair services and the revenue from such rental and service is
recognized when earned. Revenue from the construction of mining equipment is
recognized on a percentage of completion basis.
 
The Company grants credit to its customers based on their creditworthiness and
generally does not secure collateral for its receivables.
 
f. Parent Investment
 
Parent Investment is comprised of the relevant ARI (and affiliates) equity,
loan and trade account balances with the Company.
 
g. Statement of Cash Flows
 
For purposes of the statement of cash flows, the Company considers investments
having maturities of three months or less at the time of the purchase to be
cash equivalents.
 
 
                                      F-54

 
              ADDINGTON COAL OPERATIONS (THE PREDECESSOR BUSINESS)
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Supplemental disclosure:
 


                                                                      Ten Months
                                                                         1995
                                                                      ----------
                                                                   
      Cash paid for interest.........................................   $1,126
      Interest capitalized...........................................      142
      Non cash distribution of equipment to affiliates...............    1,218
      Non cash property additions....................................    4,671

 
Income taxes for the 1995 period were allocated by the parent and not
specifically paid by the Company. The above non-cash transactions have been
excluded from the accompanying 1995 Combined Statement of Cash Flows.
 
3. COMMITMENTS AND CONTINGENCIES
 
a. Coal Sales Contracts
 
As of November 1, 1995, the Company had commitments to deliver scheduled base
quantities of coal annually to four customers. The contracts expire in 1996,
1997, 2004 and 2005, with the Company contracted to supply a minimum of
approximately 28.7 million tons of coal over the remaining lives of the
contracts at prices which are at or above market. Certain of the contracts have
sales price adjustment provisions, subject to certain limitations and
adjustments, based on changes in specified production costs.
 
b. Leases
 
The Company has various operating and capital leases for mining, transportation
and other equipment. Lease expense for the ten-month period ended November 1,
1995 was approximately $5,692. Depreciation of assets under capital leases is
included in depreciation expense.
 
The Company also leases reserves under agreements that call for royalties to be
paid as the coal is mined. Total royalty expense for the ten months ended
November 1, 1995 was $7,607. Certain agreements require minimum annual
royalties to be paid regardless of the amount of coal mined during the year.
However, such agreements are generally cancelable at the Company's discretion.
 
Approximate future minimum operating lease and royalty payments are as follows:
 


                                                             Operating
                                                              Leases   Royalties
                                                             --------- ---------
                                                                 
      2 months ended December 31, 1995.....................   $  640    $1,395
      Year ended December 31, 1996.........................    3,489     2,542
      Year ended December 31, 1997.........................    2,235     1,862
      Year ended December 31, 1998.........................      606     1,296
      Year ended December 31, 1999.........................      158       798
      Year ended December 31, 2000.........................       27       500
      Thereafter...........................................        8       260
                                                              ------    ------
      Total minimum lease and royalty payments.............   $7,163    $8,653
                                                              ======    ======

 
                                      F-55

 
              ADDINGTON COAL OPERATIONS (THE PREDECESSOR BUSINESS)
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
c. Legal Matters
 
The Company is named as defendant in various actions in the ordinary course of
its business. These actions generally involve disputes related to contract
performance, property boundaries, mining rights, blasting damages, personal
injuries and royalty payments, as well as other civil actions that could result
in additional litigation or other adversary proceedings. Certain plaintiffs
seek amounts from the Company which are material to the financial statements.
 
While the final resolution of any matter may have an impact on the Company's
financial results for a particular reporting period, management believes that
the ultimate disposition of these matters will not have a materially adverse
effect upon the financial position of the Company.
 
4. MAJOR CUSTOMERS
 
The Company has sales to the following major customers that exceed 10% of
revenues. These revenues and each customer's relative percentage of total
receivables are summarized below:
 


                                                      Percentage of
                                       Percentage  of     Total
                              Revenues Total Revenues  Receivables
                              -------- -------------- -------------
                                             
     Ten Months Ending
      November 1, 1995:
      Customer A............. $25,968        32%            19%
      Customer B.............  16,169        20             16
      Customer C.............   9,857        12              6

 
5. RELATED PARTY TRANSACTIONS
 
The Company has dealt with certain companies or individuals which are related
parties either by having stockholders in common or because they are controlled
by stockholders/officers of the Company or by relatives of
stockholders/officers of the Company. The Company leases mining equipment from
affiliates and pays trucking, flight fees and building space rentals to related
parties. In addition to related party transactions and balances described
elsewhere, the following related party transactions are summarized and
approximated as follows:
 


                                                                      Ten Months
                                                                         1995
                                                                      ----------
                                                                   
      Revenues, costs and expenses:
       Equipment rental income......................................    $1,645
       Flight fee expense...........................................       315
       Building rental expense......................................        92
       Trucking expense.............................................     2,774
       Management fee...............................................        194

 
                                      F-56

 
                          INDEPENDENT AUDITORS' REPORT
 
To Zeigler Coal Holding Company:
 
We have audited the accompanying consolidated balance sheets of Zeigler Coal
Holding Company and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, cash flows and shareholders'
equity for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and its subsidiaries
at December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
 
Deloitte & Touche LLP
 
St. Louis, Missouri
February 5, 1998
 
 
                                      F-57

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                (Amounts in thousands, except per share amount)
 


                                                December 31,         June 30,
                                            ----------------------  -----------
                                               1996        1997        1998
                                            ----------  ----------  -----------
                                                                    (Unaudited)
                                                           
ASSETS
CURRENT ASSETS:
  Cash and equivalents..................... $  108,321  $  103,254   $  15,027
  Receivables:
    Trade accounts receivable (net of
     allowances of $2,840, $1,891 and
     $2,064)...............................     51,122      72,533      55,528
    Other receivables......................      3,974       3,677       3,589
                                            ----------  ----------   ---------
      Total receivables, net...............     55,096      76,210      59,117
                                            ----------  ----------   ---------
  Inventories:
    Coal finished goods....................     12,525       9,287       9,660
    Coal work in process...................      8,744      12,932      15,162
    Mine supplies..........................     20,093      18,937      18,145
                                            ----------  ----------   ---------
      Total inventories....................     41,362      41,156      42,967
  Deferred income taxes (Note 3)...........      9,747       9,583       9,513
  Other current assets.....................      3,426       3,541       5,333
                                            ----------  ----------   ---------
      Total current assets.................    217,952     233,744     131,957
                                            ----------  ----------   ---------
PROPERTY, PLANT AND EQUIPMENT:
  Land and mineral rights..................    674,583     679,995     676,036
  Prepaid royalties........................     21,705      20,173      20,267
  Plant and equipment......................    493,962     540,566     576,155
                                            ----------  ----------   ---------
      Total at cost........................  1,190,250   1,240,734   1,272,458
  Less--Accumulated depreciation, depletion
   and amortization........................   (371,380)   (412,528)   (433,783)
                                            ----------  ----------   ---------
      Property, plant and equipment, net...    818,870     828,206     838,675
                                            ----------  ----------   ---------
OTHER ASSETS:
  Prepaid pension expense (Note 6).........      7,056       4,836       3,857
  Deferred financing costs, net............      1,835       2,329       1,194
  Other long-term assets...................      4,912       8,289       9,217
                                            ----------  ----------   ---------
      Total other assets...................     13,803      15,454      14,268
                                            ----------  ----------   ---------
TOTAL ASSETS............................... $1,050,625  $1,077,404   $ 984,900
                                            ==========  ==========   =========

 
                See notes to consolidated financial statements.
 
                                      F-58

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
                    CONSOLIDATED BALANCE SHEETS--(Continued)
                (Amounts in thousands, except per share amount)
 


                                                  December 31,
                                              ---------------------   June 30,
                                                 1996       1997        1998
                                              ---------- ----------  -----------
                                                                     (Unaudited)
                                                            
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
 Current maturities of long-term debt (Note
  4)........................................  $      --  $   68,342   $    --
 Accounts payable--trade....................      38,895     64,970     48,366
 Other taxes payable........................      22,057     22,527     20,249
 Accrued payroll and related benefits.......      23,807     20,103     18,488
 Other accrued expenses (Note 6)............      48,263     35,598     32,714
                                              ---------- ----------   --------
    Total current liabilities...............     133,022    211,540    119,817
LONG-TERM DEBT (Notes 4 and 5)..............     344,770    275,800    255,800
ACCRUED POSTRETIREMENT BENEFIT
 OBLIGATIONS (Note 7).......................     245,385    253,700    257,893
ACCRUED PNEUMOCONIOSIS BENEFITS (Note 8)....      46,256     36,156     35,294
ACCRUED MINE CLOSING COSTS (Note 10)........      75,663     55,957     54,978
DEFERRED INCOME TAXES (Note 3)..............      13,033     20,527     21,629
OTHER LONG-TERM LIABILITIES:
 Accrued workers' compensation..............      36,617     29,459     27,766
 Accrued postemployment benefits............      18,095     14,619     14,408
 Other......................................       5,178      1,906      2,637
                                              ---------- ----------   --------
    Total other long-term liabilities.......      59,890     45,984     44,811
                                              ---------- ----------   --------
COMMITMENTS AND CONTINGENCIES (Notes 15 and
 16)
    Total liabilities.......................     918,019    899,664    790,222
                                              ---------- ----------   --------
SHAREHOLDERS' EQUITY:
 Preferred stock (Note 12)..................         --         --         --
 Common stock--$0.01 par value per share--
  50,000 shares authorized; 28,377 issued
  and outstanding as of December 31, 1996,
  28,441 shares issued and 28,197 shares
  outstanding as of December 31, 1997, and
  28,467 shares issued and 28,223 shares
  outstanding as of June 30, 1998...........         284        284        285
 Capital in excess of par value.............      72,191     73,120     73,458
 Retained earnings (Note 4).................      60,131    110,284    126,883
                                              ---------- ----------   --------
                                                 132,606    183,688    200,626
 Less cost of common stock in treasury--no
  shares at December 31, 1996, 244 shares at
  December 31, 1997 and June 30, 1998.......         --      (5,948)    (5,948)
                                              ---------- ----------   --------
    Total shareholders' equity..............     132,606    177,740    194,678
                                              ---------- ----------   --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..  $1,050,625 $1,077,404   $984,900
                                              ========== ==========   ========

 
                See notes to consolidated financial statements.
 
                                      F-59

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                (Amounts in thousands, except per share amounts)
 


                           Year Ended December 31,      Six Months Ended June 30,
                         -----------------------------  --------------------------
                           1995       1996      1997        1997          1998
                         ---------  --------  --------  ------------  ------------
                                                               (Unaudited)
                                                       
REVENUES:
  Coal sales (Notes 13
   and 16).............. $ 754,975  $698,523  $603,553  $    293,843  $    298,590
  Energy trading
   revenues.............       --        --    166,474        37,878        74,709
  Other revenues........    28,128    33,101    30,729        16,334        15,299
                         ---------  --------  --------  ------------  ------------
    Total revenues......   783,103   731,624   800,756       348,055       388,598
                         ---------  --------  --------  ------------  ------------
COSTS AND EXPENSES:
  Cost of coal sales....   686,232   613,166   503,946       246,258       259,991
  Energy trading costs..       --        --    173,230        39,558        76,851
  Selling, general and
   administrative
   expenses.............    20,740    21,271    16,017        10,159         6,057
  Other costs and
   expenses.............    18,487    22,514    29,823        15,321        11,387
  Gain on curtailment of
   postretirement
   benefits (Note 7)....       --    (16,295)      --            --            --
  Reduction in accrued
   pneumoconiosis
   benefits (Note 8)....   (23,299)      --     (8,244)       (5,725)          --
  Provision for asset
   impairments and
   accelerated mine
   closings (Note 10)...   114,662       --        --            --            --
                         ---------  --------  --------  ------------  ------------
    Total costs and
     expenses...........   816,822   640,656   714,772       305,571       354,286
                         ---------  --------  --------  ------------  ------------
OTHER INCOME:
  Proceeds from contract
   settlement...........    45,500       --        --            --            --
  Distribution of funds
   in reciprocal
   insurance
   association..........       --        --        --            --          3,766
                         ---------  --------  --------  ------------  ------------
OPERATING EARNINGS......    11,781    90,968    85,984        42,484        38,078
NET INTEREST EXPENSE....    27,478    21,704    16,997         8,637         5,763
                         ---------  --------  --------  ------------  ------------
EARNINGS (LOSS) BEFORE
 INCOME TAXES AND
 EXTRAORDINARY ITEM.....   (15,697)   69,264    68,987        33,847        32,315
INCOME TAXES (BENEFIT)
 (Note 3)...............    (4,484)   11,300    10,348         6,090         4,847
                         ---------  --------  --------  ------------  ------------
EARNINGS (LOSS) BEFORE
 EXTRAORDINARY ITEM.....   (11,213)   57,964    58,639        27,757        27,468
EXTRAORDINARY ITEM......       --        --        --            --         (6,637)
                         ---------  --------  --------  ------------  ------------
NET EARNINGS (LOSS)..... $ (11,213) $ 57,964  $ 58,639  $     27,757  $     20,831
                         =========  ========  ========  ============  ============
WEIGHTED AVERAGE SHARES
 OUTSTANDING:
  Basic.................    28,356    28,362    28,261        28,342        28,207
  Diluted...............    28,356    28,483    28,646        28,795        28,365

 
                See notes to consolidated financial statements.
 
                                      F-60

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)
 


                            Year Ended December 31,       Six Months Ended June 30,
                          ------------------------------  ---------------------------
                            1995       1996      1997         1997          1998
                          ---------  --------  ---------  ------------  -------------
                                                         
OPERATING ACTIVITIES:                                            (Unaudited)
 Net earnings (loss)....  $ (11,213) $ 57,964  $  58,639  $     27,757  $      20,831
                          ---------  --------  ---------  ------------  -------------
 Adjustments for
  differences between
  net earnings (loss)
  and cash flows from
  operating activities:
 Extraordinary item.....        --        --         --            --           1,045
 Depreciation, depletion
  and other
  amortization..........     68,576    60,134     57,912        28,764         32,384
 Amortization of
  deferred financing
  costs.................        838       838        790           420            100
 Postretirement
  benefits..............      3,318   (10,454)     8,315         3,110          4,193
 Gain on sales of
  property, plant and
  equipment.............     (1,462)   (5,062)    (5,066)       (2,760)        (1,575)
 Prepaid pension costs..      2,943     2,499      2,220         1,784            979
 Pneumoconiosis
  benefits..............    (23,754)   (3,168)   (10,100)       (7,106)          (862)
 Postemployment
  benefits..............      3,485       811     (3,476)           (4)          (211)
 Workers' compensation..      8,905     5,851     (7,158)       (2,510)        (1,693)
 Mine closing costs.....     (9,654)   (6,539)   (17,810)      (10,154)          (979)
 Provision for asset
  impairments and
  accelerated mine
  closings..............    114,662       --         --            --             --
 Stock appreciation
  units.................      2,492   (10,172)    (4,195)       (3,494)          (142)
 Deferred income taxes..    (16,984)   13,885      7,658         4,006          1,172
 Other noncash items....     (1,489)   (4,892)    (5,143)       (3,783)        (1,403)
 Changes in working
  capital components:
  (Increase) decrease in
   receivables..........     15,502    16,660    (21,164)      (16,539)        17,093
  (Increase) decrease in
   inventories..........      7,809     8,584         71        (4,872)        (1,811)
  (Increase) decrease in
   other current
   assets...............      2,353      (441)      (117)       (2,754)        (1,792)
  Increase (decrease) in
   accounts payable--
   trade................     (7,365)   (7,292)    26,075        11,092        (16,604)
  Increase (decrease) in
   deferred revenue.....        --      3,746      7,455        (2,481)        (5,047)
  Increase (decrease) in
   accrued expenses and
   other current
   liabilities..........      1,323     8,922    (15,145)       (2,400)        (1,591)
                          ---------  --------  ---------  ------------  -------------
  (Increase) decrease in
   working capital......     19,622    30,179     (2,825)      (17,954)        (9,752)
                          ---------  --------  ---------  ------------  -------------
  Total adjustments to
   net earnings (loss)..    171,498    73,910     21,122        (9,681)        23,256
                          ---------  --------  ---------  ------------  -------------
  Net cash provided by
   operating
   activities...........    160,285   131,874     79,761        18,076         44,087
                          ---------  --------  ---------  ------------  -------------
INVESTING ACTIVITIES:
 Additions to property,
  plant and equipment...    (56,334)  (31,427)   (74,426)      (20,606)       (45,630)
 Cash paid for sale of
  Indiana assets........        --     (7,000)    (4,000)       (4,000)           --
 Proceeds from sales of
  property, plant and
  equipment.............      4,545     7,890      7,745         5,327          5,548
                          ---------  --------  ---------  ------------  -------------
 Net cash used in
  investing activities..    (51,789)  (30,537)   (70,681)      (19,279)       (40,082)
                          ---------  --------  ---------  ------------  -------------
FINANCING ACTIVITIES:
 Proceeds from debt
  refinancing...........        --        --     145,800           --             --
 Net repayments of long-
  term debt.............   (105,288)      --    (146,428)         (628)      (198,342)
 Net borrowings under
  credit agreement......        --        --         --            --         110,000
 Proceeds from common
  stock issued under
  stock option plan.....        --        247        929           482            339
 Payment of dividends...     (5,672)   (6,382)    (8,484)       (4,258)        (4,229)
 Purchase of treasury
  stock.................        --        --      (5,998)       (5,998)           --
 Sale of treasury
  stock.................        --        --          34            34            --
                          ---------  --------  ---------  ------------  -------------
  Net cash used in
   financing
   activities...........   (110,960)   (6,135)   (14,147)      (10,368)       (92,232)
                          ---------  --------  ---------  ------------  -------------
NET INCREASE (DECREASE)
 IN CASH AND
 EQUIVALENTS............     (2,464)   95,202     (5,067)      (11,571)       (88,227)
 CASH AND EQUIVALENTS,
  BEGINNING.............     15,583    13,119    108,321       108,321        103,254
                          ---------  --------  ---------  ------------  -------------
 CASH AND EQUIVALENTS,
  ENDING................  $  13,119  $108,321  $ 103,254  $     96,750  $      15,027
                          =========  ========  =========  ============  =============
SUPPLEMENTAL DISCLOSURES
 OF CASH FLOW
 INFORMATION:
 Cash paid (received)
  during period for:
 Interest, net of amount
  capitalized...........  $  27,372  $ 22,804  $  16,085  $      8,142  $       6,670
 Income taxes, net of
  refunds...............     10,549    (2,997)     5,231         4,900            208

 
                See notes to consolidated financial statements.
 
                                      F-61

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                (Amounts in thousands, except per share amounts)
 


                                                                        Total
                                        Capital in                      Share-
                                 Common Excess of  Retained  Treasury  holders'
                                 Stock  Par Value  Earnings   Stock     Equity
                                 ------ ---------- --------  --------  --------
                                                        
BALANCE, JANUARY 1, 1995........  $283   $71,945   $ 26,143  $   --    $ 98,371
  Net loss......................   --        --     (11,213)     --     (11,213)
  Cash dividends declared ($.20
   per share)...................   --        --      (5,672)     --      (5,672)
                                  ----   -------   --------  -------   --------
BALANCE, DECEMBER 31, 1995......   283    71,945      9,258      --      81,486
  Issuance of 22 shares of
   common stock under stock
   option plan (Note 9).........     1       246        --       --         247
  Net income....................   --        --      57,964      --      57,964
  Cash dividends declared ($.25
   per share)...................   --        --      (7,091)     --      (7,091)
                                  ----   -------   --------  -------   --------
BALANCE, DECEMBER 31, 1996......   284    72,191     60,131      --     132,606
  Issuance of 66 shares of
   common stock under stock
   option plan (Note 9).........   --        929        --       --         929
  Purchase of 246 shares of
   common stock.................   --        --         --    (5,998)    (5,998)
  Issuance of 2 shares of
   treasury stock at less than
   cost.........................   --        --         (16)      50         34
  Net income....................   --        --      58,639      --      58,639
  Cash dividends declared ($.30
   per share)...................   --        --      (8,470)     --      (8,470)
                                  ----   -------   --------  -------   --------
BALANCE, DECEMBER 31, 1997......   284    73,120    110,284   (5,948)   177,740
                                  ----   -------   --------  -------   --------
  Issuance of 26 shares of com-
   mon stock under stock option
   plan (unaudited).............     1       338        --       --         339
  Net income (unaudited)........   --        --      20,831      --      20,831
  Cash dividends declared ($.15
   per share)
   (unaudited) .................   --        --      (4,232)     --      (4,232)
                                  ----   -------   --------  -------   --------
BALANCE, JUNE 30, 1998 (unau-
 dited).........................  $285   $73,458   $126,883  $(5,948)  $194,678
                                  ====   =======   ========  =======   ========

 
 
                See notes to consolidated financial statements.
 
                                      F-62

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                 YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
           (Amounts in thousands, except share and per share amounts)
 
1. Summary of Significant Accounting Policies
 
Principles of Consolidation--The consolidated financial statements include the
accounts of Zeigler Coal Holding Company and Subsidiaries (Zeigler or the
"Company"), all of which are wholly-owned. All material intercompany
transactions and accounts have been eliminated in consolidation.
 
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the balance sheet date,
and the reported amounts of revenues and expenses during the year. Actual
results could differ from those estimates.
 
Interim Financial Information--The interim financial statements as of June 30,
1998 and for the six months ended June 30, 1997 and 1998 are unaudited and have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, the unaudited
interim financial statements contain all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation. The
results of operations for the interim periods are not necessarily indicative of
the results for the entire fiscal year.
 
Cash and Equivalents--Cash and equivalents include cash on deposit and highly
liquid investments with a maturity of three months or less.
 
Inventories--Coal inventory is valued using the average cost method and is
stated at the lower of cost or market. Coal inventory costs include labor,
equipment costs and operating overhead. Coal work in process includes partially
uncovered coal and unprocessed coal. Mine supply inventory is valued using the
average cost method and is stated at the lower of cost or market.
 
Property, Plant and Equipment--Additions and betterments are capitalized at
cost. Maintenance and repair costs are expensed as incurred. Depreciation of
plant and equipment is computed principally by the straight-line method over
the expected useful lives of the assets.
 
Mine development costs and the net amount of associated interest cost are
capitalized. Exploration costs are expensed as incurred. Depletion of mineral
rights and capitalized mine development costs is provided on the basis of
tonnage mined in relation to total estimated recoverable tonnage.
 
Zeigler pays royalties to certain landowners and holders of mineral interests
for the rights to perform certain mining activities. Amounts advanced to
landowners, which are recoupable against future production, are capitalized; as
the coal is mined, these prepayments are offset against earned royalties and
included in the cost of coal sales.
 
Deferred Financing Costs--The costs of issuing and restructuring long-term debt
are capitalized and amortized using the effective interest method over the term
of the related debt.
 
Income Taxes--Zeigler accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Under SFAS No. 109, deferred taxes are established for the temporary
differences between the financial reporting basis and the tax basis of
Zeigler's assets and liabilities at enacted tax rates expected to be in effect
when such amounts are realized or settled.
 
 
                                      F-63

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
Postretirement Benefits Other Than Pensions---As prescribed by SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions, Zeigler
accrues, based on annual independent actuarial valuations, for the expected
costs of providing postretirement benefits other than pensions, primarily
medical benefits, during an employee's actual working career until vested.
 
Pneumoconiosis Benefits--Certain Zeigler subsidiaries are liable under the
Federal Black Lung Benefits Act of 1972, as amended, to pay pneumoconiosis
(black lung) benefits to eligible employees, former employees and their
dependents for claims filed after June 30, 1973. These subsidiaries are also
liable under certain state statutes for black lung claims. Zeigler acts as
self-insurer for most federal and state black lung benefits. The remaining
portion of black lung claims are covered by state insurance funds into which
Zeigler pays premiums.
 
The accrual for self-insured pneumoconiosis benefits is adjusted to equal the
present value of future claim payments, determined as of the beginning of the
year, based on outside actuarial valuations performed annually.
 
Postemployment Benefits--Zeigler provides certain postemployment benefits,
primarily long-term disability and medical benefits, to former and inactive
employees and their dependents during the time period following employment but
before retirement. The Company accrues the discounted present value of expected
future benefits, determined as of the beginning of the year, based on annual
outside actuarial valuations.
 
Reclamation and Mine Closing Costs--Zeigler provides for the estimated costs of
future mine closings over the expected lives of active mines. Those costs
relate to sealing portals at deep mines and to reclaiming the final pit and
support acreage at surface mines. Other costs common to both types of mining
are related to removing or covering refuse piles and slurry (or settling) ponds
and dismantling preparation plants and other facilities. The regular provision
for future mine closing costs is calculated under the units-of-production
method based on a per ton charge determined by dividing estimated unrecorded
closing costs by estimated remaining recoverable tons. These estimates are
updated annually and the accrual rate is adjusted on a prospective basis
accordingly. The cost of restoring land and water resources affected by normal
ongoing surface mining operations is expensed as incurred.
 
Asset Impairments and Accelerated Mine Closing Accruals--In certain situations,
expected mine lives are shortened because of changes to planned operations.
When that occurs, and it is determined that the mine's underlying costs are not
recoverable in the future, reclamation and mine closing obligations are
accelerated and the mine closing accrual is increased accordingly. Also, to the
extent that it is determined that asset carrying values will not be recoverable
during a shorter mine life, a provision for such impairment is recognized. The
Company adopted SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, in 1995. SFAS No. 121
expanded the Company's criteria for loss recognition, and provides methods for
both determining when an impairment has occurred and for measuring the amount
of the impairment. SFAS No. 121 requires that projected future cash flows from
use and disposition of all the Company's assets be compared with the carrying
amounts of those assets. When the sum of projected cash flows is less than the
carrying amount, impairment losses are recognized.
 
Revenue Recognition--Coal sales are recognized at contract prices at the time
title transfers to the customer. Coal sales are reduced and an allowance is
established for pricing disputes. Revenue at the import/export terminals is
recognized at the time of throughput.
 
Energy Trading Revenues and Costs--Energy trading revenues and costs represent
revenues and costs derived from the trading of power and gas forward and future
contracts and options. These forward and future contracts and options are
marked-to-market with gains and losses recognized currently. Revenue and cost
on forward and future contracts is recognized on settlement date.
 
                                      F-64

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
Other Revenues, Costs and Expenses--Other revenues represent amounts primarily
related to the terminals, coal leases to third parties, farming, timber, gains
on sales of surplus assets, and oil and gas royalties. Costs and expenses
related to other revenues and those related to Zeigler's clean coal plant are
included in other costs and expenses.
 
Stock-Based Compensation--In October 1995, the Financial Accounting Standards
Board issued SFAS No. 123, Accounting for Stock-Based Compensation, which
required adoption in 1996. The new standard defines a fair value method of
accounting for stock options and similar equity instruments. Pursuant to the
new standard, companies are encouraged, but not required, to adopt the fair
value method of accounting for employee stock-based transactions. Companies are
also permitted to continue to account for such transactions under Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees, but are required to disclose in a note to the financial statements
pro forma net income and earnings per share as if the Company had applied the
new method of accounting. The accounting requirements of the new method are
effective for all employee awards granted after the beginning of the fiscal
year of adoption. The Company has elected to continue to account for such
transactions under APB No. 25.
 
Reclassifications--Certain amounts in the 1995, 1996, and 1997 financial
statements and notes have been reclassified to conform with the 1998
presentation.
 
2. Description of Business
 
Zeigler is engaged principally in the mining of coal for sale primarily to
electric utilities in the United States. In addition, during 1997, the Company
began power and gas trading through its new energy trading and marketing
subsidiary, EnerZ Corporation.
 
3. Income Taxes
 
Income tax expense (benefit) is comprised of the following:
 


                                                      Year Ended December 31,
                                                      --------------------------
                                                        1995     1996     1997
                                                      --------  -------  -------
                                                                
   Current:
     Federal......................................... $ 10,521  $(2,179) $ 2,228
     State...........................................    1,979     (408)     462
   Deferred:
     Federal.........................................  (14,862)  12,151    6,701
     State...........................................   (2,122)   1,736      957
                                                      --------  -------  -------
       Total......................................... $ (4,484) $11,300  $10,348
                                                      ========  =======  =======

 
 
                                      F-65

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate of 35% to earnings before income taxes due to
the following:
 


                                                     Year Ended December 31,
                                                    ---------------------------
                                                      1995     1996      1997
                                                    --------  -------  --------
                                                              
   Computed tax at federal statutory rate.......... $ (5,494) $24,246  $ 24,145
   State tax--net of federal benefits..............   (4,758)   2,162     2,242
   Percentage depletion............................  (10,469)  (8,164)   (8,893)
   Change in valuation allowance...................   14,113   (8,889)  (10,542)
   Other--net......................................    2,124    1,945     3,396
                                                    --------  -------  --------
   Income tax expense (benefit) provided........... $ (4,484) $11,300  $ 10,348
                                                    ========  =======  ========

 
The components of the net deferred tax liability are as follows:
 


                                                             December 31,
                                                           ------------------
                                                             1996      1997
                                                           --------  --------
                                                               
   Deferred tax liabilities related to:
     Property and equipment............................... $127,798  $143,366
     Land and mineral rights..............................   31,666    32,659
     Other................................................   11,592     8,772
                                                           --------  --------
       Total deferred tax liability.......................  171,056   184,797
                                                           --------  --------
   Deferred tax assets related to:
     Accrued mine closing costs...........................   23,730    22,383
     Accrued pneumoconiosis benefits......................   18,344    14,462
     Accrued workers' compensation costs..................   14,647    11,784
     Accrued postretirement benefits......................   98,154   101,480
     Other................................................   21,812    20,727
     Alternative minimum tax credit carryforwards.........   32,419    33,811
                                                           --------  --------
       Total deferred tax asset before valuation
        allowance.........................................  209,106   204,647
       Less--Valuation allowance..........................  (41,336)  (30,794)
                                                           --------  --------
       Total deferred tax asset...........................  167,770   173,853
                                                           --------  --------
   Net deferred tax liability............................. $ (3,286) $(10,944)
                                                           ========  ========
   Shown as:
     Current deferred tax asset........................... $  9,747  $  9,583
     Noncurrent deferred tax liability....................  (13,033)  (20,527)

 
Zeigler also has an AMT credit carryforward of $32,419 and $33,811 at December
31, 1996 and 1997, respectively, available to be used in future periods.
Although management believes that it is unlikely to realize all of its AMT
credit carryforward under existing law and company structure, AMT credit
carryforward is recognized to reduce the deferred tax liability from the amount
of regular tax on temporary differences to the amount of tentative minimum tax
on AMT temporary differences.
 
                                      F-66

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
4. Long-Term Debt
 
Long-term debt consists of the following:
 


                                                               December 31,
                                                            -------------------
                                                              1996      1997
                                                            --------- ---------
                                                                
8.61% senior secured notes................................. $ 198,970 $ 198,342
Industrial revenue bonds...................................   145,800   145,800
                                                            --------- ---------
    Total..................................................   344,770   344,142
Less current maturities....................................       --     68,342
                                                            --------- ---------
    Long-term debt......................................... $ 344,770 $ 275,800
                                                            ========= =========

 
8.61% Senior Secured Notes--The 8.61% Senior Secured Notes are payable to a
group of insurance companies and other financial institutions under Note
Purchase Agreements dated as of November 16, 1992. Interest on the notes is
payable semiannually. Annual principal payments begin on November 15, 1998 at
the rate of 20% of the original outstanding amount of $400,000. The notes
require Zeigler to offer to make mandatory prepayments in the event Zeigler
generates excess cash flow, as defined in the Note Purchase Agreements, or
makes asset sales above specified levels. The amount of excess cash flow that
must be offered as a prepayment to the Noteholders is based upon the percentage
of debt due to the Noteholders divided by the total indebtedness to both the
Noteholders and the lenders under the Credit Agreement described in the fourth
following paragraph. The Noteholders were offered a prepayment of $25,050 in
1997 based on free cash flow, as defined, for 1996, of which $628 of the
prepayments were accepted by the Noteholders.
 
The notes are collateralized by a first mortgage on substantially all of
Zeigler's assets. The collateral is shared pari passu with the lenders involved
with the Credit Agreement. The notes may be prepaid at Zeigler's discretion;
however, the Noteholders are entitled to receive a prepayment premium that
protects the yield to the Noteholders over the remainder of the term of notes.
In effect, this yield maintenance premium is the net present value of the
reduced yield to the Noteholders over the remaining scheduled term of the Notes
based upon an assumed reinvestment rate of 50 basis points (0.5%) over the then
available yield for U.S. Treasury securities with a maturity equal to that of
the Senior Secured Notes. No yield maintenance premium is payable on mandatory
prepayments out of excess cash flow.
 
On January 5, 1998, Zeigler prepaid $198,342 to the Noteholders, using $68,342
of cash and borrowing $130,000 under a new Credit Agreement's revolving credit
facility (see below). A related yield maintenance premium of $7,604 was also
paid to the Noteholders as required by the Note Purchase Agreement.
Accordingly, Zeigler will recognize an extraordinary loss of $8,849 ($6,637 net
of taxes) in the first quarter of 1998, consisting of the yield maintenance
premium and the write-off of deferred financing costs related to the early
extinguishment of debt.
 
Industrial Revenue Bonds--In August 1997, the Company completed the refunding
of its industrial revenue bonds. The industrial revenue bonds are floating rate
obligations issued by the Peninsula Ports Authority of Virginia ($115,000) and
Charleston County, South Carolina ($30,800). Both obligations are backed by
letters of credit issued under the Company's revolving credit facility. These
refundings served to extend the maturities of the industrial revenue bonds and
to release Shell Oil Company from its guarantees of the underlying obligations.
The principal of the obligation by the Peninsula Ports Authority of Virginia is
due in one lump-sum payment on May 1, 2022, and the principal of the obligation
by Charleston County, South Carolina is due in one lump-sum payment on August
1, 2028. Interest on these obligations is payable monthly. The weighted average
interest rate for these borrowings was 3.38% and 3.66% as of December 31, 1996
and 1997, respectively.
 
 
                                      F-67

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
Credit Agreement--On October 19, 1994, Zeigler amended and restated its Credit
Agreement dated November 16, 1992, as previously amended and restated on March
15, 1994. The Credit Agreement provides for a $200,000 revolving credit
facility, with a three year term, and can be used for both loans and letters of
credit. As of December 31, 1997, Zeigler had used $186,107 out of the total
$200,000 revolving credit facility for outstanding letters of credit. The
provisions of the Credit Agreement require a commitment fee to be paid on the
unused portion of the revolving credit facility. Interest is paid based on
floating rates which fluctuate based on the prime rate, or the London Interbank
Offer Rate (LIBOR) plus various increments. The interest rate was 6.42% at
December 31, 1997. The Credit Agreement is collateralized by a first mortgage
on substantially all of Zeigler's assets. The collateral is shared pari passu
with the holders of the Senior Secured Notes.
 
In April 1997, the Company executed a new Credit Agreement (the "New Credit
Agreement") with certain financial institutions, which provides for senior
unsecured revolving credit and letter of credit facilities aggregating
$700,000. Interest on the revolving credit facility is paid in arrears based on
rates which fluctuate based on the prime rate or a certain Interbank Offer
Rate, as the Company may elect. Amounts outstanding under the New Credit
Agreement are not secured. The New Credit Agreement and the facilities
thereunder terminate five years from the initial advance. The New Credit
Agreement requires the Company to maintain a minimum net worth and maximum
long-term debt to EBITDA ratio, and contains other customary covenants and
events of default. The New Credit Agreement, which replaces the Amended and
Restated Credit Agreement dated October 19, 1994, became effective on January
5, 1998, in conjunction with the payment of the Company's outstanding Senior
Secured Notes.
 
Maturities--At December 31, 1997, aggregate scheduled maturities of all long-
term debt for each year through 2002 are as follows:
 
                                                              
      1998............................................................ $  68,342
      1999............................................................       --
      2000............................................................       --
      2001............................................................       --
      2002............................................................       --
      Thereafter......................................................   275,800
                                                                       ---------
      Total........................................................... $ 344,142
                                                                       =========

      
 
5. Financial Instruments
 
The fair value of Zeigler's long-term debt has been calculated based on quoted
market prices for similar issues or current rates offered to Zeigler for debt
of the remaining maturities. Long-term debt has an estimated fair value of
$349,451 and $351,746 compared to the carrying amount of $344,770 and $344,142
at December 31, 1996 and 1997, respectively. The carrying amount of all other
financial instruments, including cash and equivalents, accounts receivable and
accounts payable approximates fair value due to the short-term nature of these
instruments.
 
Through its energy trading subsidiary, the Company began entering into power
and gas forward contracts and options for trading purposes in 1997. These
forward contracts and options were marked-to-market with any gains and losses
recognized currently. At December 31, 1997, open net contract and option
positions were not material and did not represent significant credit related
exposure.
 
 
                                      F-68

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
6. Pension and Savings Plans
 
Salaried Pension Plan--Zeigler has a non-contributory pension plan covering
substantially all employees other than those who are members of the United Mine
Workers of America ("UMWA"). The plan is a cash balance retirement plan which
provides benefits based upon the employee's length of credited service and
compensation during each year of employment. Zeigler's funding policy is to
make, as a minimum contribution, the equivalent of the minimum payment required
by the Employee Retirement Income Security Act of 1974. The Company contributed
$123 in 1997 to the pension plan. There were no minimum contributions required
in 1995 and 1996.
 
The pension cost components for the year ended December 31, are as follows:
 


                                                   1995      1996      1997
                                                 --------  --------  --------
                                                            
   Service cost (for benefits earned during the
    year)......................................  $  3,566  $  3,543  $  3,186
   Interest cost on projected benefit
    obligations................................     7,636     7,321     7,285
   Actual return on plan assets................   (20,889)  (14,043)  (11,709)
   Net amortization and deferral...............    12,630     5,678     3,581
                                                 --------  --------  --------
     Total.....................................  $  2,943  $  2,499  $  2,343
                                                 ========  ========  ========

 
A reconciliation of the plan's status to amounts recognized in Zeigler's
balance sheets as of December 31, are as follows:
 


                                                             1996      1997
                                                           --------  --------
                                                               
   Plan assets at fair value.............................. $105,897  $108,081
                                                           --------  --------
   Actuarial present value of plan benefits:
     Vested...............................................   84,305    89,679
     Nonvested............................................    3,390     3,932
                                                           --------  --------
     Accumulated benefit obligation.......................   87,695    93,611
     Additional obligation for future salary increases....    7,190     6,497
                                                           --------  --------
       Projected benefit obligation.......................   94,885   100,108
                                                           --------  --------
   Excess of plan assets over projected benefit
    obligation............................................   11,012     7,973
   Unrecognized net transition asset......................     (548)     (480)
   Unrecognized prior service cost........................      264       242
   Unrecognized net gain..................................   (3,672)   (2,899)
                                                           --------  --------
   Prepaid pension expense................................ $  7,056  $  4,836
                                                           ========  ========

 
The unrecognized net transition asset, representing the excess of the fair
value of plan assets over the projected benefit obligation at the date of
adoption, is being amortized over the average expected future service periods
of employees.
 
Assumptions used in developing the projected benefit obligation as of December
31, are as follows:
 


                                                                     1996  1997
                                                                     ----- -----
                                                                     
   Discount rate.................................................... 7.75% 7.25%
   Rate of compensation increase.................................... 4.00% 4.00%
   Rate of return on plan assets.................................... 9.50% 9.50%

 
Plan assets consist principally of common stocks and U.S. government and
corporate obligations.
 
                                      F-69

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
UMWA Pension Plan--Old Ben Coal Company ("Old Ben"), a wholly-owned subsidiary,
and Marrowbone Development Company, a division of Mountaineer Coal Development
Company, an indirect subsidiary, are required under their respective contracts
with the UMWA to pay amounts based on hours worked to the UMWA Pension Plan and
Trust, a multi-employer pension plan covering all employees who are members of
the UMWA. The accompanying consolidated statements of operations include
$2,778, $2,102, and $1,578, of expense in 1995, 1996 and 1997, respectively,
applicable to the plan. The National Bituminous Coal Wage Agreement of 1998
("NBCWA") authorizes the Bituminous Coal Operators Association to increase the
rate of contributions from employers to assure payment of benefits. The union
contract requires all currently participating employers to guarantee benefits
jointly, but not severally, with all other currently participating employers.
It is not practical to determine each subsidiaries' allocable share of the
plan's net assets and accumulated benefits.
 
401(k) Plans--Zeigler and certain subsidiaries sponsor savings and long-term
investment plans for substantially all employees other than employees covered
by the contract with the UMWA. One of the plans will match 50% of the voluntary
contributions up to a maximum contribution of 3% of a participant's salary with
an additional matching contribution subject to certain performance criteria.
The expense under these plans was $1,036, $1,391, and $1,276, in 1995, 1996 and
1997, respectively.
 
Stock Appreciation Units--Zeigler has a long-term incentive plan which entitles
certain officers and key employees to receive a cash award for an amount equal
to the excess of the fair market value of Zeigler's common stock on the date
the unit matures over the base price at the date of grant of the award. The
plan permits an aggregate of 1,635,200 such stock appreciation units of which
284,320 and 73,600 were outstanding at December 31, 1996 and 1997,
respectively. The vesting period ranges from three to five years. During 1997,
210,080 stock appreciation units matured. Costs and expenses include
approximately $3,178, $2,917, and $141, of charges in connection with this plan
for 1995, 1996 and 1997, respectively. Outstanding stock appreciation units
with maturities less than one year are included as a component of other accrued
expenses.
 
7. Postretirement Benefits Other Than Pensions
 
UMWA Combined Benefit Fund--Zeigler provides healthcare benefits to eligible
retirees and their dependents. Retirees who were members of the UMWA and who
retired on or before December 31, 1975 received these benefits from multi-
employer benefit plans. Old Ben contributed to these funds based on the number
of its retirees in one of the funds and based on hours worked by current UMWA
members for the other fund. Current and projected operating deficits of these
trusts led to the passage of the Coal Industry Retiree Health Benefit Act of
1992 (the "Act"). The Act established a new multi-employer benefit trust that
will provide healthcare and life insurance benefits to all beneficiaries of the
earlier trusts who were receiving benefits as of July 20, 1992. The Act
provides for the assignment of beneficiaries to their former employers and any
unassigned beneficiaries to employers based on a formula. The expense under
these plans, which is recognized as contributions are made, amounted to $3,527,
$2,968, and $3,431, in 1995, 1996 and 1997, respectively. Based upon an
independent actuarial valuation, Zeigler estimates the amount of its obligation
under the new plan to be approximately $21,637 as of December 31, 1997.
 
 
                                      F-70

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
Zeigler Benefit Plans--Net postretirement healthcare cost for the year ended
December 31, includes the following:
 


                                                        1995     1996     1997
                                                       -------  -------  -------
                                                                
   Service cost....................................... $ 5,027  $ 4,562  $ 4,270
   Interest cost......................................  17,842   17,123   18,436
   Amortization of prior service cost.................  (9,208)  (4,608)  (1,176)
   Amortization of unrecognized gain..................    (327)    (573)    (126)
                                                       -------  -------  -------
     Net periodic postretirement benefit cost......... $13,334  $16,504  $21,404
                                                       =======  =======  =======

 
A reconciliation of the plan's status to amounts recognized in Zeigler's
balance sheets as of December 31, follows:
 


                                                               1996      1997
                                                             --------  --------
                                                                 
   Accumulated postretirement benefit obligation:
     Retirees............................................... $135,044  $146,388
     Fully eligible active employees........................   53,477    61,974
     Other active employees.................................   52,760    61,899
                                                             --------  --------
       Total................................................  241,281   270,261
   Unrecognized net (loss) gain.............................    4,909   (17,379)
   Unrecognized prior service cost (benefit)................     (805)      818
                                                             --------  --------
   Accumulated postretirement benefit obligation............ $245,385  $253,700
                                                             ========  ========

 
In 1996, as a result of the re-employment or termination prior to vesting of
certain Midwestern employees, the Company recorded a $16,295 gain related to
the curtailment of its postretirement benefit plan.
 
The discount rate used to determine the accumulated postretirement benefit
obligation was 7.5% and 7.25% at January 1, 1997 and December 31, 1997,
respectively. The assumed healthcare cost trend rates used in determining the
net expense for 1997 are shown in the following table. Healthcare cost trends
were assumed to decline from 1997 levels to an ultimate ongoing level over five
years as follows:
 


                                                                   1997  Ultimate
                                                                   Rate    Rate
                                                                   ----  --------
                                                                   
       Pre-65..................................................... 8.0%    5.0%
       Post-65.................................................... 6.5%    5.0%
       Medicare offset............................................ 6.0%    5.0%

 
The expense and liability estimates can fluctuate by significant amounts based
upon the assumptions used by the actuaries. If the healthcare cost trend rates
were increased by one percent in each year, the accumulated postretirement
benefit obligation would be 14 percent higher as of December 31, 1997. The
effect of this change on the 1997 expense accrual would be an increase of 14
percent.
 
8. Pneumoconiosis Benefits
 
The actuarially determined liability for pneumoconiosis (black lung) benefits
is based on a 6% discount rate and various other assumptions including
incidence of claims, benefit escalation, terminations and life expectancy. The
annual black lung expense is comprised of the net change in the beginning
accrual balance, a charge for interest on the unfunded accrual balance plus the
premiums paid to the state insurance funds. The January 1, 1995 and January 1,
1997 actuarial studies reduced the estimated pneumoconiosis liability by
$23,299 and $8,244, respectively, as compared to the previous study. The lower
estimates resulted primarily from favorable claims experience and reduced
projected future claims.
 
                                      F-71

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
The cost of black lung benefits charged to operations for Zeigler and its
subsidiaries, excluding the changes in estimated liability mentioned above, was
$2,967, $157, and $2,280 in 1995, 1996 and 1997, respectively.
 
9. Stock Option Plan
 
In February 1994, Zeigler's Board of Directors and shareholders adopted a Stock
Option Plan (the "Option Plan"). A total of 2,560,000 shares of Common Stock
are reserved for issuance upon exercise of options granted under the Option
Plan. The Option Plan is administered by the Compensation Committee of the
Board of Directors which determines the terms of the options granted including
the exercise price, number of shares subject to the option and exercisability.
 
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its plan. The Company
has adopted the disclosure-only provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. Accordingly, no compensation cost has been recognized
for the stock option plan.
 
The following summarizes the stock option transactions under the Option Plan
for the three years ended December 31, 1997:
 


                                   Number of                  Weighted Average
                                    Shares     Option Prices   Exercise Price
                                   ---------  --------------- ----------------
                                                     
Options outstanding at December
 31, 1994......................... 1,096,800  $11.13 to 16.05      $14.27
  Granted.........................    19,000   10.75 to 12.88       12.54
  Canceled........................   (29,800)  11.13 to 16.05       15.22
                                   ---------
Options outstanding at December
 31, 1995......................... 1,086,000   10.75 to 16.05       14.22
  Granted.........................   688,000   14.00 to 20.00       15.86
  Exercised.......................   (21,530)  11.13 to 16.05       11.42
  Canceled........................  (153,320)  11.13 to 16.05       14.50
                                   ---------
Options outstanding at December
 31, 1996......................... 1,599,150   10.75 to 20.00       14.93
  Granted.........................   434,000   23.38 to 26.25       25.52
  Exercised.......................   (65,710)  10.75 to 16.05       14.68
  Canceled........................  (210,280)  10.75 to 26.25       20.19
                                   ---------
Options outstanding at December
 31, 1997......................... 1,757,160   11.13 to 26.25       16.93
                                   =========

 
The outstanding stock options at December 31, 1995, 1996 and 1997 have a
weighted average remaining contractual life of 8.51, 8.28, and 7.64 years,
respectively. The number of stock option shares exercisable at December 31,
1995, 1996, and 1997 were 213,400, 362,710, and 717,464, respectively.
 
Generally, stock options are granted at prices which are equal to the market
value of the stock on the date of grant, have a maximum term of ten years, and
vest in equal annual increments over five years. The weighted average fair
value at date of grant for options granted during 1995, 1996, and 1997 was
$3.96, $5.76, and $10.66 per option, respectively. The fair value of options at
date of grant was estimated using the Black-Scholes model with the following
weighted average assumptions:
 


                                                            1995   1996   1997
                                                            -----  -----  -----
                                                                 
   Expected life (years)...................................     7      7      7
   Risk-free interest rate.................................  6.18%  6.26%  5.52%
   Volatility.............................................. 29.90% 29.90% 34.98%
   Dividend yield..........................................  2.52%  1.94%  1.18%

 
                                      F-72

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
As previously discussed, the Company accounts for the Option Plan in accordance
with APB No. 25 under which no compensation expense has been recognized for
stock option awards. Had compensation cost for the Company's stock option plan
been determined on the fair value at the grant date for awards for the three
year period ended December 31, 1997 consistent with the provisions of SFAS No.
123, the Company's net earnings (loss) and earnings (loss) per share would have
been reduced to the pro forma amounts indicated below:
 


                                                        1995     1996    1997
                                                      --------  ------- -------
                                                               
   Net earnings (loss)--as reported.................. $(11,213) $57,964 $58,639
   Net earnings (loss)--pro forma....................  (11,217)  57,611  57,590
   Earnings (loss) per share--as reported
     Basic........................................... $   (.40) $  2.04 $  2.07
     Diluted.........................................     (.40)    2.04    2.05
   Earnings (loss) per share--pro forma
     Basic........................................... $   (.40) $  2.03 $  2.04
     Diluted.........................................     (.40)    2.02    2.01

 
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
 
10. Asset Impairments and Accelerated Mine Closing Costs
 
The following summarizes the components of asset impairments and accelerated
mine closing costs:
 


                                                      Year Ended December 31,
                                                     -------------------------
                                                       1995     1996    1997
                                                     --------- ------- -------
                                                              
   Regular accruals for future mine closings........ $   9,440 $ 6,875 $ 6,403
                                                     ========= ======= =======
   Impairments and accelerated accruals:
     Write-down of assets........................... $  84,513 $   --  $   --
     End of mine closing and reclamation
      liabilities...................................    28,024     --      --
     Other liabilities..............................     2,125     --      --
                                                     --------- ------- -------
   Total impairments and accelerated accruals....... $ 114,662 $   --  $   --
                                                     ========= ======= =======

 
In July 1995, the Company closed Old Ben Mine #1 in Indiana after termination
of its supply contract with Southern Indiana Gas and Electric Company.
Accordingly, the carrying value of the mine and other related assets that
supported the contract were reduced to their estimated net realizable values,
which resulted in asset write-downs of $15,762. In addition, a provision for
accelerated mine closing costs of $16,500 was recorded, based on the amount of
estimated closing costs that would have been expensed during the full term of
the contract.
 
In the fourth quarter of 1995, the Company recorded asset impairments and
accelerated accruals totaling $82,400 in connection with the idling, closing
and projected closing of certain mines. Of that amount, $49,100 relates to Old
Ben's operations in southern Illinois. Old Ben idled one mine in Randolph
County, Illinois on December 31, 1995, and made plans to close two other mines
in Franklin County, Illinois later in 1996, mainly due to a sharp reduction in
demand for the Illinois Basin's high-sulfur coal. Management did not expect the
high-sulfur market to improve significantly in the foreseeable future. The
remaining $33,300 fourth quarter charge was associated with the indefinite
idling of Wolf Creek's underground mine in eastern Kentucky on October 1, 1995.
That amount consists of asset write-downs totaling $26,000 and increased
reclamation liabilities of $7,300. Operations were suspended at the mine
chiefly due to the new sourcing flexibility negotiated in the amended contract
with Carolina Power & Light Company which allows the Company to supply the
contract with coal purchased from lower-cost producers. The ongoing high costs
at the Wolf Creek mine were mainly attributable to unfavorable geology and
declining productivity.
 
                                      F-73

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
11. Sale of Indiana Assets
 
On February 12, 1996, the Company closed the sale of the majority of its assets
in Indiana to Kindill Mining, Inc. ("Kindill"). These assets had a combined
book value of $13,400 and included Old Ben Mine #1 and Old Ben Mine #2, along
with various other coal properties and interests. The Company also agreed to
make cash payments to Kindill of $7,000 in 1996 and $4,000 in 1997. In
exchange, Kindill assumed the associated reclamation liabilities, estimated at
approximately $23,400. This sale was completed on April 30, 1996, after Kindill
secured the required mining permits. The sale of these assets did not have a
material effect on current income.
 
12. Preferred Stock
 
Zeigler is authorized to issue 1,000,000 shares of preferred stock, $0.01 par
value, with such issuance to be in one or more classes or series. The Board of
Directors is authorized to determine the designations, preferences,
qualifications, limitations and restrictions of any class or series with
respect to, among other things, the rate and nature of dividends, the price and
terms, the amount payable in the event of liquidation, the terms and conditions
for conversion or exchange into any other class or series of the stock or other
securities and voting rights.
 
13. Significant Customers
 
Coal sales include transactions involving both produced and purchased coal. Two
customers accounted for 18% and 13% of coal sales in 1995, 18% and 14% of coal
sales in 1996, and 29% and 16% of coal sales in 1997.
 
14. Related Party Transactions
 
Shell Oil Company, a former indirect shareholder, provides guarantees for
certain letters of credit and surety bonds of Zeigler. Zeigler reimburses Shell
for its costs in providing these guarantees.
 
15. Commitments and Contingencies (Also see Note 16--Legal Proceedings)
 
Zeigler and its subsidiaries have operating lease commitments expiring at
various dates, primarily for equipment. Minimum rental obligations under these
leases at December 31, 1997 are summarized by fiscal year as follows:
 
                                                                    
   1998.................................................................. $5,095
   1999..................................................................  1,172
   2000..................................................................    623
   2001..................................................................    284
   2002..................................................................     20
   Thereafter............................................................    --
                                                                          ------
       Total............................................................. $7,194
                                                                          ======

   
 
Rental expense relating to operating leases amounted to $9,733, $7,834, and
$7,626 in 1995, 1996 and 1997, respectively. As of December 31, 1997, Zeigler
and its subsidiaries had $192,571 of surety bonds issued by an insurance
company to secure self-insured workers' compensation and pneumoconiosis claims,
reclamation and other performance commitments. Of that amount, $23,061 was
backed by guarantees of Shell (see Note 14). Letters of credit of $246,161 were
outstanding at December 31, 1997, of which amount $60,053 was also guaranteed
by Shell.
 
                                      F-74

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
In 1997, upon completion of planned development, the Company idled Encoal
Corporation's clean coal demonstration plant in Wyoming. In 1998, marketing of
the LFC technology, both domestically and internationally, will continue as
well as the evaluation of options regarding Encoal. The net book value of
Encoal Corporation's assets and the Company's related investment in clean coal
technology was $6.7 million as of December 31, 1997.
 
16. Legal Proceedings
 
Cajun Electric Power Cooperative--On December 21, 1994, Cajun Electric Power
Cooperative Inc. ("Cajun") filed with the U.S. Bankruptcy Court for the Middle
District of Louisiana (the "Bankruptcy Court") for voluntary reorganization
under Chapter 11 of the U.S. Bankruptcy Code. Triton Coal Company ("Triton")
has a requirements contract (the "Triton Contract") with Cajun through Western
Fuels Association, Inc., with a term extending through the life of Big Cajun
Plant No. 2. During 1997, Triton shipped 5.8 million tons of coal to Cajun
(representing 3.0% of the Company's total consolidated revenues), while 1996
shipments to Cajun totaled 5.0 million tons. To date during the bankruptcy,
Triton has continued to ship coal to Cajun and Cajun has continued to pay for
such coal. The price for coal sold under the Triton Contract is at or near the
market price for this coal. The Triton Contract provides for a price reopener
effective January 1, 1998. The parties were unable to reach agreement on the
price to be effective January 1, 1998 and are attempting to resolve that matter
through the procedure set forth in the Triton Contract.
 
An Appellate Court affirmed a District Court's ruling that a court-appointed
trustee will manage Cajun's affairs during the bankruptcy. At this time, it
appears likely that the trustee will reject the Triton Contract. In the event
that the contract is rejected, it may be necessary for Triton to find other
markets for this coal, possibly including sales to the new operator of Cajun's
coal fired units.
 
Louisiana Generating LLC (an affiliate of the Company, Southern Energy, Inc.
and NRG Energy, Inc.) has executed an Amended and Restated Asset Purchase and
Reorganization Agreement to purchase substantially all of Cajun's non-nuclear
assets. This Agreement is incorporated in the trustee's plan of reorganization,
which is subject to Bankruptcy Court approval (including evaluation of
competing plans of reorganization) and a number of other conditions. As a
result of Louisiana Generating's entering into this Agreement, Western Fuels
Association, Inc. has formally requested certain assurances regarding Triton's
performance under the Triton Contract and informed the Company that it reserves
the right to assert certain claims against Triton if the trustee rejects the
Triton Contract.
 
Entergy-Gulf States Utilities, Inc.--Entergy-Gulf States, Inc. ("GSU") owns 42%
of Unit 3 at the Big Cajun II coal-fired power station. Pursuant to the Triton
Contract, Triton supplies the coal requirements of all three units at Big Cajun
II. Two of the three plans for reorganization of Cajun pending before the
Bankruptcy Court call for the rejection of the Triton Contract. Triton and
Western Fuels Association, Inc. maintain that Unit 3 is a joint venture between
GSU and Cajun, that joint ventures are partnerships under Louisiana law and
that, as Cajun's partner and as a direct beneficiary of the coal provided by
Triton, GSU is liable for some or all of their damages in the event that the
Triton Contract is rejected. On January 13, 1997, GSU requested a judgment from
the Bankruptcy Court declaring that Cajun is the sole principal under the
Triton Contract and that GSU has no liability to Western Fuels Association,
Inc. or Triton in the event the Triton Contract is rejected. In February 1997,
Western Fuels Association, Inc. and Triton filed a counterclaim asking for a
declaration from the Bankruptcy Court that GSU is liable to them for damages if
the Triton Contract is rejected. On September 3, 1997, the Bankruptcy Court
granted GSU a summary judgment. Western Fuels Association, Inc. and Triton have
appealed this judgment.
 
                                      F-75

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
On August 21, 1997, GSU filed additional claims against the Company, Triton and
Western Fuels Association, Inc. In these claims, GSU alleged that these parties
violated the Sherman Antitrust Act and Louisiana Fair Trade Statutes in the
course of settlement discussions between the parties. The Company believes that
these allegations have no merit and a Motion to Dismiss these claims is
pending.
 
If the Triton Contract is rejected by the Bankruptcy Court, Triton will suffer
damages for breach of contract, for which its only remedies will be a claim
against GSU (as described above) and/or a claim in Cajun's bankruptcy
proceeding as a creditor of Cajun, and Triton will have to find other markets
for this coal, possibly including sales to the new operator of Cajun's coal-
fired units. Triton is currently in negotiations with alternative customers for
this coal. Triton has executed an agreement with Louisiana Generating pursuant
to which Triton will supply coal to Big Cajun II in the event Cajun's court-
appointed trustee's plan of reorganization is confirmed by the Bankruptcy Court
and Louisiana Generating completes the purchase of Cajun's non-nuclear assets.
Triton, Western Fuels Association, Inc., and the Trustee have also executed an
agreement which provides that if Louisiana Generating is successful in
purchasing the Cajun assets and the Triton Contract is rejected, Triton will
release any and all claims in Cajun's bankruptcy and will receive approximately
$4,000.
 
Janet Saad-Cook et al. v. Zeigler Coal Holding Company and R. & F. Coal
Company--In March, 1995, plaintiff filed a lawsuit against the Company and its
subsidiary, R. & F. Coal Company. The complaint includes several causes of
action based on alleged actions of the defendant companies involving fraud,
deceit, misrepresentation, and tortuous breach of contract with respect to two
coal mining leases made among the plaintiffs and R. & F. Coal Company. The
plaintiffs' complaint has since been amended to add Bluegrass Coal Development
Company as a named defendant, to eliminate the allegations that the defendants'
behavior violated the U.S. Racketeer Influenced and Corrupt Organizations Act
and to include additional causes of action involving trespass and breach of
lease. The defendant companies have denied the allegations in the complaint,
believe they have meritorious defenses to plaintiffs' claims, and intend to
defend vigorously against the claims. The Company believes that Shell Oil
Company is obligated to indemnify the Company against any loss (over certain
minimum amounts) that the Company may incur as a result of plaintiff s' claims
in the litigation and has given Shell notice thereof in accordance with the
terms of the purchase agreement under which the Company acquired Shell Mining
companies. The Company believes that ultimate resolution of the claims in the
lawsuit will have no material adverse effect on the Company's consolidated
results of operations or financial position.
 
Other--Various lawsuits and claims, including those involving ordinary routine
matters incidental to its business, to which the Company and its subsidiaries
are a party, are pending, or have been asserted, against the Company. Although
the outcome of these matters cannot be predicted with certainty, management
believes that their disposition will not have materially adverse effects on the
Company's consolidated results of operations or financial position.
 
17. Segment Reporting
 
The Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information, beginning with the Company's fourth quarter of 1997.
The Company has two reportable segments: coal and energy. The coal segment is
engaged in the mining of coal for utilities in the United States. The energy
segment is principally responsible for the trading and marketing of electricity
and natural gas within the U.S. These reportable segments are separately
managed strategic business units that offer different products and services,
and whose performance is evaluated based on earnings from operations before
interest, taxes and extraordinary items, not including nonrecurring gains and
losses. The accounting policies of the segments are the same as those described
in Note 1. There were no sales or transfers between segments in 1995, 1996, or
 
                                      F-76

 
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
1997 and in the first half of 1998. The "Other" category below consists of five
operating segments that did not meet the quantitative thresholds for
determining reporting segments. These segments consist primarily of amounts
related to two import/export terminals, a clean coal plant in Wyoming, the
Company's environmental subsidiary, coal leases to third parties, farming,
timber, gains on sales of surplus assets, oil and gas royalties, and selling,
general and administrative costs.
 


                                                                     (unaudited)
                          For the Year Ended December 31,     Six Months Ended June 30,
                          ----------------------------------  --------------------------
                             1995        1996        1997         1997          1998
                          ----------  ----------  ----------  ------------  ------------
                                                             
Revenues:
  Coal..................  $  754,975  $  698,523  $  603,553  $    293,843  $    298,590
  Energy................         --          --      166,474        37,878        74,709
  Other.................      28,128      33,101      30,729        16,334        15,299
                          ----------  ----------  ----------  ------------  ------------
    Total...............  $  783,103  $  731,624  $  800,756  $    348,055  $    388,598
Operating Earnings:
  Coal..................  $   68,743  $   85,357  $   99,607  $     53,310  $     38,599
  Energy................         --          --       (6,756)       (1,680)       (2,142)
  Other.................     (11,099)    (10,684)    (15,111)       (9,146)        1,621
  Nonrecurring gains/
   (losses).............     (45,863)     16,295       8,244           --            --
                          ----------  ----------  ----------  ------------  ------------
    Total...............  $   11,781  $   90,968  $   85,984  $     42,484  $     38,078
Depreciation, Depletion,
 and Amortization:
  Coal..................  $   64,382  $   55,649  $   53,259  $     26,442  $     30,072
  Energy................         --          --           35           --             38
  Other.................       4,194       4,485       4,618         2,322         2,274
                          ----------  ----------  ----------  ------------  ------------
    Total...............  $   68,576  $   60,134  $   57,912  $     28,764  $     32,384
Capital Expenditures:
  Coal..................  $   46,496  $   24,671  $   65,768  $     19,127  $     45,102
  Energy................         --          --          398           314           151
  Other.................       9,838       6,756       8,260         1,165           377
                          ----------  ----------  ----------  ------------  ------------
    Total...............  $   56,334  $   31,427  $   74,426  $     20,606  $     45,630
Assets:
  Coal..................  $  901,916  $  885,724  $  890,030                $    890,978
  Energy................         --       10,000      18,030                      14,999
  Other.................     123,325     154,901     169,344                      78,923
                          ----------  ----------  ----------                ------------
    Total...............  $1,025,241  $1,050,625  $1,077,404                $    984,900

 
18. Sale of Company
 
On December 3, 1997, the Company announced that it was retaining an investment
banking firm to explore various strategic alternatives to maximize value for
shareholders, including the possible sale of the entire Company. In connection
therewith, the Board of Directors adopted a change-in-control severance plan
and retention bonus plan for all salaried employees as well as special
incentives for certain key employees. The Company subsequently retained the
investment banking firm Credit Suisse First Boston and prepared materials for
interested parties. On September 2, 1998, the Company was acquired by, and
became the successor by merger to, Zeigler Acquisition Corporation, a wholly
owned subsidiary of AEI Resources, Inc.
 
                                      F-77

 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors of
AEI Resources, Inc.
 
We have audited the accompanying combined statements of assets, liabilities and
parent investment of the Cyprus Eastern Coal Operations (as defined in Note 1)
at December 31, 1997 and 1996, and the related combined statement of operating
revenues and expenses, of cash flows, and of parent investment for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the management of Cyprus Amax Coal Company (parent of
Cyprus Eastern Coal Operations). Our responsibility is to express an opinion on
these financial statements based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
 
The accompanying financial statements were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission as described in Note 1 and are not intended to be a complete
presentation of the Cyprus Eastern Coal Operations financial position or
results of operations.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined assets, liabilities and parent investment
of the Cyprus Eastern Coal Operations, as described in Note 1, at December 31,
1997 and 1996, and their combined operating revenues and expenses and their
cash flows for each of the three years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles.
 
                                          PricewaterhouseCoopers LLP
 
Denver, Colorado
August 31, 1998
 
                                      F-78

 
                         CYPRUS EASTERN COAL OPERATIONS
 
   COMBINED STATEMENTS OF ASSETS, LIABILITIES AND PARENT INVESTMENT (NOTE 1)
 


                                                    December 31,
                                                  -----------------  June 30,
                                                    1996     1997      1998
                                                  -------- -------- -----------
                                                                    (Unaudited)
                                                         (In thousands)
                                                           
                     ASSETS
Current Assets
  Cash and Cash Equivalents...................... $  6,657 $  7,391  $  3,709
  Accounts Receivable............................   45,360   52,157    44,674
  Inventories....................................   20,616   20,065    23,355
  Prepaid Expenses and Other.....................   10,151    8,203     8,809
                                                  -------- --------  --------
    Total Current Assets.........................   82,784   87,816    80,547
                                                  -------- --------  --------
Properties--At Cost, Net.........................  278,695  193,407   177,776
Other Noncurrent Assets..........................   17,956   18,720    16,902
                                                  -------- --------  --------
Total Assets..................................... $379,435 $299,943  $275,225
                                                  ======== ========  ========
        LIABILITIES AND PARENT INVESTMENT
Current Liabilities
  Current Portion of Capital Leases.............. $  1,883 $  2,329  $  3,347
  Accounts Payable...............................   21,657   10,474     7,603
  Accrued Payroll and Benefits...................   15,671   17,442    17,728
  Accrued Royalties and Interest.................    3,127    3,638     3,605
  Accrued Closure, Reclamation, and
   Environmental.................................    6,083    6,159     3,561
  Other Accrued Liabilities......................    3,627   12,350     5,609
  Taxes Payable Other Than Income Taxes..........    6,056    6,904     7,117
                                                  -------- --------  --------
    Total Current Liabilities....................   58,104   59,296    48,570
Noncurrent Liabilities and Deferred Credits
  Long-Term Debt.................................    1,000    1,000     1,000
  Capital Lease Obligations, Less Current
   Portion.......................................    8,135    5,806     2,922
  Deferred Employee and Retiree Benefits.........   98,737   97,489    89,383
  Deferred Closure, Reclamation, and
   Environmental.................................   57,980   69,534    71,251
  Other..........................................   10,284   11,819     6,400
                                                  -------- --------  --------
    Total Noncurrent Liabilities and Deferred
     Credits.....................................  176,136  185,648   170,956
Commitments and Contingencies (Note 11)..........      --       --        --
Minority Interest................................    1,182    1,172       227
                                                  -------- --------  --------
Parent Investment................................  144,013   53,827    55,472
                                                  -------- --------  --------
Total Liabilities and Parent Investment.......... $379,435 $299,943  $275,225
                                                  ======== ========  ========

 
        The accompanying notes are an integral part of these statements.
 
                                      F-79

 
                         CYPRUS EASTERN COAL OPERATIONS
 
        COMBINED STATEMENTS OF OPERATING REVENUES AND EXPENSES (NOTE 1)
 


                              For the Year Ended
                                 December 31,           Six Months Ended June 30,
                          ----------------------------  --------------------------
                            1995      1996      1997        1997          1998
                          --------  --------  --------  ------------  ------------
                                                               (Unaudited)
                                             (In thousands)
                                                       
Revenues................  $428,545  $415,663  $429,756  $    193,923  $    202,658
Costs and Expenses
  Cost of Operations....   342,886   360,301   377,925       165,822       180,464
  Depreciation,
   Depletion, and
   Amortization.........    40,215    39,599    41,840        20,910        18,691
  Selling, General and
   Administrative.......    15,907    14,605    16,460         8,282         6,743
  Write-Downs and
   Special Charges......    98,051     1,819    92,134         1,141           --
                          --------  --------  --------  ------------  ------------
Total Costs and
 Expenses...............   497,059   416,324   528,359       196,155       205,898
                          --------  --------  --------  ------------  ------------
Loss From Operations....   (68,514)     (661)  (98,603)       (2,232)       (3,240)
Other Income (Expense)
  Interest Income.......       598        63        83            38            32
  Interest Expense......    (1,243)     (755)     (639)         (293)         (216)
  Other income..........       --        --        --             82           --
                          --------  --------  --------  ------------  ------------
Net Loss Before Minority
 Interest and Income
 Taxes..................   (69,159)   (1,353)  (99,159)       (2,405)       (3,424)
  Minority Interest.....       (53)      (99)       10             4           (51)
                          --------  --------  --------  ------------  ------------
Net Loss Before Income
 Taxes..................  $(69,212) $ (1,452) $(99,149) $     (2,401) $     (3,475)
                          ========  ========  ========  ============  ============

 
 
 
        The accompanying notes are an integral part of these statements.
 
                                      F-80

 
                         CYPRUS EASTERN COAL OPERATIONS
 
                    COMBINED STATEMENTS OF PARENT INVESTMENT
 


                                   For The Year Ended           Six Months
                                      December 31,            Ended June 30,
                               ----------------------------  -----------------
                                 1995      1996      1997      1997     1998
                               --------  --------  --------  --------  -------
                                                               (Unaudited)
                                             (In thousands)
                                                        
Balance at beginning of
 period......................  $250,382  $141,205  $144,013  $144,013  $53,827
Loss Before Income Taxes.....   (69,212)   (1,452)  (99,149)   (2,401)  (3,475)
Changes in Parent Investment,
 net.........................   (39,965)    4,260     8,963    24,547    5,120
                               --------  --------  --------  --------  -------
Balance at end of period.....  $141,205  $144,013  $ 53,827  $166,159  $55,472
                               ========  ========  ========  ========  =======

 
 
 
        The accompanying notes are an integral part of these statements.
 
                                      F-81

 
                         CYPRUS EASTERN COAL OPERATIONS
 
                       COMBINED STATEMENTS OF CASH FLOWS
 


                                  For The Year Ended           Six Months
                                     December 31,            Ended June 30,
                               ---------------------------  ------------------
                                 1995     1996      1997      1997      1998
                               --------  -------  --------  --------  --------
                                                               (Unaudited)
                                             (In thousands)
                                                       
Cash Flows from Operating
 Activities
 Net Loss Before Income
  Taxes....................... $(69,212) $(1,452) $(99,149) $ (2,401) $ (3,475)
 Adjustments to Reconcile Loss
  Before Income Taxes to Net
  Cash Provided by Operating
  Activities:
  Depreciation, Depletion, and
   Amortization...............   40,215   39,599    41,840    20,910    18,691
  Write-Downs and Special
   Charges....................   98,051    1,819    92,134     1,141       --
  Minority Interest...........       53       99       (10)       28      (945)
  Gain on Sales of Assets.....   (1,808)  (3,416)   (6,798)     (128)     (890)
 Changes in Assets and
  Liabilities Net of Effects
  from Businesses Sold and
  Write-Downs and Special
  Charges:
  (Increase) Decrease in
   Receivables................    6,217    1,342    (7,097)   (4,208)    7,483
  (Increase) Decrease in
   Inventories................      (54)  10,547      (465)  (16,236)   (3,290)
  Decrease (Increase) in
   Prepaid Expenses and
   Other......................   (1,852)  (1,320)    1,844     1,390      (606)
  Decrease in Current
   Liabilities................   (7,222)  (3,469)   (7,727)   (8,456)  (11,743)
  (Increase) Decrease in Other
   Assets.....................    4,787   (1,707)   (1,675)     (333)    1,818
  Decrease in Other
   Liabilities................  (11,650) (12,463)   (3,565)   (3,974)  (11,810)
                               --------  -------  --------  --------  --------
Net Cash (Used for) Provided
 by Operating Activities......   57,525   29,579     9,332   (12,267)   (4,767)
                               --------  -------  --------  --------  --------
Cash Flows from Investing
 Activities
 Capital Expenditures.........  (16,706) (35,000)  (24,509)  (14,955)   (3,274)
 Payments Related to
  Liabilities of Disposed Mine
  Assets (Note 4).............   (3,750)     --        --        --        --
 Proceeds from Sales of
  Assets......................    2,024    3,751     8,831     1,557     1,105
                               --------  -------  --------  --------  --------
Net Cash Used for Investing
 Activities...................  (18,432) (31,249)  (15,678)  (13,398)   (2,169)
Cash Flows from Financing
 Activities
 Payments on Capital Lease
  Obligations.................      --    (1,454)   (1,883)      --     (1,866)
 Changes in Parent Investment,
  net.........................  (39,965)   4,260     8,963    24,547     5,120
                               --------  -------  --------  --------  --------
Net Cash (Used for) Provided
 by Financing Activities......  (39,965)   2,806     7,080    24,547     3,254
                               --------  -------  --------  --------  --------
Net Increase (Decrease) in
 Cash and Cash Equivalents....     (872)   1,136       734    (1,118)   (3,682)
Cash and Cash Equivalents at
 Beginning of Year............    6,393    5,521     6,657     6,657     7,391
                               --------  -------  --------  --------  --------
Cash and Cash Equivalents at
 End of Year.................. $  5,521  $ 6,657  $  7,391  $  5,539  $  3,709
                               ========  =======  ========  ========  ========

 
        The accompanying notes are an integral part of these statements.
 
                                      F-82

 
                         CYPRUS EASTERN COAL OPERATIONS
 
                     NOTES TO COMBINED FINANCIAL STATEMENTS
                                 (In Thousands)
 
NOTE 1. ACQUISITION AND BASIS OF PRESENTATION
 
Acquisition--In accordance with a stock purchase and sale agreement (the
Agreement) dated May 28, 1998, between a subsidiary of Cyprus Amax Minerals
Company (Cyprus or the Parent) and AEI Holding Company, Inc. (AEI), Cyprus
agreed to sell to AEI the stock of certain of its coal mining subsidiaries
(collectively referred to as Cyprus Eastern Coal Operations or the Company) as
follows:
 
  .Amax Coal Company, a Delaware corporation
  .Amax Coal Sales Company, a Delaware corporation
  .Ayrshire Land Company, a Delaware corporation
  .Beech Coal Company, a Delaware corporation
  .Bentley Coal Company, a partnership organized under the laws of the State
  of New York
  .Cannelton, Inc., a Delaware corporation
  .Cannelton Industries, Inc., a West Virginia corporation
  .Cannelton Land Company, a Delaware corporation
  .Cannelton Sales Company, a Delaware corporation
  .Cyprus Cumberland Coal Corporation, a Kentucky corporation
  .Cyprus Kanawha Corporation, a Delaware corporation
  .Cyprus Mountain Coals Corporation, a Delaware corporation
  .Cyprus Southern Realty Corporation, a Kentucky corporation
  .Dunn Coal and Dock Company, a West Virginia corporation
  .Grassy Cove Coal Mining Company, a Delaware corporation
  .Kentucky Prince Mining Company, a partnership organized under the laws of
  the State of New York
  .Meadowlark, Inc., an Indiana corporation
  .Roaring Creek Coal Company, a Delaware corporation
  .Skyline Coal Company, a partnership organized under the laws of the State
  of New York
  .Yankeetown Dock Corporation, an Indiana corporation
 
All of the subsidiaries listed above are wholly-owned, except for Yankeetown
Dock Corporation, which is 60%-owned. The Company represents the majority of
Cyprus's coal mining operations in Indiana, Kentucky, West Virginia and
Tennessee. Included in the businesses to be acquired are coal producing
properties (7 surface mining and 4 underground mining operations) and related
coal reserves, coal wash plants, tipples, land, buildings, machinery and
equipment, coal sales contracts and certain other liabilities and working
capital items. Excluded from the accompanying financial statements are certain
mines previously included in the subsidiaries to be sold, which will be
retained by Cyprus.
 
As consideration for the acquisition, AEI will pay to Cyprus approximately
$93,000 in cash. The Agreement also includes a clause stating that AEI will pay
to Cyprus a royalty per ton produced by the Company after June 1, 2002 in
amounts ranging from thirty-five cents to fifty cents per ton (the Royalty
Agreement). In addition, in the event the Company's undeveloped reserves are
not mined, then an additional minimum undeveloped reserve royalty (Undeveloped
Reserve Royalty Agreement) is due, beginning December 31, 2002, with a total
minimum due of $4,000 by December 31, 2006. If AEI has a sale transaction, as
defined, that produces aggregate proceeds greater than $75,000, then AEI will
pay a one-time royalty buyout to terminate the Royalty Agreement and the
Undeveloped Reserve Royalty Agreement (payment up to $25,000, as defined),
otherwise the royalty agreement will continue until the aggregate proceeds of
the royalty payments and undeveloped royalty payments total $45,455. Further,
as defined in the agreement, Cyprus will retain certain
 
                                      F-83

 
                         CYPRUS EASTERN COAL OPERATIONS
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
assets and will indemnify AEI for certain obligations of the Company that exist
as of the closing date, including, among others, certain post-retirement
medical obligations, certain pension assets, certain workers compensation
obligations, black lung trust assets, certain black lung obligations and
certain disability obligations.
 
The Company's mining operations mine, clean, market, and sell coal to electric
utilities and industrial users. The Company's coal is primarily sold to
domestic electric utilities under both term contracts, with an initial term of
at least one year, and spot sales orders. New sales are predominantly one to
three year term contracts and spot orders. As of December 31, 1997, the Company
had 11 operating mines of which 7 were governed by union contracts. As of
December 31, 1997, union representation accounts for approximately 76% percent
of the Company's employees and 74% percent of production. The contract with the
United Mine Workers of America, which covers all the union coal operations
except the Kentucky operations and Sycamore mine, expires in August of 1998.
The union contracts covering employees of the Kentucky and Sycamore operations
expire in June of 1999 and April of 1999, respectively.
 
Basis of Presentation--The accompanying combined financial statements of the
Company contain the historical accounts of the subsidiaries included under the
Agreement and include certain assets and liabilities that will be retained by
Cyprus as described above. In addition various direct and indirect expense
allocations from Cyprus have been recorded in the financial statements of the
Company. Such allocations were based primarily on actual and estimated usages
and include expenses related to executive management, accounting, treasury,
land administration, environmental management, investor relations, legal and
information and technology services. Management believes its method for expense
allocations is reasonable.
 
Certain carve-out adjustments have been made to segregate the historical
accounts of the Company from those of Cyprus. In addition, certain expenses and
related assets and liabilities incurred by Cyprus on behalf of the Company have
been excluded from the Company's statements of operations. Among the expenses
excluded is interest expense on parent long-term debt and provisions related to
income taxes. These exclusions result in a financial statement presentation
that is not complete in accordance generally accepted accounting principles.
All significant intercompany accounts and transactions have been eliminated in
combination.
 
Interim Financial Information--The interim financial statements as of June 30,
1998 and for the six months ended June 30, 1997 and 1998 are unaudited and have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, the unaudited
interim financial statements contain all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation. The
results of operations for the interim periods are not necessarily indicative of
the results for the entire fiscal year.
 
Company Environment and Risks--The Company's principal business activities
consist of surface and deep mining and marketing of bituminous coal located in
Indiana, Kentucky, Tennessee and West Virginia. The Company, in the course of
its business activities, is exposed to a number of risks including: the
possibility of the termination of sales contracts, fluctuating market
conditions for coal and transportation services, competitive industry and over
capacity, changing government regulations, labor disruption, loss of key
employees and the ability of the Company to obtain necessary mining permits and
control adequate recoverable mineral reserves. In addition, adverse weather and
geological conditions could significantly impact operations and mining costs.
Precipitation is generally highest at the Company's mining operations in early
spring and late fall.
 
In the past, the Company has operated under the ownership of Cyprus Amax, which
may have resulted in operating results or financial position of the Company
significantly different from those that would have been obtained if the Company
were autonomous.
 
                                      F-84

 
                         CYPRUS EASTERN COAL OPERATIONS
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
 
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Use of Estimates--The preparation of financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. The more significant areas requiring the use of
management estimates relate to mineral reserves; reclamation and environmental
obligations; postemployment, postretirement, and other employee benefit
liabilities; future cash flows associated with assets; and useful lives for
depreciation, depletion, and amortization. Actual results could differ from
those estimates.
 
Cash Equivalents and Statements of Cash Flows--The Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents. Overdrafts representing outstanding checks in excess of
funds on deposit are classified as accounts payable.
 
The Combined Statements of Cash Flows provide information about changes in cash
and cash equivalents. All interest payments were paid by the Parent and thus
such payments are presented in Changes in Parent Investment, net on the
accompanying statements.
 
See Notes 3 and 4 for additional supplemental information on non-cash investing
activities.
 
Inventories--Coal inventories are carried at the lower of current market or
average production cost. Materials and supplies inventories are carried at
average cost less allowance for obsolete and surplus items.
 
Advanced Royalties--The Company is required, under certain royalty lease
agreements, to make minimum royalty payments whether or not mining activity is
being performed on the leased property. These minimum payments are recoupable
once mining begins on the leased property. The Company capitalizes these
minimum royalty payments and expenses the prepaid balances as they are offset
against production royalties once mining activities begin or expenses the
prepaid balances when the Company has ceased mining or has made a decision not
to mine on such property. Included in the accompanying Combined Statements of
Assets, Liabilities and Parent Investment at December 31, 1996 and 1997, the
advanced royalties included in Prepaid Expenses was $970 and $1,019,
respectively, and the advanced royalties included in Other Noncurrent Assets
was $7,010 and $10,722, respectively.
 
Properties--Costs for mineral rights and certain tangible assets, and mine
development costs incurred to expand capacity of operating mines or develop
mine areas substantially in advance of current production are capitalized and
charged to operations generally on the units-of-production method. Mobile
mining equipment and most other assets are depreciated on a straight-line basis
over their estimated useful lives. Interest costs for the construction or
development of significant long-term assets are capitalized and amortized over
the related assets' estimated useful lives or the life of the mine, whichever
is shorter. Gains or losses upon retirement or replacement of equipment and
facilities are credited or charged to income. Expenditures for betterments are
capitalized. Ongoing maintenance and repairs are expensed as incurred;
expenditures for renewals in excess of defined limits (generally $250) are
deferred and charged to expense over the period benefited. Included in Coal
Properties are values assigned to coal reserves at certain of the Company's
mines as a result of the Amax acquisition. The affected mines are Chinook and
Sycamore in Indiana and Stockton, Dunn and Mine 155 in West Virginia. These
values are being cost depleted on a unit-of-production basis over the
recoverable reserves at each mine.
 
Impairment of Long-Lived Assets--The Company follows Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 121
prescribes that an impairment loss is recognized in the event that facts and
circumstances
 
                                      F-85

 
                         CYPRUS EASTERN COAL OPERATIONS
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
indicate that the carrying amount of an asset may not be recoverable and an
estimate of future undiscounted cash flows is less than the carrying amount of
the asset. Impairment is recorded based on an estimate of future discounted
cash flows. The implementation impact of SFAS No. 121 is discussed in Note 3.
 
Reclamation and Environmental Costs--Minimum standards for mine reclamation
have been established by various governmental agencies and affect certain
operations of the Company. Reclamation is performed and expensed on an ongoing
basis as mining operations are performed. Reclamation costs and other shutdown
expenses related to the period after mine closure are accrued and charged
against income on a units-of-production basis over the life of the mine. The
Company is subject to various environmental regulations. Environmental
liabilities are accrued on an ongoing basis when such losses are probable and
reasonably estimable and reflect management's best estimates of future
obligations. Costs of future expenditures for reclamation and environmental
remediation obligations are not discounted to their present value.
 
Revenue Recognition--Revenues are recognized on coal sales when title passes,
in accordance with the sales agreement, which usually occurs when the coal is
shipped to the customer.
 
Income Taxes--As previously noted, income tax accounts have not been "pushed
down" to the Company as such accounts are maintained by Cyprus on a
consolidated basis. Therefore, no income tax benefit (provision) nor deferred
income tax balances are recorded in the accompanying statements.
 
NOTE 3.  WRITE-DOWNS AND SPECIAL CHARGES
 
Write-Downs and Special Charges reported in the accompanying Combined
Statements of Operating Revenues and Expenses consist of the following:
 
In 1995, coal reserves were reduced and the Company wrote down certain of its
mining properties by $98,051 in response to weak demand and lower prices,
ongoing transportation and coal quality disadvantages compared to other
regions, the impending expiration of certain long-term contracts in 1995 and
1998 and the adoption of revised mining plans. Included in the charge was
$86,800 of write-downs related to the Kentucky mining operations, $2,220 for
West Virginia, and $9,031 related to the Indiana properties. The write-downs
were calculated in accordance with SFAS No. 121.
 
In 1996, the Company recorded a one-time special charge of $1,819 related to
the write-down of Midwest materials and supplies inventories to net realizable
value.
 
In 1997, a $92,134 charge was recorded. This included a $35,767 charge for the
anticipated closure of the Armstrong Creek mine, reclamation adjustments of
$2,332 at the Chinook mine and other asset adjustments and accruals of $6,935.
Additionally, asset impairment charges of $33,500 and $13,600, were recorded at
the West Virginia steam coal properties and the Chinook mine, respectively, due
to updated mine and business plans that reflected the current views of the
domestic markets for mid- to high-sulfur coal and updated reserve information.
These impairments were calculated in accordance with SFAS No. 121.
 
NOTE 4.  DIVESTITURE OF MINNEHAHA MINE
 
In the fourth quarter of 1995, the Company sold a majority of the assets of one
of its Indiana mines, Minnehaha. The Company paid $3,750 and conveyed title to
the assets in exchange for the purchaser's assumption of reclamation and mine
closure liabilities that were recorded at $8,235. The transaction resulted in
no gain or loss. In 1995, the mine had sales and an operating loss of
approximately $8,863 and $6,895 (including write-offs and special charges of
$7,067). The mine also had total assets of approximately $8,346 as of the date
of divestiture.
 
                                      F-86

 
                         CYPRUS EASTERN COAL OPERATIONS
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
 
NOTE 5.  INVENTORIES
 
Inventories detailed by component are summarized below:
 


                                               At December 31
                                               --------------- At June 30,
                                                1996    1997      1998
                                               ------- ------- -----------
                                                               (Unaudited)
                                                               -----------
                                                              
   In-Process Inventories..................... $ 7,692 $ 9,698   $10,640
   Finished Goods.............................   6,751   6,128     8,413
   Materials and Supplies.....................   6,173   4,239     4,302
                                               ------- -------   -------
   Total Inventories.......................... $20,616 $20,065   $23,355
                                               ======= =======   =======

 
NOTE 6.  PROPERTIES
 
Properties consist of the following at December 31, 1996 and 1997:
 


                                                               At December 31
                                                              -----------------
                                                                1996     1997
                                                              -------- --------
                                                                 
Coal Properties.............................................  $248,023 $184,588
Property, Plant and Equipment...............................   330,121  344,179
                                                              -------- --------
Total Properties............................................   578,144  528,767
Less: Accumulated Depreciation, Depletion, Amortization, and
 Write-downs................................................   299,449  335,360
                                                              -------- --------
Net Properties..............................................  $278,695 $193,407
                                                              ======== ========

 
NOTE 7.  EMPLOYEE BENEFIT PLANS
 
Pension Plans--The Company (through a Cyprus plan) participates in a number of
defined benefit pension plans covering most of its employees. Benefits are
based on either the employee's compensation prior to retirement or stated
amounts for each year of service with the Company. The Company makes annual
contributions to these plans in accordance with the requirements of the
Employee Retirement Income Security Act of 1974 (ERISA). Plan assets consist of
cash and cash equivalents, equity and fixed income securities, and real estate.
 
Net annual pension cost includes the following components:
 


                                                      Year ended December 31
                                                      -------------------------
                                                       1995     1996     1997
                                                      -------  -------  -------
                                                               
Service Cost......................................... $   870  $ 1,074  $ 1,129
Interest Cost........................................   2,112    2,141    4,277
Actual Gain on Plan Assets...........................  (4,401)  (3,916)  (4,925)
Amortization and Deferred Gain.......................   2,693    1,877      626
                                                      -------  -------  -------
                                                      $ 1,274  $ 1,176  $ 1,107
                                                      =======  =======  =======

 
                                      F-87

 
                         CYPRUS EASTERN COAL OPERATIONS
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
 
The following table sets forth the funded status of the plans:
 


                                                              At December 31
                                                              ---------------
                                                               1996    1997
                                                              ------- -------
                                                                
Accumulated Benefit Obligation............................... $27,001 $34,198
                                                              ------- -------
Projected Benefit Obligation.................................  28,813  36,363
Plan Assets at Fair Value....................................  30,630  34,852
                                                              ------- -------
Plan Assets Greater Than (Less Than) Projected Benefit Obli-
 gation......................................................   1,817  (1,511)
Unrecognized Net Gain (Loss).................................     689    (491)
Unrecognized Prior Service Cost..............................   1,080     934
Unrecognized Transition Credit...............................   1,972   5,519
                                                              ------- -------
Prepaid Pension Cost......................................... $ 5,558 $ 4,451
                                                              ======= =======

 
Prepaid pension cost is included in Prepaid Expenses on the Combined Statements
of Assets, Liabilities and Parent Investment at December 31, 1996 and 1997,
respectively.
 
The significant actuarial assumptions at December 31 were as follows:
 


                                                               1995  1996  1997
                                                               ----  ----  ----
                                                                  
   Rate of Increase in Future Compensation Levels............. 5.25% 5.75% 5.00%
   Expected Long-Term Rate of Return on Assets................ 9.00% 9.00% 9.00%
   Discount Rate.............................................. 7.25% 7.75% 7.25%

 
Net periodic pension cost is determined using the assumptions as of the
beginning of the year, and the funded status is determined using the
assumptions as of the end of the year.
 
Substantially all domestic employees not covered under the plans administered
by the Company are covered under multi-employer defined benefit plans
administered by the United Mine Workers of America. Contributions by the
Company to these multi-employer plans, which are expensed when paid, are based
primarily upon hours worked and amounted to $965, $977 and $1,212 in 1995, 1996
and 1997.
 
Postretirement Benefits Other Than Pensions--In addition to the Company's
defined benefit pension plans, the Company has plans that provide
postretirement medical benefits and life insurance benefits. The medical plans
provide benefits for most employees who reach normal, or in certain cases,
early retirement age while employed by the Company. The postretirement medical
plans are contributory, with annual adjustments to retiree contributions, and
contain certain other cost-sharing features such as deductibles and
coinsurance.
 
Net periodic postretirement benefit cost consists of the following components:
 


                                                           1995    1996   1997
                                                          ------  ------ ------
                                                                
   Service Cost.......................................... $1,296  $1,490 $1,526
   Interest Cost.........................................  6,070   5,385  5,405
   Net Amortization and Deferral.........................   (404)     16   (688)
                                                          ------  ------ ------
   Net Periodic Postretirement Benefit Cost.............. $6,962  $6,891 $6,243
                                                          ======  ====== ======

 
                                      F-88

 
                         CYPRUS EASTERN COAL OPERATIONS
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
 
The following table sets forth the plans' combined status:
 


                                                             At December 31,
                                                            ------------------
                                                              1996      1997
                                                            --------  --------
                                                                
Accumulated Postretirement Benefit Obligation:
  Retirees................................................. $ 52,103  $ 48,807
  Active...................................................   17,983    20,770
                                                            --------  --------
Total Accumulated Postretirement Benefit Obligation........   70,086    69,577
Plan Assets at Fair Value..................................      --        --
Accumulated Postretirement Benefit Obligation.............. $(70,086) $(69,577)
                                                            --------  --------
Unrecognized Prior Service Cost............................   (1,200)   (1,400)
Unrecognized Net Gain......................................  (21,428)  (20,677)
                                                            --------  --------
Accrued Postretirement Benefit Cost........................ $(92,714) $(91,654)
                                                            ========  ========

 
The accumulated postretirement benefit obligation at December 31, 1996 and
1997, consisted of a current liability of $7,000 included in Accrued Payroll
and Benefits each year, and a long-term liability of $85,714 and $84,655,
respectively, included in Deferred Employee and Retiree Benefits.
 
The weighted average annual rate of increase in the per capita cost of covered
benefits (i.e., health care cost trend rate) for medical benefits is 7.0
percent for 1998 and is assumed to decrease gradually (one-half of one percent
per year) to 4.25 percent by the year 2003 and remain at that level thereafter.
Increasing the assumed health care cost trend rate by one percentage point in
each year would increase the accumulated postretirement benefit obligation for
the medical plans as of December 31, 1997, by $3,700 and the aggregate of the
service cost and interest cost components of net periodic postretirement
benefit cost for 1997 by $470.
 
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation as of December 31, 1995, 1996, and 1997, was
7.25 percent, 7.75 percent, and 7.25 percent, respectively. The change in the
discount rate and a reduction in the assumed health care cost trend rate
resulted in a $1,100 unrecognized net gain as of December 31, 1997.
 
In addition, health care and life insurance benefits of certain retirees are
covered by multi-employer benefit trusts established by the United Mine Workers
of America and the Bituminous Coal Operators Association, Inc. Current and
projected operating deficits of these trusts led to the passage of the Coal
Industry Retiree Health Benefit Act of 1992 (the "Act"). The Act established a
new multi-employer benefit trust called the United Mine Workers of America
Combined Benefit Fund (the "Fund") that will provide health and life insurance
benefits to all beneficiaries of the earlier trusts who were receiving benefits
as of July 20, 1992. The Act provides for the assignment of beneficiaries to
former employers and the allocation of any unassigned beneficiaries to
enterprises using a formula included in the legislation. It also established a
second trust fund known as the 1992 Plan that covers beneficiaries whose
employers cease providing benefits. The Company has chosen to account for its
obligation under the Act on a cash basis in accordance with established
accounting guidance. The 1995, 1996, and 1997 contributions to the Funds were
$2,136, $1,923, and $2,060, respectively. Based upon independent actuarial
valuation, the Company estimates the present value of its obligations under the
Act to be approximately $21,676 as of December 31, 1997.
 
The Company is liable under the federal Mine Safety and Health Act of 1977, as
amended, to provide for pneumoconiosis (black lung) benefits to eligible
employees, former employees, and dependents with respect to claims filed by
such persons on or after July 1, 1973. The Company is also liable under various
states' statutes for black lung benefits. The Company currently provides for
federal and state claims principally through self-
 
                                      F-89

 
                         CYPRUS EASTERN COAL OPERATIONS
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
insurance programs. Benefits and related expenses are paid from a dedicated
trust fund qualified under Section 501(C) (21) of the Internal Revenue Code.
The assets of the trust fund exceed the actuarial present value of black lung
benefits at December 31, 1996 and 1997.
 
Total future black lung obligations of the Company as of December 31, 1996 and
1997 approximated $19,000 and $20,000, respectively. These amounts were
actuarially determined using the following key assumptions: discount rate of
8%, black lung benefit cost escalation rate of 3.5%. The existence of the trust
assets results in a net liability of $172 and $70 in 1996 and 1997,
respectively, which is included in Deferred Employee and Retiree Benefits.
 
The Company also has a number of postemployment plans covering severance,
disability income, and continuation of health and life insurance for disabled
employees. At December 31, 1996 and 1997, the accumulated postemployment
benefit liability consisted of a current amount of $538 and $496, respectively,
which is included in Accrued Payroll and Benefits, and $4,722 and $4,143,
respectively, which is included in Deferred Employee and Retiree Benefits.
 
NOTE 8. DEBT
 
The Company's long-term debt consists of a $1,000 note securing an Industrial
Revenue Bond issued by Perry County, Kentucky, the proceeds of which were used
to construct facilities at the Company's mine site. The note is due on May 1,
2013, with interest payable semiannually based upon a floating rate, as defined
(5.10% at December 31, 1996 and 1997).
 
NOTE 9. LEASES AND MINERAL ROYALTY OBLIGATIONS
 
The Company leases mineral interests and various other types of properties,
including draglines, shovels, offices, computers, and miscellaneous equipment.
Certain of the Company's mineral leases require minimum annual royalty
payments, whereas others provide only for royalties based on production.
 
Summarized below as of December 31, 1997, are future minimum rentals and
royalties under non-cancelable leases:
 


                                                    Operating  Mineral  Capital
                                                     Leases   Royalties Leases
                                                    --------- --------- -------
                                                               
   1998............................................  $ 9,343   $ 2,530  $ 2,796
   1999............................................    5,855     3,082    4,883
   2000............................................    4,767     3,046    1,282
   2001............................................    2,372     2,932      --
   2002............................................    1,193     2,932      --
   After 2002......................................    2,624     6,525      --
                                                     -------   -------  -------
     Total Payments................................  $26,154   $21,047    8,961
                                                     =======   =======  -------
   Less Imputed Interest...........................                        (827)
                                                                        -------
   Present Value of Lease Payments.................                       8,134
   Less Current Portion............................                      (2,329)
                                                                        -------
   Capital Lease Obligations.......................                     $ 5,805
                                                                        =======

 
                                      F-90

 
                         CYPRUS EASTERN COAL OPERATIONS
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
 
Rentals and mineral royalties charged to expense were as follows:
 


                                                          1995    1996    1997
                                                         ------- ------- -------
                                                                
   Rental Expense....................................... $11,927 $14,791 $13,022
   Mineral Royalties.................................... $18,516 $18,880 $16,593

 
Other Noncurrent Liabilities includes $2,104 and $1,722 at December 31, 1996
and 1997, respectively, which represents deferred gains on mining equipment
that was sold and leased-back by the Company in 1986 and 1994. The 1986 lease
is accounted for as an operating lease; the 1994 lease is accounted for as a
capital lease. These gains are being recognized as revenue over the terms of
the respective leases that expire in 2000 and 2003. The future minimum lease
commitments, operating lease expense and capital lease obligations for these
two leases are included in the above disclosures. See below for subsequent
modifications of these lease agreements.
 
Certain of the operating and capital leases discussed above are included in
lease agreements entered into by other subsidiaries of Cyprus. As part of the
stock purchase and sale agreement, AEI entered into various agreements to
sublease and purchase equipment subject to these leases. According to the
sublease agreement and the first purchase agreement, AEI is required to make
semi-annual lease payments of $1,485 through July 2000, at which time AEI will
purchase the equipment through semi-annual installments of $1,485 from January
2001 through January 2002. The second purchase agreement requires semi-annual
installments of $1,977 through January 2002, and the third purchase agreement
requires monthly installments of $249 from July 1998 through December 1998 and
monthly installments of $67 from January 1999 through December 1999. The
sublease and purchase agreements are secured by the equipment and any monies to
become due under insurance policies, up to the amount of the obligations. In
addition, a $3,500 equipment surety bond secures and guarantees the
obligations.
 
NOTE 10. PARENT INVESTMENT AND RELATED PARTY TRANSACTIONS
 
Parent investment is comprised of the Company's equity (see Note 1) and
advances to and from Cyprus at December 31, 1996 and 1997. The Company had
sales to a subsidiary of Cyprus not included in the acquisition of $1,856 and
$2,982 in 1996 and 1997, respectively.
 
Certain obligations of the Company have been guaranteed by the Parent. Such
obligations include, among others, obligations for the following: workers
compensation claims, lease agreements, industrial revenue bonds and coal supply
agreements.
 
NOTE 11. COMMITMENTS AND CONTINGENCIES
 
Coal Sales Contracts--As of December 31, 1997, the Company had commitments to
deliver scheduled base quantities of coal annually to 34 customers. The
contracts expire between January 1, 1998 and December 31, 2003, with the
Company contracted to supply a minimum of approximately 42 million tons over
the remaining lives of the contracts at prices ranging from $14.21 to $37.00
per ton. Certain contracts have sale price adjustment provisions, as defined,
over the life of the contracts.
 
Environmental Remedial Action--The Company's past and present operations
include activities which are subject to extensive federal and state
environmental regulations. Based upon current knowledge, the Company believes
it is in material compliance with environmental laws and regulations as
currently promulgated. The extent of environmental control problems which the
Company may encounter in the future cannot be predicted, primarily because of
the increasing number, complexity and changing character of environmental
requirements that may be enacted by federal and state authorities.
 
                                      F-91

 
                         CYPRUS EASTERN COAL OPERATIONS
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
 
Mine Closure Costs--At December 31, 1997, the Company's accruals for deferred
closure, shutdown, and reclamation totaled approximately $75,700. Reclamation
is an ongoing activity and a cost associated with the Company's mining
operations. Accruals for closure and final reclamation liabilities are
established on a life of mine basis. The Company's reclamation reserve
component is largely a result of reclamation obligations incurred for grading,
replacing soils, and revegetation of mined areas as required by provisions and
permits pursuant to the Surface Mining Control and Reclamation Act. Total
reclamation and mine closure costs for the Company at the end of current mine
lives are estimated at approximately $120,000.
 
Legal Proceedings--The Company is a party to numerous claims and lawsuits with
respect to various matters. The Company provides for costs related to
contingencies when a loss is probable and the amount is reasonably estimable.
The Company estimates that the amount of probable aggregate loss, included in
current accrued liabilities, is approximately $3,100 at December 31, 1997.
 
The Company is named as defendant in various other actions occurring in the
ordinary course of its operations for which an estimation of the likelihood of
probable outcome is not possible. These actions generally involve disputes as
to property boundaries, contract performance, mining rights, royalty payments,
blasting damages, personal injuries and other civil actions which could result
in additional litigation or other adversary proceedings. While the final
resolution of any matter may have an impact on the Company's financial results
for a particular period, management believes the ultimate disposition of these
matters will not have a material adverse effect upon the financial position of
the Company.
 
Subsequent to December 31, 1997, $2,959 of the accrued legal contingencies were
settled for an amount equal to the Company's recorded estimate.
 
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
The book value of cash and cash equivalents, trade receivables and trade
payables are considered to be representative of their respective fair values
because of the immediate or short-term maturity of these financial instruments.
The fair value of the Company's debt instruments approximated the book value
because the instruments bear interest at a variable rate and re-price
frequently.
 
NOTE 13. MAJOR CUSTOMERS
 
The Company had sales to the following major customers:
 


                                                               1995  1996  1997
                                                               ----  ----  ----
                                                                  
   TVA........................................................  7.5% 12.0% 15.8%
   Dayton Power and Light..................................... 13.4  12.2  13.0
   Hoosier Energy.............................................  7.9  10.2  12.1
   American Electric Power....................................  7.5  11.8  11.6
   Georgia Power.............................................. 23.2   5.8   5.8
                                                               ----  ----  ----
     Total.................................................... 59.5% 52.0% 58.3%
                                                               ====  ====  ====

 
                                      F-92

 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Board of Directors of
Leslie Resources, Inc. and Leslie Resources Management, Inc.:
 
We have audited the accompanying combined balance sheet of Leslie Resources,
Inc. and Leslie Resources Management, Inc. as of December 31, 1997, and the
related combined statements of operations and retained earnings and cash flows
for the year then ended. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audit. The combined
balance sheet of Leslie Resources, Inc. and Leslie Resources Management, Inc.
as of December 31, 1996, and the related combined statements of operations and
retained earnings and cash flows for the year then ended, were audited by other
auditors whose report dated June 24, 1997, expressed an unqualified opinion on
those statements.
 
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Leslie Resources,
Inc. and Leslie Resources Management, Inc. as of December 31, 1997 and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
 
                                              Arthur Andersen LLP
Louisville, Kentucky
March 20, 1998
 
                                      F-93

 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Board of Directors of
 Leslie Resources, Inc. and
 Leslie Resources Management, Inc. and its Subsidiaries
 Hazard, Kentucky:
 
We have audited the accompanying combined balance sheet of Leslie Resources,
Inc. and Leslie Resources Management, Inc. and its subsidiaries as of December
31, 1996, and the related statements of operations and retained earnings and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
 
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
In our opinion, the accompanying financial statements present fairly, in all
material respects, the combined financial position of Leslie Resources, Inc.
and Leslie Resources Management, Inc. and its subsidiaries as of December 31,
1996 and the results of their operations and cash flows for the year then ended
in conformity with generally accepted accounting principles.
 
                                          Faesy, Schmitt & Company, PSC
 
Frankfort, Kentucky
 June 24, 1997 (except as to the matter discussed
 in Note 17 as to which the date is January 15, 1998)
 
                                      F-94

 
          LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
 
                             COMBINED BALANCE SHEET
                        As of December 31, 1996 and 1997
 


                                                               1996     1997
                                                              -------  -------
                                                              (In Thousands)
                                                                 
                           ASSETS
Current Assets:
  Cash and cash equivalents.................................. $ 2,907  $ 3,623
  Restricted cash............................................     300      300
  Accounts receivable........................................   4,646    6,644
  Other receivables..........................................     352      428
  Inventories................................................     794    1,224
  Property held for resale...................................     --     3,195
  Current portion of advance royalties.......................     237      150
  Prepaid expenses and other.................................     242      307
                                                              -------  -------
    Total current assets.....................................   9,478   15,871
                                                              -------  -------
Property, plant and equipment, at cost, including mineral
 reserves and mine development costs, net of accumulated
 depreciation of $14,528 and $14,807 for 1996 and 1997,
 respectively................................................  12,067    8,097
Other non-Current Assets:
  Advance royalties, less current portion....................   1,006      892
  Investment in security.....................................   2,000    2,000
  Deferred tax assets........................................     --       297
  Other non-current assets...................................      12      298
                                                              -------  -------
    Total other non-current assets...........................   3,018    3,487
                                                              -------  -------
    Total assets............................................. $24,563  $27,455
                                                              =======  =======
            LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
  Accounts payable........................................... $ 6,213  $ 7,397
  Current portion of accrued royalties.......................   1,638    2,043
  Income taxes payable.......................................      12      942
  Revolving lines of credit..................................     901    1,895
  Current portion of long-term debt..........................   3,806    5,964
  Current portion of reclamation and mine closure costs......     --       343
  Accrued expenses and other.................................   1,228    1,540
                                                              -------  -------
    Total current liabilities................................  13,798   20,124
                                                              -------  -------
Non-Current Liabilities:
  Long-term debt, less current portion.......................   6,046    2,922
  Accrued royalties, less current portion....................   4,141    3,179
  Accrued reclamation and mine closure costs, less current
   portion...................................................     425    1,064
                                                              -------  -------
    Total non-current liabilities............................  10,612    7,165
                                                              -------  -------
Commitments and Contingencies (see notes)
Stockholder's Equity:
  Common stock...............................................       2        2
  Less: cost of treasury stock...............................  (4,252)  (4,252)
Retained earnings............................................   4,403    4,416
                                                              -------  -------
    Total stockholder's equity...............................     153      166
                                                              -------  -------
    Total liabilities and stockholder's equity............... $24,563  $27,455
                                                              =======  =======

 
The accompanying notes to combined financial statements are an integral part of
                             these balance sheets.
 
                                      F-95

 
          LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
 
            COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                 For The Years Ended December 31, 1996 and 1997
 


                                                                1996     1997
                                                               -------  -------
                                                               (In Thousands)
                                                                  
Revenues...................................................... $68,740  $87,994
Costs and expenses:
  Cost of operations..........................................  59,372   80,003
  Depreciation, depletion and amortization....................   3,172    3,288
  Selling, general and administrative.........................   2,733    2,978
                                                               -------  -------
    Total costs and expenses..................................  65,277   86,269
                                                               -------  -------
      Income from operations..................................   3,463    1,725
Other income (expense):
  Interest expense............................................  (1,088)    (888)
  Gain on sale of assets......................................      44    2,257
  Interest and dividend income................................     279      201
  Other, net..................................................    (556)     162
                                                               -------  -------
    Other income (expense)....................................  (1,321)   1,732
                                                               -------  -------
      Income before income taxes..............................   2,142    3,457
Income tax expense............................................      12      959
                                                               -------  -------
      Net income..............................................   2,130    2,498
Beginning retained earnings...................................   4,327    4,403
  Plus deferred tax benefits from tax basis step-up...........     --       297
  Less dividends paid.........................................  (2,054)  (2,782)
                                                               -------  -------
Ending retained earnings...................................... $ 4,403  $ 4,416
                                                               =======  =======

 
 
The accompanying notes to combined financial statements are an integral part of
                             these balance sheets.
 
                                      F-96

 
          LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
 
                       COMBINED STATEMENTS OF CASH FLOWS
                 For The Years Ended December 31, 1996 and 1997
 


                                                           1996     1997
                                                          -------  -------
                                                            (In Thousands)
                                                                   
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..............................................  $ 2,130  $ 2,498
Adjustments to reconcile net income to net cash provided
 by operating activities:
  Depreciation, depletion and amortization..............    3,172    3,288
  Equipment used for repairs............................       76      --
  Gain on sale of assets................................      (44)  (2,257)
Changes in assets and liabilities:
  (Increase) decrease in:
    Receivables.........................................   (2,321)  (2,074)
    Inventories.........................................     (360)    (430)
    Advance royalties...................................      413      201
    Prepaids and other..................................       23      (65)
    Other non-current assets............................      --      (286)
  Increase (decrease) in:
    Accounts payable....................................    1,938    1,184
    Income taxes payable................................       12      930
    Accrued reclamation and mine closure costs..........      163      982
    Accrued royalties...................................      (16)    (557)
    Accrued expenses and other..........................      196      312
                                                          -------  -------
      Net cash provided by operating activities.........    5,382    3,726
                                                          -------  -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property, plant and equipment and mine
 development costs......................................   (1,910)  (4,341)
Proceeds from sale of assets............................      495    3,805
Loans from affiliates...................................      700      --
                                                          -------  -------
      Net cash used in investing activities.............     (715)    (536)
                                                          -------  -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving lines of credit.............   (2,018)     994
Proceeds from debt......................................    6,940    6,017
Repayments on long-term debt............................   (3,966)  (6,983)
Distributions to shareholder............................   (2,054)  (2,502)
Purchase of treasury stock..............................   (3,903)     --
                                                          -------  -------
      Net cash used in financing activities.............   (5,001)  (2,474)
                                                          -------  -------
      Net increase (decrease) in cash and cash
       equivalents......................................     (334)     716
CASH AND CASH EQUIVALENTS, beginning of period..........    3,241    2,907
                                                          -------  -------
CASH AND CASH EQUIVALENTS, end of period................  $ 2,907  $ 3,623
                                                          =======  =======

 
The accompanying notes to combined financial statements are an integral part of
                               these statements.
 
                                      F-97

 
          LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
 
                     NOTES TO COMBINED FINANCIAL STATEMENTS
                           December 31, 1996 and 1997
                             (Dollars in thousands)
 
1. DESCRIPTION OF BUSINESS
 
Leslie Resources, Inc. (a Kentucky corporation) and Leslie Resources
Management, Inc. (a Kentucky corporation) (collectively the Company) and its
subsidiaries are owned by Greg Wells and engage in coal mining activities using
the surface mining method. Coal mining and the operation of loading facilities
are conducted in four counties in Southeast Kentucky. The Company's sales are
predominantly to utility and industrial users of coal.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
a. Basis of Presentation
 
The accompanying combined financial statements include those of Leslie
Resources, Inc. (an S corporation) and Leslie Resources Management, Inc. (a C
corporation) and its subsidiaries because of common ownership. All significant
intercompany transactions and balances have been eliminated in combination.
 
b. Principles of Consolidation
 
The accompanying combined financial statements include the consolidated
accounts of Leslie Resources Management, Inc. and its subsidiaries. All
material intercompany transactions have been eliminated in its consolidation.
 
c. Use of Estimates
 
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
 
d. Statements of Cash Flows
 
For purposes of the statements of cash flows, the Company considers investments
having maturities of three months or less at the time of purchase to be cash
equivalents.
 
Supplemental disclosure:
 


                                                                     1996  1997
                                                                    ------ ----
                                                                     
   Cash paid for interest.......................................... $1,070 $796
   Cash paid for income taxes......................................    --    29

 
The 1997 statement of cash flows excludes non-cash dividends of property with a
book value of $280 distributed to the sole shareholder and a deferred tax asset
and equity increase of $297.
 
e. Inventories
 
Inventories consist of coal that is available for sale at various loading
facilities, and is stated at an average cost using direct operating costs of
mining coal, which is less than market.
 
 
                                      F-98

 
          LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
f. Advance Royalties
 
Recoupable advance royalties obtained in the 1995 purchase of the subsidiary
companies of Leslie Resources Management, Inc. had a higher recoupable amount
than the portion of the purchase price that was allocated to them in purchase
accounting (a valuation allowance was established). As these advance royalties
become recoupable, the expense recognized is partially offset by a reduction in
the valuation allowance.
 
Other recoupable royalties the Company has paid in the normal course of
operations are expensed as the coal is mined or the royalty no longer becomes
recoupable.
 
g. Property, Plant and Equipment
 
Property, plant and equipment are stated at cost. The Company provides for
depreciation of the depreciable assets by using accelerated and other methods
with useful lives that range from 5 to 31 years. Depreciation expense was
$3,041 and $3,172 for 1996 and 1997, respectively.
 
h. Depletion
 
Cost depletion is calculated on a per ton basis to allocate the cost of mineral
reserves against the related coal sales. Cost depletion expense was $52 and $59
for 1996 and 1997, respectively.
 
i. Mine Development Costs
 
Mine development costs are amortized over the expected life of the respective
mine sites which range from 5 to 10 years. Amortization expense was $79 and $57
for 1996 and 1997, respectively.
 
j. Revenue Recognition
 
The Company's revenues have been generated under coal sales contracts with
electric utilities or other coal-related organizations, primarily in the
eastern United States. Revenues are recognized on coal sales in accordance with
the sales agreement, which is usually when the coal is shipped to the customer
and title is passed. The Company grants credit to its customers based on their
creditworthiness and generally does not secure collateral for its receivables.
No allowance for doubtful accounts is recorded for 1996 or 1997, as management
does not believe it is necessary. Historically, accounts receivable write-offs
have been insignificant.
 
k. Asset Impairment
 
If facts and circumstances suggest that a long-lived asset may be impaired, the
carrying value is reviewed. If this review indicates that the value of the
asset will not be recoverable, as determined based on projected undiscounted
cash flows related to the asset over its remaining life, then the carrying
value of the asset is reduced to its estimated fair value.
 
l. Reclassifications
 
Certain prior year amounts have been reclassified to conform with current year
presentation with no effect on previously reported net income or shareholder's
equity.
 
3. CONCENTRATION OF CREDIT RISK
 
The Company maintains its cash in bank deposits at financial institutions. The
balances, at times, may exceed federally insured limits. The Company exceeded
the insured limit by $2,911 and $3,651 for 1996 and 1997, respectively.
 
                                      F-99

 
          LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
 
4. PROPERTY, PLANT AND EQUIPMENT
 
Property, plant and equipment, including mineral reserves and mine development
costs at December 31, 1996 and 1997, are summarized by major classifications as
follows:
 


                                                                 1996    1997
                                                                ------- -------
                                                                  
   Land........................................................ $   303 $   --
   Machinery & equipment.......................................  23,715  20,227
   Buildings...................................................   1,489   1,589
   Mine development costs......................................     585     585
   Mineral reserves............................................     503     503
                                                                ------- -------
                                                                 26,595  22,904
   Less accumulated depreciation, depletion and amortization...  14,528  14,807
                                                                ------- -------
   Net property, plant and equipment........................... $12,067 $ 8,097
                                                                ======= =======

 
5. INVESTMENT IN SECURITY
 
Included in other long-term assets, at December 31, 1996 and 1997, is 800
shares of preferred stock in Reclamation Surety Holding Company, Inc. (RSHC)
purchased for $2,000. A subsidiary of RSHC, Cumberland Surety Insurance
Company, provides the Company insurance coverage for reclamation bonds (see
Note 9), and the purchase of this preferred stock was required in lieu of the
Company placing $2,000 in an escrow collateral account. This preferred stock
pays a dividend of 6% annually. The Company and RSHC both have options to
redeem this stock after January 1, 1998. The Company also has an option to
convert to common shares of RSHC after January 1, 1998. Under present bonding
arrangements, an option to redeem this stock would result in similar funds
being placed into an escrow collateral account.
 
6. DEBT
 
a. Revolving Lines of Credit
 
The Company has the following outstanding balances under lines of credit at
December 31:
 


                                                                     1996  1997
                                                                     ---- ------
                                                                    
   Citizens National Bank & Trust, bearing interest of 5.65%. Total
    of $300 available, secured by three certificates of deposit
    totaling $300..................................................  $150 $  200
   Bank of Whitesburg, bearing interest of 9.25% and 9.50%,
    respectively, secured by certain accounts receivable...........   354  1,695
   Citizens National Bank & Trust, bearing interest of 9.50%,
    secured by certain accounts receivable.........................   397    --
                                                                     ---- ------
                                                                     $901 $1,895
                                                                     ==== ======

 
                                     F-100

 
          LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
 
b. Long-Term Debt
 
Long-term debt consists of the following:
 


                                                                   1996   1997
                                                                  ------ ------
                                                                   
   Fixed assets financed with 21 and 12 different notes to
    banks, finance companies and vendors for 1996 and 1997,
    respectively. For 1996, interest rates ranged from 8.19% to
    10.50% with a weighted-average rate of 8.98%. For 1997
    interest rates ranged from 8.19% to 10.11% with a weighted-
    average rate of 8.93%, maturing through August 2001. Each
    note is secured by one or more pieces of equipment..........  $3,429 $1,964
   Note payable to GE Capital Corporation, bearing interest of
    9.25%, payable in monthly installments of $94 principle and
    interest for 60 months, maturing May 2001, secured by
    equipment...................................................   3,840  3,130
   Note payable to GE Capital Corporation, bearing interest of
    9.25%, payable in monthly installments of $48 principle and
    interest for 36 months, secured by equipment, retired in
    1997........................................................   1,273    --
   Note payable to Caterpillar Finance, bearing interest of
    8.44%, payable in monthly installments of $49 principle and
    interest, secured by equipment (settled in 1998, see
    Note 17)....................................................     --   2,301
   Note payable to Caterpillar Finance, bearing interest of
    10.25%, payable in monthly installments of $41 principle and
    interest, secured by equipment (settled in 1998, see
    Note 17)....................................................   1,310    941
   Note payable to Whayne Supply Company, bearing interest of
    8.76%, payable in monthly installments of $18 principle and
    interest, secured by equipment (settled in 1998, see
    Note 17)....................................................     --     550
                                                                  ------ ------
     Totals.....................................................   9,852  8,886
     Less: Current Portion......................................   3,806  5,964
                                                                  ------ ------
     Long-term Debt.............................................  $6,046 $2,922
                                                                  ====== ======

 
Principal payments required for long-term debt after December 31, 1997 are as
follows:
 
                                                                    
   Year ended December 31:
     1998................................................................ $5,964
     1999................................................................  1,216
     2000................................................................  1,309
     2001................................................................    397
                                                                          ------
                                                                          $8,886
                                                                          ======

   
 
In connection with the GE Capital Corporation note maturing in May 2001, the
Company is required to maintain, at the end of each fiscal year, adequate, as
defined, debt service coverage.
 
7. ACCRUED ROYALTIES DUE TO TRANSCO
 
As part of the 1995 purchase of the subsidiary companies by Leslie Resources
Management, Inc., the Company recorded a liability for minimum royalties due to
Transco Coal Company. The liability is reduced as coal is
 
                                     F-101

 
          LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
mined, and as of December 31, 1996 and 1997, a liability of $981 and $399,
respectively, remained. The 1997 amount is included in current portion of
accrued royalties and based on mining plans is expected to be paid in 1998.
 
8. OVERRIDE ROYALTY OBLIGATION DUE TO TRANSCO
 
As part of the 1995 purchase of the subsidiary companies by Leslie Resources
Management, Inc., the Company is obligated to pay to Transco Coal Company 75c
for each ton of coal mined from the Ball Creek Property until all reserves are
mined. In 1996 and 1997, $27 and $438 were paid, respectively. Payments are
required monthly as the coal is mined or, at the Company's option, this
obligation can be canceled at any time by paying Transco an amount that, when
aggregated with previously paid amounts, totals a discounted $4,000 (discounted
from the date of the purchase (November 20, 1995) to each payment date at 15%).
At the date of purchase from Transco Coal, the Company recorded as an accrual
$4,000 for what it estimated as the aggregate amount to be paid under this
obligation.
 
Beginning in the calendar year 1997, this royalty payment requires minimum
annual payments of $150; however, the aggregate payments of the two preceding
years in excess of the yearly minimum may be used in meeting the $150 annual
minimum.
 
The Company projects to mine 480,000 tons from the Ball Creek Property in 1998.
As of December 31, 1997, $360 is included in current portion of accrued
royalties and $3,175 is included in long-term accrued royalties related to this
obligation.
 
9. ACCRUED RECLAMATION AND MINE CLOSURE COSTS
 
Although the majority of the reclamation process is performed contemporaneously
with mining, the Company will incur additional reclamation costs when a
particular mine site closes, currently estimated at approximately $7,000 for
all sites. The Company accrues on a per ton basis the expected remaining
reclamation and mine closure costs. As of December 31, 1997, an aggregate of
$1,407 has been accrued for reclamation and mine closure costs. These
reclamation and mine closure costs, when mining is completed, represent the
estimated costs to reclaim the land at the end of the mining process, as well
as other required activities. However, the Company is contingently liable to
reclaim the land whenever the mining process stops and these costs could exceed
the accrued amounts.
 
According to Kentucky law, the Company is required to post reclamation bonds to
assure the reclamation work is completed. Outstanding reclamation bonds totaled
$43,676 and $42,712 at December 31, 1996 and 1997, respectively. The Company
pays an insurance bonding premium monthly. In addition, as Note 5 explains, the
Company purchased $2,000 in preferred stock in lieu of having an escrow
collateral account for 1996 and 1997. Beginning in January 1997, the Company
was required to fund an escrow collateral account. As of December 31, 1997,
$284 had been paid into the escrow account (included in other long-term assets)
with total future obligations totaling $1,216 at a rate of $20 per month.
 
10. INCOME TAXES
 
Leslie Resources, Inc. elected to be taxed as a Sub-chapter S corporation,
effective for the tax year beginning January 1, 1989, whereby its taxable
income is reported by its stockholders. Accordingly, there was no income tax
reported at the corporate level for 1996 or 1997. Dividends have been paid to
stockholders at various times during the years and totaled $2,054 and $2,782 in
1996 and 1997, respectively.
 
                                     F-102

 
          LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
 
Leslie Resources Management, Inc. and its subsidiaries are C corporations, and
therefore incur income taxes at the corporate level. Income tax disclosures for
the C corporation group follows:
 
Income tax expense (benefit) is comprised of the following:
 


                                                                    Year Ended
                                                                   December 31,
                                                                   -------------
                                                                    1996   1997
                                                                   ------ ------
                                                                    
   Current:
     Federal...................................................... $   12 $  814
     State........................................................    --     145
                                                                   ------ ------
       Total...................................................... $   12 $  959
                                                                   ====== ======

 
The following accounts for the difference between the actual tax provision and
the amounts obtained by applying the statutory U.S. federal income tax rate of
34% to the 1997 income before taxes:
 


                                                                1996    1997
                                                                -----  ------
                                                                 
   Federal provision computed at statutory rate................ $ 728  $1,175
   State income tax (net of federal tax benefits and
    apportionment factors).....................................    86     138
   Federal and state tax effect on S corporation earnings......  (791)   (445)
   Other.......................................................   (11)     91
                                                                -----  ------
                                                                $  12  $  959
                                                                =====  ======

 
During 1997, certain assets (machinery and equipment) were transferred from the
S corporation to the C corporation. These assets were stepped up for tax
purposes, but not book. The deferred tax benefit of $297 was recorded with a
corresponding increase in equity.
 
11. COMMITMENTS AND CONTINGENCIES
 
a. Coal Sales Contracts
 
As of December 31, 1997, the Company had commitments to deliver base quantities
of coal to four customers. Three contracts expire in 1998, and one expires in
2000 with the Company contracted to supply a minimum of approximately 2.7
million tons over the remaining lives of the contracts at prices which are at
or above market.
 
b. Commissions
 
The Company has an agreement to pay a 10c per ton commission on all tonnage
delivered on a coal contract expiring in 2000. Additionally, beginning in 1998
the Company will pay a $15 per month commission for sales made under various
contracts.
 
c. Contract Mining Agreements
 
The Company has an agreement with a contract miner to mine at two job sites at
a cost to the Company of $13.00 and $14.00 per ton mined, respectively. The
contract has no minimum tonnage requirements and is cancelable by either party.
 
                                     F-103

 
          LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
 
d. Aminex
 
As part of the 1995 purchase of the subsidiary companies by Leslie Resources
Management, Inc., the Company is contingently liable under a February 14, 1979
agreement to pay a portion of its "coal proceeds" (as defined) related to
certain leases on specified properties to a group of partnerships in bankruptcy
that were previously owners of these certain leases. This potential contingent
liability exists until January 1, 2004. The computation and definition of "coal
proceeds" under this agreement is different than net income according to
generally accepted accounting principles. Any prior year deficiencies in
calculating "coal proceeds" is carried forward to future years for application
to positive amounts. According to the most recent audit report for the period
ended June 1, 1996, there exists a deficiency of $2,361 that the Company may
carry forward to future years. Due to this deficiency carry forward, no
liability for this Aminex agreement has been recorded, nor is any liability
expected in the near future.
 
e. Litigation
 
The Company is named as defendant in various actions in the ordinary course of
its business. These actions generally involve disputes related to contract
performance, property boundaries, mining rights, blasting damages, personal
injuries and royalty payments, as well as other civil actions that could result
in additional litigation or other adversary proceedings.
 
While the final resolution of any matter may have an impact on the Company's
financial results for a particular reporting period, management believes that
the ultimate disposition of these matters will not have a materially adverse
effect upon the financial position of the Company.
 
f. Leases
 
The Company has various operating leases for mining equipment and rental of
tipples from a related party (see Note 15b). Rental expense for the years ended
December 31, 1996 and 1997 was approximately $320 and $370, respectively.
 
The Company also leases coal reserves under agreements that call for royalties
to be paid as the coal is mined. Total royalty expense for the years ended
December 31, 1996 and 1997 was approximately $7,000 and $8,700, respectively.
Certain agreements require minimum annual royalties to be paid regardless of
the amount of coal mined during the year. However, such agreements are
generally cancelable at the Company's discretion. These minimum royalties are
recoverable against future royalty payments due on subsequent coal sales and
are expensed as the related coal is mined.
 
Approximate future minimum rental and royalty payments for subsequent years
are:
 


                                                                  Rental Royalty
                                                                  ------ -------
                                                                   
   Year ended December 31:
     1998........................................................  $ 60  $ 4,480
     1999........................................................    40    4,830
     2000........................................................   --     4,830
     2001........................................................   --     4,830
     2002........................................................   --     4,010
     Thereafter..................................................   --    12,825

 
                                     F-104

 
          LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
 
12. MAJOR CUSTOMERS
 
The Company had sales to the following major customers that in any period
exceeded 10% of revenues:
 


                                        1996                        1997
                             --------------------------- ---------------------------
                                               Year-End                    Year-End
                                     Percent  Receivable         Percent  Receivable
                              Sales  of Sales  Balance    Sales  of Sales  Balance
                             ------- -------- ---------- ------- -------- ----------
                                                        
   TVA.....................  $10,224   14.9%    $1,458   $20,987   23.9%    $3,211
   Twin Energy.............   18,280   26.6%       368    17,033   19.4%       585
   James River Coal Service
    Co.....................    7,802   11.4%       487     9,032   10.3%       324
   Gabbard Coal Sales......    7,896   11.5%       --        --     --         --

 
13. STOCKHOLDER'S EQUITY
 
Stockholder's equity consists of:
 


                                                                  1996   1997
                                                                 ------ ------
                                                                  
   Common Stock:
     Leslie Resources, Inc.--
       No par value, 1,000 shares authorized, 100 shares issued
        and 20 shares outstanding............................... $    1 $    1
     Leslie Resources Management, Inc.--
       No par value, 1,000 shares authorized, 25 shares issued
        and outstanding.........................................      1      1
                                                                 ------ ------
                                                                      2      2
                                                                 ------ ------
   Treasury Stock:
     Leslie Resources, Inc
       20 shares purchased at a cost of.........................    349    349
       60 shares purchased at a cost of.........................  3,903  3,903
                                                                 ------ ------
                                                                  4,252  4,252
                                                                 ------ ------
   Retained Earnings:
     Leslie Resources, Inc......................................  4,355  2,744
     Leslie Resources Management, Inc...........................     48  1,672
                                                                 ------ ------
                                                                  4,403  4,416
                                                                 ------ ------
         Total Stockholder's Equity............................. $  153 $  166
                                                                 ====== ======

 
14. TREASURY STOCK
 
In November 1995, Leslie Resources, Inc. signed an option agreement with three
of its stockholders to purchase all the shares of their common stock for
$3,903, which was exercised in March 1996. After this transaction, only one
stockholder, Greg Wells, owns all the outstanding shares of Leslie Resources,
Inc. In 1990 Leslie Resources, Inc. purchased 20 shares from a previous
stockholder for $349.
 
Greg Wells is the only stockholder of Leslie Resources Management, Inc. and its
subsidiaries, and no treasury stock has ever been purchased.
 
                                     F-105

 
          LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
 
15. RELATED PARTY TRANSACTIONS
 
As indicated in Note 2b, all material related party transactions among the
combining Companies have been eliminated. Other related corporations with
common ownership with the Company which had transactions are:
 
    (a) Resource Trucking, Inc. was paid $681 and $884 in 1996 and 1997,
  respectively, for contract trucking and equipment rental. These services
  are continually provided to the Company on a month to month basis.
 
    (b) Mountain Properties, Inc. was paid $432 and $1,494 for coal
  royalties, rents and wheelage and $307 and $299 for tipple lease in 1996
  and 1997, respectively. The Company has leases for varying lengths of time
  with Mountain Properties, Inc. for future rental and royalty obligations.
  Approximate minimum payments are included in Note 11f.
 
No material receivables or payables with these related companies exist at
December 31, 1996 or 1997.
 
16. NEW ACCOUNTING STANDARDS
 
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of (SFAS No. 121). The new
standard requires that long-lived assets and certain identified intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In performing such
impairment reviews, companies are required to estimate the sum of future cash
flows from an asset and compare such amount to the asset's carrying amount. Any
excess of carrying amount over expected cash flows will result in a possible
write-down of an asset to its fair value. Adopting SFAS No. 121 had no impact
on the Company's financial position or results of operations.
 
The Company will implement Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, (SFAS No. 130) during 1998. SFAS No. 130
establishes standards for the reporting and display of comprehensive income and
its components in financial statements. Comprehensive income generally
represents all changes in shareholders' equity except those resulting from
investments by or distributions to shareholders. Such changes are not
significant to the Company.
 
Effective January 1, 1999, the Company will adopt Statement of Position (SOP)
98-5, Reporting on the Costs of Start-up Activities. The new statement requires
that the costs of start-up activities be expensed as incurred. The Company has
not yet evaluated the impact of this statement on the results of operations or
financial position.
 
17. SUBSEQUENT EVENTS
 
In December 1997, the shareholder agreed to sell all of the stock of the
Company to AEI Holding Company, Inc., the closing of which took place January
15, 1998.
 
Prior to January 15, 1998, the Company committed to sell, and subsequently
sold, property classified as held for resale to Caterpillar Finance for
settlement of three notes (see Note 6b). The property sold is leased back from
Caterpillar Finance under operating leases.
 
                                     F-106

 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To AEI Resources, Inc. and
Mid-Vol Leasing, Inc.
and Affiliates:
 
We have audited the accompanying combined balance sheets of Mid-Vol Leasing,
Inc. and Affiliates (Mid-Vol Leasing, Inc., Mega Minerals, Inc. and Premium
Processing, Inc., see Note 1) as of December 31, 1996 and 1997, and the related
combined statements of operations and retained earnings and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Mid-Vol Leasing, Inc.
and Affiliates as of December 31, 1996 and 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
 
                                              Arthur Andersen LLP
Louisville, Kentucky
April 23, 1998
 
                                     F-107

 
                 MID-VOL LEASING, INC. AND AFFILIATES (NOTE 1)
 
                            COMBINED BALANCE SHEETS
               as of December 31, 1996 and 1997 and June 30, 1998
                                 (In Thousands)
 


                                                      December 31,
                                                     --------------  June 30,
                                                      1996   1997      1998
                                                     ------ ------- -----------
                                                                    (Unaudited)
                                                           
                       ASSETS
Current Assets:
  Cash and cash equivalents......................... $1,607 $   693   $   574
  Restricted cash...................................    106     --        --
  Accounts receivable...............................    943   6,417     3,869
  Due from affiliates...............................    572   2,432         4
  Inventories.......................................  2,840     712     4,078
  Prepaid expenses and other........................    624     147       425
                                                     ------ -------   -------
    Total current assets............................  6,692  10,401     8,950
                                                     ------ -------   -------
Property, plant and equipment, at cost, including
 mineral reserves, net of accumulated depreciation,
 depletion and amortization of $1,494, $1,833 and
 $2,005, respectively...............................  3,118   2,860     2,691
Other non-current assets............................    180     180       164
                                                     ------ -------   -------
    Total assets.................................... $9,990 $13,441   $11,805
                                                     ====== =======   =======
        LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable.................................. $  329 $   704   $   632
  Due to affiliates.................................  2,710       5       363
  Note payable......................................    400     --        750
  Current portion of long-term debt.................    565     551       168
  Construction contract.............................    --      100     2,000
  Accrued expenses and other........................    216     589       341
                                                     ------ -------   -------
    Total current liabilities.......................  4,220   1,949     4,254
                                                     ------ -------   -------
Non-Current Liabilities:
  Long-term debt and related obligations, less
   current portion..................................  1,185     666       205
  Other non-current liabilities.....................    190     174       --
                                                     ------ -------   -------
    Total non-current liabilities...................  1,375     840       205
                                                     ------ -------   -------
Commitments and Contingencies (see notes)
Stockholders' Equity:
  Common stock......................................      3       3         3
  Retained earnings.................................  4,392  10,649     7,343
                                                     ------ -------   -------
    Total stockholders' equity......................  4,395  10,652     7,346
                                                     ------ -------   -------
    Total liabilities and stockholders' equity...... $9,990 $13,441   $11,805
                                                     ====== =======   =======

 
The accompanying notes to combined financial statements are an integral part of
                             these balance sheets.
 
                                     F-108

 
                 MID-VOL LEASING, INC. AND AFFILIATES (NOTE 1)
 
            COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
              For The Years Ended December 31, 1995, 1996 and 1997
                And The Six Months Ended June 30, 1997 and 1998
                                 (In Thousands)
 


                                                            Six Months Ended
                                      December 31,              June 30,
                                 -------------------------  ------------------
                                  1995     1996     1997      1997      1998
                                 -------  -------  -------  --------  --------
                                                               (Unaudited)
                                                       
Revenues........................ $12,489  $17,862  $34,471  $ 18,301  $ 15,324
Costs and expenses:
  Cost of operations............  11,774   15,868   25,021    15,218    12,041
  Depreciation, depletion and
   amortization.................     321      301      329       167       173
  Selling, general and
   administrative...............      59      148      466        99       218
                                 -------  -------  -------  --------  --------
    Total costs and expenses....  12,154   16,317   25,816    15,484    12,432
                                 -------  -------  -------  --------  --------
      Income from operations....     335    1,545    8,655     2,817     2,892
Other income (expense):
  Gain on sale of assets........     --       --        18        18       --
  Interest income...............      86       88      112        58        43
  Interest expense..............    (184)    (129)     (97)      (50)       (7)
  Other, net....................       2        9       (3)      --        --
                                 -------  -------  -------  --------  --------
      Other income (expense)....     (96)     (32)      30        26        36
                                 -------  -------  -------  --------  --------
      Income before income
       taxes....................     239    1,513    8,685     2,843     2,928
Income tax expense (Note 6).....     --       --         5         3         1
                                 -------  -------  -------  --------  --------
      Net income................     239    1,513    8,680  $  2,840  $  2,927
Beginning retained earnings.....   5,500    4,189    4,392     4,392    10,649
    Less dividends paid.........  (1,550)  (1,310)  (2,423)     (566)   (6,233)
                                 -------  -------  -------  --------  --------
Ending retained earnings........ $ 4,189  $ 4,392  $10,649  $  6,666  $  7,343
                                 =======  =======  =======  ========  ========

 
 
The accompanying notes to combined financial statements are an integral part of
                               these statements.
 
                                     F-109

 
                 MID-VOL LEASING, INC. AND AFFILIATES (NOTE 1)
 
                       COMBINED STATEMENTS OF CASH FLOWS
  For The Years Ended December 31, 1995, 1996 and 1997 And For The Six Months
                          Ended June 30, 1997 and 1998
                                 (In Thousands)
 


                                                            Six Months Ended
                                      December 31,              June 30,
                                 -------------------------  ------------------
                                  1995     1996     1997      1997      1998
                                 -------  -------  -------  --------  --------
                                                               (Unaudited)
                                                       
CASH FLOWS FROM OPERATING
 ACTIVITIES:
 Net income..................... $   239  $ 1,514  $ 8,680  $  2,840  $  2,927
 Adjustments to reconcile net
  income to net cash provided by
  (used in) operating
  activities:
  Depreciation, depletion and
   amortization.................     321      301      329       167       173
  Gain on sale of assets........     --       --       (18)      (18)      --
Changes in assets and
 liabilities:
  (Increase) decrease in:
   Receivables..................   1,686     (614)  (5,474)   (2,829)    2,549
   Due from affiliates..........   1,120     (562)  (1,860)      (88)    2,428
   Inventories..................  (1,151)    (879)   2,128     2,479    (3,366)
   Prepaids and other...........     (57)    (572)     478       201      (278)
   Other noncurrent assets......     --       --       --        --         16
  Increase (decrease) in:
   Accounts payable.............      43      256      375       153       (72)
   Due to affiliate.............    (194)   2,352   (2,704)     (691)      357
   Accrued expenses and other...     (90)      48      373       288      (248)
   Other non-current
    liabilities.................     157      (17)     (17)      --       (174)
                                 -------  -------  -------  --------  --------
    Net adjustments.............   1,835      313   (6,390)     (338)    1,385
                                 -------  -------  -------  --------  --------
    Net cash provided by
     operating activities.......   2,074    1,827    2,290     2,502     4,312
                                 -------  -------  -------  --------  --------
CASH FLOWS FROM INVESTING
 ACTIVITIES:
 Restricted cash................       7        7      106       --        --
 Additions of property, plant
  and equipment.................     (59)     --       (74)      --        --
 Proceeds from sale of assets...       7       11       20       --          3
 Proceeds from construction
  contract......................     --       --       100        18     1,900
                                 -------  -------  -------  --------  --------
    Net cash provided by (used
     in) investing activities...     (45)      18      152        18     1,903
                                 -------  -------  -------  --------  --------
CASH FLOWS FROM FINANCING
 ACTIVITIES:
 Proceeds from issuance of
  debt..........................     300      100      --        --        750
 Repayments on long-term debt
  and note payable..............    (647)    (619)    (932)     (278)     (844)
 Distributions to shareholders..  (1,550)  (1,310)  (2,424)     (566)   (6,240)
                                 -------  -------  -------  --------  --------
    Net cash used in financing
     activities.................  (1,897)  (1,829)  (3,356)     (844)   (6,334)
                                 -------  -------  -------  --------  --------
    Net increase (decrease) in
     cash and cash equivalents..     132       16     (914)    1,676      (119)
CASH AND CASH EQUIVALENTS,
 beginning of period............   1,459    1,591    1,607     1,607       693
                                 -------  -------  -------  --------  --------
CASH AND CASH EQUIVALENTS, end
 of period...................... $ 1,591  $ 1,607  $   693  $  3,283  $    574
                                 =======  =======  =======  ========  ========

 
The accompanying notes to combined financial statements are an integral part of
                               these statements.
 
                                     F-110

 
                      MID-VOL LEASING, INC. AND AFFILIATES
 
                     NOTES TO COMBINED FINANCIAL STATEMENTS
    December 31, 1995, 1996 and 1997 and June 30, 1997 and 1998 (Unaudited)
                             (Dollars in Thousands)
 
1. DESCRIPTION OF BUSINESS
 
Mid-Vol Leasing, Inc. and Affiliates consists of Mid-Vol Leasing, Inc. (a West
Virginia S corporation), Mega Minerals, Inc. (a West Virginia S corporation)
and Premium Processing, Inc. (a West Virginia C corporation), collectively
referred to as "the Company".
 
Mid-Vol Leasing, Inc. (MVL) engages in the brokering of coal with sales
predominantly to international coal brokering firms. MVL uses contract miners
(including a related party, see Note 7b) to mine the coal. Coal mining and the
operation of the loading facilities are conducted in McDowell County in
southern West Virginia.
 
Mega Minerals, Inc. (MMI) leases land for coal mining purposes primarily to
MVL. Premium Processing, Inc. (PPI) exclusively provides labor to operate MVL's
load out facilities.
 
Richard Preservati owns 81% of MVL and MMI and 9% of PPI. Tim Boggess, Richard
Preservati's son-in-law, owns 75% of PPI. The remaining shares of each of the
three companies are owned by Richard Preservati's wife, Nancy, and their three
children, Richard Preservati II, Nicholas Preservati and Gina Boggess.
 
See Note 12b regarding sale to Coal Ventures, Inc.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
a. Method of Accounting and Basis of Presentation
 
The accompanying combined financial statements include those of Mid-Vol
Leasing, Inc., Mega Minerals, Inc. and Premium Processing, Inc. because of
common ownership and control. All significant intercompany transactions and
balances have been eliminated in the combination.
 
The Company's books and records are maintained on an income tax basis of
accounting which differs from and is a comprehensive basis of accounting other
than generally accepted accounting principles. Adjustments have been made to
the income tax records via "memorandum" entries in order for the financial
statements to be prepared in accordance with generally accepted accounting
principles.
 
b. Interim Financial Information
 
The interim financial statements as of June 30, 1998 and for the six months
ended June 30, 1997 and 1998 are unaudited and have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company's management, the unaudited interim financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
 
c. Use of Estimates
 
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
 
                                     F-111

 
                      MID-VOL LEASING, INC. AND AFFILIATES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
 
d. Statements of Cash Flows
 
For purposes of the statements of cash flows, the Company considers investments
having maturities of three months or less at the time of purchase to be cash
equivalents.
 
  Supplemental disclosure:
 


                                                                 (Unaudited)
                                                                 Six Months
                                                 December 31,  Ended June 30,
                                                -------------- ---------------
                                                1995 1996 1997  1997    1998
                                                ---- ---- ---- ------- -------
                                                        
Cash paid for interest......................... $184 $129 $97  $    50 $    29

 
Not included in the statement of cash flows for 1995 is an addition to
property, plant and equipment of $500 which was financed through a $400 note in
1995 and a $100 option payment in 1993. Additionally in 1995, a line of credit
of $800 was refinanced into a long-term note of $800, which has been excluded
from the 1995 statement of cash flows.
 
e. Restricted Cash
 
In accordance with a 1989 coal mining sublease agreement with USX Corporation
(USX), the Company was required to maintain $100 in escrow for the purpose of
satisfying any obligations owed to USX. During 1997, this requirement was
released.
 
f. Inventories
 
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market. All inventories consists of stock piled coal.
 
g. Advance Royalties (included in prepaid expenses and other)
 
The Company is required under certain royalty lease agreements to make minimum
royalty payments whether or not mining activity is being performed on the
leased property. These minimum payments are recoupable once mining begins on
the leased property. The Company capitalizes these minimum royalty payments and
expenses them once mining activities begin. As of December 31, 1996 and 1997,
the Company had advance royalties of $56 and $49, respectively.
 
h. Property, Plant and Equipment
 
Property, plant and equipment are stated at cost. The Company provides for
depreciation of the depreciable assets by using accelerated methods with useful
lives that range from 7 to 15 years. Depreciation expense was $229, $199 and
$177 for 1995, 1996 and 1997, respectively.
 
i. Depletion
 
Cost depletion is calculated on a per ton basis to allocate the cost of mineral
reserves against the related coal sales. Cost depletion expense was $93, $101
and $152 for 1995, 1996 and 1997, respectively.
 
j. Revenue Recognition
 
The Company's revenues have primarily been generated under coal sales contracts
with coal brokerage firms, primarily internationally based. All sales are
consummated in US dollars, and revenues are recognized at the time the train
cars are loaded as all sales agreements are FOB mine site. The Company grants
credit to its
 
                                     F-112

 
                      MID-VOL LEASING, INC. AND AFFILIATES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
customers based on their creditworthiness and generally does not secure
collateral for its receivables. No allowance for doubtful accounts is recorded
for 1996 and 1997, as management does not believe it is necessary.
Historically, accounts receivable write-offs have been insignificant.
 
k. SFAS No. 121
 
Effective January 1, 1996, for purposes of this presentation in accordance with
generally accepted accounting principles, the Company adopted Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of (SFAS No. 121). The
new standard requires that long-lived assets and certain identified intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In performing such
impairment review, companies are required to estimate the sum of future cash
flows from an asset and compare such amount to the asset's carrying amount. Any
excess of carrying amount over expected cash flows will result in a possible
write-down of an asset to its fair value. Adopting SFAS No. 121 had no impact
on the Company's financial position or results of operations.
 
l. New Accounting Standard
 
Effective January 1, 1999, for purposes of this presentation in accordance with
generally accepted accounting principles, the Company will adopt Statement of
Position (SOP) 98-5 Reporting on the Costs of Start-Up Activities. The new
statement requires that the costs of start-up activities be expensed as
incurred. The Company has not yet evaluated the impact of this statement on the
results of operations or financial position.
 
m. Reclassifications
 
Certain reclassifications of prior year amounts were made to conform with the
current year presentation with no effect on previously reported net income
(loss) or stockholders' equity.
 
3. PROPERTY, PLANT AND EQUIPMENT
 
Property, plant and equipment, including mineral reserves at December 31, 1996
and 1997, are summarized by major classifications as follows:
 


                                                                 1996    1997
                                                                ------  ------
                                                                  
   Machinery & equipment....................................... $2,019  $2,100
   Mineral reserves............................................  2,593   2,593
                                                                ------  ------
                                                                 4,612   4,693
   Less accumulated depreciation, depletion and amortization... (1,494) (1,833)
                                                                ------  ------
   Net property, plant and equipment........................... $3,118  $2,860
                                                                ======  ======

 
                                     F-113

 
                      MID-VOL LEASING, INC. AND AFFILIATES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
 
4. DEBT
 
a. Long-Term Debt
 
Long-term debt consists of the following:
 


                                                                  1996   1997
                                                                 ------  -----
                                                                   
   Note payable to Consolidation Coal Company, imputed interest
    at 5.24%, payable in quarterly installments of $100,000
    principal and interest for 22 quarters, maturing November
    1999, secured by letter of credit..........................  $1,155  $ 787
   Note payable to One Valley Bank, bearing interest at 7.75%,
    payable in monthly installments of $14,296 principal and
    interest for 66 months, maturing August 2000, secured by
    equipment and guaranteed by owner..........................  $  570  $ 430
   Note payable to One Valley Bank, bearing interest at 7%,
    payable in monthly installments of $12 principal and inter-
    est for 36 months, maturing February 1997, secured by
    equipment and guaranteed by owner..........................      25    --
                                                                 ------  -----
     Totals....................................................   1,750  1,217
     Less: Current portion                                         (565)  (551)
                                                                 ------  -----
     Long-term debt............................................  $1,185  $ 666
                                                                 ======  =====

 
  Principal payments required for long-term debt after December 31, 1997 are as
follows:
 
                                                                    
   Year ended December 31:
     1998................................................................ $  551
     1999................................................................    550
     2000................................................................    116
                                                                          ------
                                                                          $1,217
                                                                          ======

   
 
b. Note payable
 
As of December 31, 1996, the Company had a $400 note payable to One Valley
Bank, bearing interest at 5.29%, payable on demand principal and interest for
180 days. This note was paid in 1997.
 
c. Letters of Credit
 
MVL has a letter of credit, secured by affiliate equipment, amounting to $800
to cover certain debt obligations.
 
d. Guarantor
 
As of December 31, 1997, MVL guarantees an affiliates' term loans of
approximately $1.4 million that mature on January 15, 2001. Subsequent to year-
end, MVL was released from its guarantor obligations (see Note 12a).
 
5. RECLAMATION COSTS
 
Under current federal and state surface mine laws, the Company is required to
reclaim land where surface mining operations are conducted. As the Company
obtained the permits relating to the surface mining of its controlled reserves,
they have the ultimate responsibility for ensuring that reclamation is
completed. Under agreements entered into by the Company with its contract
miners, such contract miners are contractually
 
                                     F-114

 
                      MID-VOL LEASING, INC. AND AFFILIATES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
responsible for reclamation. In the event that the contract miners do not
perform the required reclamation, the Company would become liable for this
reclamation. The Company assesses the financial stability of the contract
miners before entering into agreements. The Company may require contract miners
to maintain $250 in escrow to be released upon completion of reclamation. If
the contract miner obtains its own bonding, the escrow requirement is waived.
No additional amounts for reclamation have been provided in the accompanying
financial statements as the Company does not believe it will be required to
perform such activities. As of December 31, 1997, the Company had approximately
$2.8 million in mining bonds.
 
6. INCOME TAXES
 
MVL and MMI have elected to be recognized as S corporations under the Internal
Revenue Code and similar state statutes. As a result, both entities are not
subject to income taxes and their taxable income or loss is reported in the
stockholders' individual tax returns.
 
PPI (organized in 1996) has elected to be recognized as a C corporation under
the Internal Revenue Code and similar state statutes. During 1996 and 1997, PPI
had no temporary differences between financial statement and tax bases of
assets and liabilities. Accordingly, the income tax provision for 1997 is
entirely current with no deferred portion. There are no significant differences
between the statutory tax rate and effective tax rate for PPI earnings.
 
7. COMMITMENTS AND CONTINGENCIES
 
a. Coal Sales Contracts
 
As of December 31, 1997, MVL had commitments to deliver base quantities of coal
to two customers. One contract expires at the end of 1998, with MVL contracted
to supply a minimum of approximately 60,000 tons of coal over the remaining
life of this contract at prices which are at or above market. MVL also has a
contract with CoalArbed, which extends through June 30, 1999 (see Note 9). MVL
is to supply a minimum of approximately 600,000 tons of coal at prices which
are at or above market.
 
b. Contract Mining Agreements
 
As of December 31, 1997, MVL had commitments to purchase quantities of coal
from three contract miners (including one affiliate) under various agreements.
In 1998, MVL is committed to purchase approximately 1,000,000 tons of coal at
cost which will not exceed the ultimate sales prices.
 
Included in the aforementioned tonnage purchase commitment is approximately
360,000 tons of coal to be purchased from a party related by common ownership,
Extra Energy, Inc. (EEI). MVL has used EEI as a contract miner since 1993.
Prior to January 1, 1998, EEI's per ton selling price to MVL was equal to EEI's
cost per ton to mine the coal, exclusive of any profit or cost of capital. As
of December 31, 1995, 1996 and 1997, EEI's price per ton was $28.20, $34.60 and
$16.00, respectively. Beginning January 1, 1998, EEI's sales price to MVL was
set at $23.00 per ton. These rates exclude additional mining costs such as
production taxes and royalty fees.
 
c. Litigation
 
The Company is named as defendant in two pending civil actions that relate to
an on-the-job accident. While the final resolution of any matter may have an
impact on the Company's financial results for a particular reporting period,
management believes that the ultimate disposition of these matters will not
have a materially adverse effect upon the financial position of the Company.
 
                                     F-115

 
                      MID-VOL LEASING, INC. AND AFFILIATES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
 
d. Leases
 
Lease Cost
 
The Company leases equipment from a related party. Lease expense for the years
ended December 31, 1995, 1996 and 1997 was $254, $243 and $619, respectively.
MMI and MVL also lease coal reserves under agreements that call for royalties
to be paid as the coal is mined. Total royalty expense for the periods ending
December 31, 1995, 1996 and 1997 was $259, $398 and $1,062, respectively.
 
Approximate future minimum lease and royalty payments are as follows:
 


                                                                       Operating
   Year ended December 31:                                   Royalties  Leases
   -----------------------                                   --------- ---------
                                                                 
     1998...................................................    $53     $2,312
     1999...................................................     53      2,312
     2000...................................................     53      1,884
     2001...................................................     32
     2002...................................................     31
     Thereafter.............................................     30

 
Subsequent to year-end, the leases relating to royalties were amended (see Note
11b).
 
Lease Income
 
MMI leases certain coal reserve rights. During 1995, 1996 and 1997, MMI
recognized royalty income of $139, $198 and $353, respectively. The Company has
two lease agreements extending through 2001 and 2008, which call for minimum
annual payments to be received of $10 and $7, respectively.
 
8. STOCKHOLDERS' EQUITY
 
Stockholders' equity consists of:
 


                                                  December 31,
                                              ---------------------  June 30,
                                               1995   1996   1997      1998
                                              ------ ------ ------- -----------
                                                                    (Unaudited)
                                                        
Common Stock:
  Mid-Vol Leasing, Inc.--$10.00 par value,
   100 shares authorized, 100 shares issued
   and outstanding........................... $    1 $    1 $     1   $    1
  Mega Minerals, Inc.--$10.00 par value, 100
   shares authorized, 100 shares issued and
   outstanding...............................      1      1       1        1
  Premium Processing, Inc.--$10.00 par value,
   100 shares authorized, 100 shares issued
   and outstanding...........................    --       1       1        1
                                              ------ ------ -------   ------
                                                   2      3       3        3
                                              ------ ------ -------   ------
Retained Earnings:
  Mid-Vol Leasing, Inc.......................  3,326  3,133   9,286    5,840
  Mega Minerals, Inc.........................    862  1,250   1,355    1,499
  Premium Processing, Inc....................    --       9       8        4
                                              ------ ------ -------   ------
                                               4,188  4,392  10,649    7,343
                                              ------ ------ -------   ------
    Total Stockholders' Equity............... $4,190 $4,395 $10,652   $7,346
                                              ====== ====== =======   ======

 
                                     F-116

 
                      MID-VOL LEASING, INC. AND AFFILIATES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
 
9. MAJOR CUSTOMERS
 
The Company had sales to the following major customers that in any period
exceeded 10% of revenues:
 


                               1995                   1996                         1997
                         ---------------- ---------------------------- -----------------------------
                                                            Year-End                      Year-End
                                 Percent          Percent   Receivable          Percent   Receivable
                         Sales   of Sales Sales   of Sales   Balance    Sales   of Sales   Balance
                         ------ --------- ------ --------- ----------- ------- --------- -----------
                                                                 
CoalArbed............... $3,315     27%   $9,614     54%      $455     $24,469     71%     $4,554
Consol.................. $3,101     25%       NA     NA         NA          NA     NA          NA
Metcoal.................     NA     NA    $3,093     17%      $ 89          NA     NA          NA
Rheinbraun.............. $1,986     16%   $2,235     13%       --           NA     NA          NA
National Fuel Corp...... $1,251     10%       NA     NA         NA          NA     NA          NA

 
10. RELATED PARTY TRANSACTIONS
 
As indicated in Note 2, all material related party transactions among the
combining Companies have been eliminated. Transactions with other corporations
related via common ownership were as follows:
 


                                                December 31,        June 30,
                                            --------------------- -------------
                                             1995   1996   1997    1997   1998
                                            ------ ------ ------- ------ ------
                                                                   (unaudited)
                                                          
   Revenues and expenses:
     Royalty income........................ $  --  $  --  $     2 $  --  $   13
     Contract mining costs.................  9,653  9,282  13,029  7,209  5,396
     Purchased coal........................    986    --      --     --     --
     Loading...............................     26     33      35     17    --
     Equipment rental......................    254    243     619    140    620
     Administrative services...............     12     38      73     30     49
     Maintenance and repair................    122    --      --     --     --

 
11. SUBSEQUENT EVENTS
 
a. Pace Carbon West Virginia Synthetic Fuels #3, L.L.C. Refuse Plant
 
In January 1998, MVL (as Lessor) and Pace Carbon West Virginia Synthetic Fuels
#3, L.L.C. (Pace) entered into a sub-lease agreement pertaining to 7 acres at
the Dan's Branch Location. The agreement runs through June 30, 2008, with Pace
paying $7 per year in rent to MVL.
 
Pace is constructing a coal palletizing plant on the leased property. Pace
plans to blend refuse type material with low quality coal to produce coal
briquettes, which will be sold to utilities.
 
As of December 31, 1997, Pace had advanced to MVL $100 towards the construction
of a beltway (conveyor). In March 1998, Pace advanced MVL an additional $1,900.
The beltway will run to MVL's Eckman loadout facility. MVL and Pace will both
have access to the beltway with MVL gaining ownership upon its completion. If
MVL cannot construct the beltway for $2,000 but can complete for up to $3,000,
Pace will loan MVL up to $1,000 at 8% interest. If MVL cannot complete the
project for the $3,000, the parties will decide who will fund the additional
amount. If the belt is determined to be not economically feasible (prior to
beginning construction), MVL is obligated to use the $2,000 advanced from Pace
to improve the haul roads at the Dan's Branch location. The Company estimates
construction costs of approximately $3,700. Due to the conveyor project not
being economically feasible, the Company plans on using the $2,000 towards
improving the haul roads.
 
                                     F-117

 
                      MID-VOL LEASING, INC. AND AFFILIATES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
 
 
b. Amendment to Pocahontas Land Corporation (Pocahontas) Leases
 
On April 1, 1998, MVL and MMI amended their individual leases with Pocahontas,
bringing all leases under the same terms. All leases extend through December
31, 2012, with renewal periods of 15 years. The Company will pay Pocahontas a
royalty rate of 3.25% on the average gross selling price per ton, beginning
April 1, 1998 through March 31, 2000; thereafter, the royalty rate increases to
3.50%. The advance minimum annual payment will be $185 payable in quarterly
payments of $46, effective January 1, 1998.
 
c. Potential Acquisition by AEI Holding Company, Inc.
 
In March 1998, the shareholders signed a letter of intent to sell all of the
stock of MVL, MMI and PPI to AEI Holding Company, Inc.
 
12. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
 
a. Release from Obligations
 
Subsequent to April 23, 1998, MVL was released from its guarantor obligation
(see Note 4d). Additionally, MVL was released from its operating lease
obligations (see Note 7d).
 
b. Purchase Agreement
 
On July 10, 1998, the shareholders entered into a stock purchase agreement and
immediately sold all their shares to Coal Ventures, Inc. (CVI), which is an
entity related to AEI Holding Company, Inc. CVI subsequently change its name to
AEI Resources, Inc. (Resources). The purchase price was $35,000 plus a working
capital adjustment as well as production royalty payments.
 
c. Debt Retirement
 
In July 1998 the Company paid off its remaining debt with company cash and net
proceeds from the $750 short-term note payable. Subsequently, the Company's
major shareholder retired the $750 note payable.
 
 
                                     F-118

 
                          INDEPENDENT AUDITORS' REPORT
 
To the Board of Directors and Stockholders
Kindill Holding, Inc.
Owensboro, Kentucky
 
We have audited the accompanying consolidated balance sheets of Kindill
Holding, Inc. (Company) as of December 31, 1996 and 1997, and the related
statements of income, stockholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1996 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
 
Deloitte & Touche LLP
 
Louisville, Kentucky
April 3, 1998
(May 15, 1998 as to note 6 and August 17, 1998 as to note 16)
 
 
                                     F-119

 
                              KINDILL HOLDING, INC
 
                          CONSOLIDATED BALANCE SHEETS
 


                                           December 31,      June 30,
                                          ----------------  -----------
                                           1996     1997       1998
                                          -------  -------  -----------
                                                            (Unaudited)
                                                             
                 ASSETS                         (In thousands)
CURRENT ASSETS:
  Cash, and cash equivalents............. $   102  $ 6,901   $  2,713
  Accounts receivable:
   Trade, less allowance for doubtful
    accounts of $119 (1996)..............   5,945    4,888      4,625
   Escrow receivable related to
    acquisition..........................   3,888      --         --
   Insurance claim.......................   1,161      --         --
  Coal inventory.........................     718    1,964      3,291
  Other..................................   1,176    1,574      1,396
                                          -------  -------   --------
    Total current assets.................  12,990   15,327     12,025
PROPERTY, PLANT, AND EQUIPMENT, net......  76,409   79,131     86,413
OTHER ASSETS.............................   1,773    3,311      2,558
                                          -------  -------   --------
TOTAL.................................... $91,172  $97,769   $100,996
                                          =======  =======   ========
  LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable....................... $ 6,561  $ 6,167   $  4,702
  Accrued expenses:
   Accrued payroll.......................   1,464    1,374      1,345
   Accrued interest......................      80      952        --
   Other.................................   2,821    3,584      4,389
  Payable to a relative of a stockholder
   of the Parent.........................  11,193      --         --
  Current maturities of long-term debt...   5,309    4,000      4,000
  Current portion of accrued reclamation
   liability.............................  13,000    8,000      5,000
                                          -------  -------   --------
    Total current liabilities............  40,428   24,077     19,436
LONG-TERM DEBT...........................   5,750   33,330     39,000
ACCRUED RECLAMATION LIABILITY............  17,999   10,026      9,290
ACCRUED POSTRETIREMENT BENEFIT
 OBLIGATION..............................  20,937   23,587     25,037
DEFERRED INCOME TAXES....................   2,014    1,697      2,899
COMMITMENTS AND CONTINGENCIES............     --       --         --
                                          -------  -------   --------
    Total liabilities....................  87,128   92,717     95,662
                                          -------  -------   --------
STOCKHOLDERS' EQUITY:
  Common stock, no par value: authorized
   30,000 shares; issued and outstanding
   10,000 shares.........................      13       13         13
  Note receivable from sale of common
   stock.................................      (8)      (8)        (8)
  Retained earnings......................   4,039    5,047      5,329
                                          -------  -------   --------
    Total stockholders' equity...........   4,044    5,052      5,334
                                          -------  -------   --------
TOTAL.................................... $91,172  $97,769   $100,996
                                          =======  =======   ========

 
                See notes to consolidated financial statements.
 
                                     F-120

 
                              KINDILL HOLDING, INC
 
                       CONSOLIDATED STATEMENTS OF INCOME
 


                                             Years Ended       Six Months
                                            December 31,     Ended June 30,
                                           ----------------  ----------------
                                            1996     1997     1997     1998
                                           -------  -------  -------  -------
                                                               (Unaudited)
                                                   (In thousands)
                                                          
COAL SALES................................ $62,860  $58,761  $28,803  $36,867
COST OF COAL SOLD.........................  54,786   54,624   26,590   32,659
                                           -------  -------  -------  -------
GROSS PROFIT..............................   8,074    4,137    2,213    4,208
SELLING, GENERAL AND ADMINISTRATIVE
 EXPENSES.................................   3,435    2,019    1,111    1,337
                                           -------  -------  -------  -------
INCOME FROM OPERATIONS....................   4,639    2,118    1,102    2,871
                                           -------  -------  -------  -------
OTHER INCOME (EXPENSE):
  Investment income.......................     363      340      110      233
  Rental income...........................     100      159      122       54
  Income from insurance claim.............   1,161      176      400      --
  Other income............................     147      303       76       31
  Interest expense........................    (429)  (1,562)    (416)  (2,720)
                                           -------  -------  -------  -------
    Other income (expense), net...........   1,342     (584)     292   (2,402)
                                           -------  -------  -------  -------
INCOME BEFORE INCOME TAX EXPENSE..........   5,981    1,534    1,394      469
INCOME TAX EXPENSE........................   1,942      526      488      187
                                           -------  -------  -------  -------
NET INCOME................................ $ 4,039  $ 1,008  $   906  $   282
                                           =======  =======  =======  =======
NET INCOME PER COMMON SHARE (BASIC AND
 DILUTED)................................. $   404  $   101       91  $    28
                                           =======  =======  =======  =======

 
 
                See notes to consolidated financial statements.
 
                                     F-121

 
                             KINDILL HOLDING, INC.
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
   Years Ended December 31, 1996 and 1997 and Six Months Ended June 30, 1998
 


                                                Note Receivable
                                         Common  From Sales of  Retained
                                         Stock   Common Stock   Earnings Total
                                         ------ --------------- -------- ------
                                                     (In thousands)
                                                             
BALANCES AT
  JANUARY 1, 1996.......................  $13         $(8)       $  --   $    5
  Net income............................  --          --          4,039   4,039
                                          ---         ---        ------  ------
BALANCES AT
  DECEMBER 31, 1996.....................   13          (8)        4,039   4,044
  Net income............................  --          --          1,008   1,008
                                          ---         ---        ------  ------
BALANCES AT
  DECEMBER 31, 1997.....................   13          (8)        5,047   5,052
  Net income (Unaudited)................  --          --            282     282
                                          ---         ---        ------  ------
BALANCE AT
  JUNE 30, 1998 (Unaudited).............  $13         $(8)       $5,329  $5,334
                                          ===         ===        ======  ======

 
 
                See notes to consolidated financial statements.
 
                                     F-122

 
                              KINDILL HOLDING, INC
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 


                         Years Ended December 31,    Six Months Ended June 30,
                         --------------------------  --------------------------
                             1996          1997          1997          1998
                         ------------  ------------  ------------  ------------
                                                       
                                                            (Unaudited)
                                           (In thousands)
CASH FLOWS FROM
 OPERATING ACTIVITIES:
 Net income............. $      4,039  $      1,009  $        906  $        282
 Adjustments to
  reconcile net income
  to net cash provided
  by (used in) operating
  activities:
  Depreciation,
   depletion and
   amortization.........        4,249         5,123         1,962         1,961
  Gain on sales of
   property, plant and
   equipment............           (1)          (37)          --           (131)
  Deferred income
   taxes................        1,627          (278)          488           187
  Changes in assets and
   liabilities (net of
   effects
   of acquisitions):
   Accounts receivable..        1,007         6,105         6,478           263
   Coal inventory.......         (718)       (1,246)         (713)       (1,327)
   Other current assets
    and other assets....         (166)       (5,324)        1,088           930
   Accounts payable.....        6,561          (394)         (720)       (1,465)
   Accrued expenses.....       11,939         1,546        (1,320)          839
   Accrued reclamation
    liability...........      (28,501)      (12,973)       (4,435)       (3,736)
   Accrued
    postretirement
    benefit obligation..        2,302         2,650           804         1,450
                         ------------  ------------  ------------  ------------
    Net cash provided by
     (used in) operating
     activities.........        2,338        (3,819)        4,538          (747)
                         ------------  ------------  ------------  ------------
CASH FLOWS FROM
 INVESTING ACTIVITIES:
 Expenditures for
  purchases of property,
  plant and equipment...      (16,037)       (4,624)        (806)        (9,330)
 Proceeds from
  (Expenditures for)
  sales of property,
  plant and equipment...            7           165         (110)           218
 Cash received from
  acquisitions..........        2,735           --            --            --
 Payable to a relative
  of a stockholder of
  the Parent............          --        (11,193)          --            --
                         ------------  ------------  ------------  ------------
    Net cash used in
     investing
     activities.........      (13,295)      (15,652)        (916)        (9,112)
                         ------------  ------------  ------------  ------------
CASH FLOWS FROM
 FINANCING ACTIVITIES:
 Proceeds from issuance
  of long-term debt.....       31,262        81,223           --          7,171
 Principal payments on
  long-term debt........      (20,203)      (54,953)      (3,239)        (1,500)
                         ------------  ------------  ------------  ------------
    Net cash provided by
     (used in) financing
     activities.........       11,059        26,270       (3,239)         5,671
                         ------------  ------------  ------------  ------------
NET INCREASE (DECREASE)
 IN CASH AND CASH
 EQUIVALENTS............          102         6,799           383        (4,188)
CASH AND CASH
 EQUIVALENTS, BEGINNING
 OF PERIOD..............          --            102           102         6,901
                         ------------  ------------  ------------  ------------
CASH AND CASH
 EQUIVALENTS, END OF
 PERIOD................. $        102  $      6,901  $        485  $      2,713
                         ============  ============  ============  ============
CASH PAID DURING THE
 PERIOD FOR INTEREST.... $        349  $        690  $        436  $      3,144
                         ============  ============  ============  ============

 
                See notes to consolidated financial statements.
 
                                     F-123

 
                             KINDILL HOLDING, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            As of and for the Years Ended December 31, 1996 and 1997
                             (Dollars In Thousands)
 
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
   POLICIES
 
Description of Business--Kindill Holding, Inc., (Company) is primarily engaged
in the extraction and processing of coal in Southern Indiana. The principal
market for the Company's coal is electric utilities located in Southern Indiana
and Western Kentucky. Coal sales are made under long-term contracts and on the
spot market, and are made on an unsecured basis. A substantial portion of the
Company's labor force is under a contract with the United Mine Workers of
America (UMWA).
 
Basis of Presentation--The consolidated financial statements include the
accounts of Kindill Holding, Inc. and its subsidiary. All significant
intercompany transactions and balances have been eliminated. Any information as
of June 30, 1998 and for the six months ended June 30, 1997 and 1998 is
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of
these interim periods have been included. The result for its interim periods
ended June 30, 1997 and 1998, are not necessarily indicative of the results to
be obtained for the full year.
 
Acquisitions--On December 6, 1995 and February 12, 1996, the Company acquired
certain assets, primarily mineral reserves and mining machinery and equipment
of approximately $79,019, assumed certain liabilities, primarily reclamation
and postretirement benefit obligation of approximately $81,754, and received
cash of $2,735. Liabilities assumed also include a payable to a relative of a
stockholder of the Parent for fees related to the acquisitions of approximately
$16,600. The purchase method was used to account for the acquisitions.
 
Cash and Cash Equivalents--Cash and cash equivalents include cash on deposit
and highly liquid investments with original maturities of three months or less.
 
Inventories--Coal inventory is stated at the lower of costs (first-in, first-
out method) or market. Coal inventory costs primarily include labor, equipment,
drilling, blasting and stripping costs. Expenditures for mine supply inventory,
which totaled approximately $11,130 and $10,804 in 1996 and 1997, respectively,
are charged to expense when incurred.
 
Property, Plant and Equipment--Property, plant and equipment are stated at
cost. Depreciation is determined using principally the straight-line method
over the estimated useful lives of the related assets. Expenditures for mineral
rights are capitalized. Mineral rights costs are depleted or amortized using
the units of production method. Expenditures for maintenance and repair costs
which totaled approximately $8,270 and $9,013 in 1996 and 1997, respectively,
are charged to expense when incurred.
 
Deferred Financing Costs--The cost of issuing long-term debt is capitalized and
amortized using the effective interest method over the term of the related
debt.
 
Advanced Royalties--Advanced, or recoupable, royalties represent prepayments on
leases for the rights to mine minerals. These royalties are charged to expense
based on the units of production method or charged to operations when the
Company has ceased mining or has made the decision not to mine such property.
 
Asset Impairment--In certain situations, expected mine lives are shortened
because of changes to planned operations. To the extent that it is determined
that asset carrying values will not be recoverable during the shorter mine
life, a provision for such impairment is recognized. In addition, the Company
elected to adopt Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of in 1996. SFAS No. 121 expanded the Company's criteria for loss
recognition, and provides methods for both determining when an impairment has
occurred and for measuring the amount of the impairment. SFAS No. 121 requires
that projected future cash flows from use and disposition of all the Company's
assets be compared with the carrying amounts of those assets. When the sum of
projected cash flows is less than the carrying amount, impairment losses are to
be recognized. There are no asset impairments at December 31, 1996 and 1997.
 
                                     F-124

 
                             KINDILL HOLDING, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
Accrued Reclamation Liability--The Company is required to reclaim land on which
mining operations are conducted. An estimated reclamation liability associated
with acquired properties is recognized on the purchase date. The costs of
normal ongoing surface mining reclamation are charged to cost of sales as
incurred. Reclamation costs primarily include reclaiming the final pit and
support acreage at surface mines, removing or covering refuse piles and slurry
(or settling) ponds and dismantling preparation plants and other facilities.
 
Accrued Postretirement Benefit Obligation--As prescribed by SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other than Pensions, the
Company accrues, based on annual independent actuarial valuation, for expected
costs of providing postretirement benefits other than pensions, primarily
medical benefits, during an employee's actual working career.
 
Income Taxes--The Company accounts for income taxes in accordance with SFAS No.
109, Accounting for Income Taxes. Under SFAS No. 109, deferred taxes are
established for temporary differences between financial reporting basis and the
tax basis of the Company's assets and liabilities at enacted tax rates expected
to be in effect when such amounts are realized or settled.
 
Revenue Recognition--Coal sales are recognized at contract prices as the time
title transfers to the customer.
 
Net Income Per Common Shares--The Company adopted SFAS No. 128, Earnings Per
Share, which requires the Company to present its basic net income per common
share. Net income per common share is determined by dividing the weighted
average number of common shares outstanding during the year into net income.
 
Rate Ceiling Agreement--The Company centered into a rate ceiling agreement to
reduce the impact of changes in interest rates on $21,000 of its floating rate
debt for the period from October 2, 1997 through September 30, 2000. The rate
available under the agreement caps the 10.25% rate under a term note at 12.25%.
Net cash amounts paid or received under the agreement, if any, are accrued and
recognized as an adjustment to interest expense. There were no amounts paid or
received under the agreement in 1997.
 
Use of Estimates--Financial statements prepared in conformity with a generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements, and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
 
2. FINANCIAL INSTRUMENTS
 
The Company is a party to financial instruments with off-balance sheet risk. No
losses are anticipated due to nonperformance by the counterparties relating to
financial instruments. Pursuant to SFAS No. 107, Disclosures about Fair Value
of Financial Instruments, the Company is required to disclose the fair value of
financial instruments where practicable. The carrying amounts of cash
equivalents, accounts receivable and accounts payable reflected on the balance
sheets approximate the fair value of these instruments due to the short
duration to maturity. The fair value of long-term debt is based on the interest
rates available to the Company for debt with similar terms and maturities. The
fair value of the rate ceiling agreement is based on the quoted market price as
provided by the financial institution which is the counterparty to the
agreement.
 
                                     F-125

 
                             KINDILL HOLDING, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
The fair value of the Company's long-term debt and rate ceiling agreement as of
December 31 is as follows:
 


                                                    1996             1997
                                              ---------------- ----------------
                                              Carrying  Fair   Carrying  Fair
                                               Value    Value   Value    Value
                                              -------- ------- -------- -------
                                                            
   Long-term debt............................ $11,059  $11,059 $37,330  $37,330
   Rate ceiling agreement....................                           $    14

 
3. OTHER CURRENT ASSETS
 
Other current assets consist of the following:
 


                                                                   1996   1997
                                                                  ------ ------
                                                                   
   Advanced royalties, current portion........................... $  370 $  210
   Deferred income taxes.........................................    386    347
   Prepaid insurance.............................................    210    530
   Other.........................................................    210    487
                                                                  ------ ------
   Total......................................................... $1,176 $1,574
                                                                  ====== ======

 
4. PROPERTY, PLANT AND EQUIPMENT
 
Property, plant and equipment consist of the following:
 


                                                                  Useful Lives
                                                   1996    1997     (Years)
                                                  ------- ------- ------------
                                                         
   Land.......................................... $ 2,733 $ 3,128
   Mining machinery and equipment................  33,066  33,531     5-12
   Mineral reserves..............................  34,136  39,819
   Buildings, preparation plans, loading
    facilities and improvements..................   9,483   9,956     5-15
   Vehicles......................................     993   1,289        5
   Office equipment, furniture and fixtures......     159     323        5
                                                  ------- -------
       Total.....................................  80,570  88,046
   Less accumulated depreciation, depletion and
    amortization.................................   4,161   8,915
                                                  ------- -------
   Net........................................... $76,409 $79,131
                                                  ======= =======

 
5. OTHER ASSETS
 
Other assets consist of the following:
 


                                                                 1996   1997
                                                                ------ ------
                                                                 
   Deferred loan financing costs, less current portion, net of
    accumulated amortization of $350 (1997)....................        $1,465
   Advanced royalties.......................................... $  866  1,024
   Other.......................................................    907    822
                                                                ------ ------
   Total....................................................... $1,773 $3,311
                                                                ====== ======

 
                                     F-126

 
                             KINDILL HOLDING, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
6. LONG-TERM DEBT
 
Long-term debt consists of the following:
 


                                                                 1996    1997
                                                                ------- -------
                                                                  
   Term notes payable, secured by substantially all assets,
    interest at prime (8.5% at December 31, 1997) plus 1.75%
    and 2.25%, payable in installments through March 2005, plus
    interest notes as described below..........................         $37,330
   Interest notes, less deferred interest as described below...
   Term note payable........................................... $ 7,500
   Revolving credit commitment (weighted average interest
    rate of 8.4%)..............................................   3,559
                                                                ------- -------
       Total...................................................  11,059  37,330
   Less current maturities.....................................   5,309   4,000
                                                                ------- -------
   Long-term maturities........................................ $ 5,750 $33,330
                                                                ======= =======

 
Annual principal payments on long-term debt are as follows:
 


                                                                          1997
                                                                         -------
                                                                      
   1998.............................................................     $ 4,000
   1999.............................................................       5,333
   2000.............................................................       5,333
   2001.............................................................       5,333
   2002.............................................................       5,333
   Thereafter.......................................................      11,998
                                                                         -------
   Total............................................................     $37,330
                                                                         =======

 
At December 31, 1997, the Company has interest notes of $8,000 for additional
interest payable to the term note lenders. The interest notes are secured by
substantially all assets, bear interest at prime (8.5% at December 31, 1997)
plus 2%, and are payable in installments through March 2005. The cost related
to these notes has been recorded as a contra account to long-term debt and is
being amortized using the effective interest method over the period of the term
notes. The Company can prepay the interest notes, for $5,000 at any time on or
prior to December 31, 1998, for $6,000 at any time on or prior to June 30,
1999, or for $7,000 at any time on or prior to December 31, 1999. At present,
Company management intends to pay the interest notes in installments through
March 2005. However, if the Company prepays the term and additional interest
notes, interest will be adjusted to include the amount of the interest
prepayment not yet recognized under the effective interest method. The
approximate amount of the interest that would be adjusted to include the amount
of interest prepayment not yet recognized under the effective interest method
is $2,933 in 1998 if prepaid on December 31, 1998, is $2,362 in 1998 and $647
in 1999 if prepaid on June 30, 1999, or is $2,044 in 1998 and 1999 if prepaid
on December 31, 1999.
 
Loan agreements related to the term notes require the Company to maintain
certain minimum financial ratios and also contain certain restrictive
provisions, including, among others, restrictions on selling or transferring
assets, incurring additional indebtedness, making distributions without prior
consent of the lenders, leasing of real or personal property and purchasing
fixed assets. The Company was not in compliance with its interest coverage
ratio covenant and, on May 15, 1998, received a waiver from the term note
lenders.
 
                                     F-127

 
                             KINDILL HOLDING, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
7. ACCRUED POSTRETIREMENT BENEFIT OBLIGATION
 
Pursuant to Article XX, Health and Retirement Benefits, of the National
Bituminous Coal Wage Agreement of 1993 (NBCWA), the Company is required to
provide for postretirement benefits other than pensions to eligible
beneficiaries covered by the NBCWA. The net postretirement healthcare cost for
1996 and 1997 includes the following:
 


                                                                   1996   1997
                                                                  ------ ------
                                                                   
   Service cost.................................................. $  310 $  187
   Interest cost.................................................  2,125  2,233
   Amortization of unrecognized loss.............................    406    277
                                                                  ------ ------
   Net periodic postretirement benefit cost...................... $2,841 $2,697
                                                                  ====== ======

 
A reconciliation of the plan's status to amounts recognized in the Company's
balance sheets at December 31, follows:
 


                                                                 1996    1997
                                                                ------- -------
                                                                  
   Accumulated postretirement benefit obligation:
     Retirees..................................................         $ 3,139
     Fully eligible active employees........................... $23,502  23,500
     Other active employees....................................   4,735   2,979
                                                                ------- -------
       Total...................................................  28,237  29,618
     Unrecognized net loss.....................................   7,300   6,031
                                                                ------- -------
   Accumulated postretirement benefit obligation............... $20,937 $23,587
                                                                ======= =======

 
The discount rate used to determine the accumulated postretirement benefit
obligation was 7% at December 31, 1996 and 1997. The assumed healthcare cost
trend rates used in determining the net expense for 1997 are shown in the
following table. Healthcare cost trends were assumed to decline from 1997
levels to an ultimate ongoing level over four years as follows:
 


                                                                   1997  Ultimate
                                                                   Rate    Rate
                                                                   ----  --------
                                                                   
   Pre-65......................................................... 7.4%      5%
   Post-65........................................................ 6.2%      5%
   Medicare offset................................................ 5.8%      5%

 
The expense and liability estimates can fluctuate by significant amounts based
upon the assumptions used by actuaries. If the healthcare cost trend rate was
increased by 1% in each year, the accumulated postretirement benefit obligation
would be approximately $5,670 higher as of December 31, 1997. The effect of
this change on the 1997 expense would be an increase of approximately $440.
 
8. INCOME TAXES
 
Income tax expense consists of the following:
 


                                                                    1996  1997
                                                                   ------ -----
                                                                    
   Current........................................................ $  315 $ 804
   Deferred expense (benefit).....................................  1,627  (278)
                                                                   ------ -----
   Income tax expense............................................. $1,942 $ 526
                                                                   ====== =====

 
 
                                     F-128

 
                             KINDILL HOLDING, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income tax expense does not differ materially from the amount computed by
applying the statutory federal income tax rate of 34% to income before income
taxes.
 
The components of deferred tax assets and liabilities are as follows:
 


                                                                1996    1997
                                                               ------- -------
                                                                 
   Current deferred tax assets:
     Accrued liabilities, primarily accrued vacation.......... $   300 $   281
     Deferred rent............................................      46      66
     Allowance for doubtful accounts..........................      40
                                                               ------- -------
   Total current deferred tax assets.......................... $   386 $   347
                                                               ------- -------
   Non-current deferred tax assets:
     Postretirement benefits.................................. $ 7,119 $ 7,989
     Reclamation..............................................   6,129   6,129
                                                               ------- -------
   Total non-current deferred tax assets......................  13,248  14,118
                                                               ------- -------
   Non-current deferred tax liabilities:
     Differences between assigned values and tax bases of
      minerals acquired.......................................   6,148   6,439
     Differences between assigned values and tax bases of
      fixed assets acquired...................................   9,114   9,376
                                                               ------- -------
   Total non-current deferred tax liabilities.................  15,262  15,815
                                                               ------- -------
   Net non-current deferred tax liabilities................... $ 2,014 $ 1,697
                                                               ======= =======

 
9. RELATED PARTY TRANSACTIONS
 
The following summarizes expenses incurred during 1996 and 1997 and for the six
months ended June 30, 1998 and amounts payable at December 31, 1996 and 1997
and June 30, 1998 to related parties:
 


                                    1996             1997        June 30, 1998
                              ---------------- ---------------- ----------------
                              Expenses Payable Expenses Payable Expenses Payable
                              -------- ------- -------- ------- -------- -------
                                                                  (Unaudited)
                                                       
  Payable to a relative of a
   stockholder..............           $11,200
  Equipment rentals and
   other operational costs
   paid to a company owned
   by a relative of a
   stockholder..............   $7,444    1,646  $8,680   $996    $5,558    $71
  Sales commissions paid to
   a company owned by a
   relative of a
   stockholder..............    1,048      117
  Consulting fees paid to a
   former stockholder.......    1,435               75
  Consulting fees paid to a
   stockholder..............                       131               30
                               ------  -------  ------   ----    ------    ---
  Total.....................   $9,927  $12,963  $8,886   $996    $5,588    $71
                               ======  =======  ======   ====    ======    ===

 
 
                                     F-129

 
                             KINDILL HOLDING, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
10. COAL SUPPLY CONTRACTS
 
The Company has commitments to deliver scheduled base quantities of coal
annually to various customers, which require the Company to supply a minimum
supply of coal over the remaining lives of the contracts at prices as defined
under the contracts. The annual requirements of tons to be delivered under coal
supply contracts are as follows:
 


                                                                       Tons
                                                                  --------------
                                                                  (In Thousands)
                                                               
   1998..........................................................      2,040
   1999..........................................................      1,260
   2000..........................................................      1,260
   2001..........................................................      1,260
   2002..........................................................      1,260
   Thereafter....................................................      3,960
                                                                      ------
   Total.........................................................     11,040
                                                                      ======

 
11. LEASES
 
The Company has certain noncancelable royalty and equipment operating lease
agreements with terms in excess of one year. The annual minimum commitments are
as follows:
 


                                                       Royalty Equipment  Total
                                                       ------- --------- -------
                                                                
   1998...............................................  $ 69    $ 2,848  $ 2,917
   1999...............................................    69      2,848    2,917
   2000...............................................    69      2,848    2,917
   2001...............................................    69      2,848    2,917
   2002...............................................    69      2,848    2,917
   2003 and Thereafter................................   367      2,848    3,215
                                                        ----    -------  -------
   Total..............................................  $712    $17,088  $17,800
                                                        ====    =======  =======

 
Royalty and lease expense for 1996 and 1997 was approximately $8,950 and
$4,100, respectively.
 
12. BENEFIT TRUST AND PLANS
 
The Company is required under their contract with the UMWA to pay amounts based
on hours worked to the UMWA Pension Plan and Trust, a multi-employer pension
plan covering all employees who are members of the UMWA. The accompanying
statements of income include approximately $540 and $466 of expense in 1996 and
1997, respectively, applicable to the plan. The NBCWA authorizes the
Bituminious Coal Operators Association to increase the rate of contributions
from employers to assure payment of benefits. The union contract requires all
currently participating employers to guarantee benefits jointly, but not
severally, with all other currently participating employers.
 
The Company has a defined contribution savings plan under the provisions of
Sec. 401(k) of the Internal Revenue Code that provides retirement benefits to
substantially all employees other than employees covered by the contract with
the UMWA. The Company's contribution is discretionary. The Company did not make
any contributions in 1996 or 1997.
 
                                     F-130

 
                             KINDILL HOLDING, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
13. SELF-INSURED EMPLOYEE HEALTH AND DISABILITY BENEFITS
 
The Company maintains self-insurance programs for that portion of
nonadministrative employees' workers' compensation costs not covered by the
Company's stop loss insurance policy. During 1996 and 1997, the maximum cash
outlays were $250 in annual claims for each accident and aggregate annual
claims of $750 and $500, respectively. Workers' compensation costs charged to
expense in 1996 and 1997 were approximately $185 and $132, respectively.
 
Effective August 1, 1997, the Company began a self-insurance program for that
portion of employees' health care costs not covered by the Company's stop loss
insurance policy, which sets the maximum cash outlays for annual claims for
each employee or employee's dependent up to $35 and individual lifetime maximum
of $1,000 at December 31, 1997. Health care costs charged to expense in 1997
were approximately $63.
 
14. NET INCOME PER COMMON SHARE
 
The following are reconciliations of the numerators and denominators used for
the determination of net income per common share for the years ended December
31, 1996 and 1997.
 


                                                                   1996   1997
                                                                   
Numerator:
 Net income...................................................... $4,039 $1,008
Denominator:
 Weighted-average number of common shares outstanding............     10     10
                                                                  ------ ------
Net income per common share...................................... $  404 $  101
                                                                  ------ ------

 
15. MAJOR CUSTOMERS
 
The Company has sales to the following major customers that exceed 10% of
revenues. These revenues and each customer's relative percentage of total trade
receivables are summarized below:
 


                                                Percentage of    Percentage of
                                       Revenues Total Revenues Total Receivables
                                       -------- -------------- -----------------
                                                      
As of and for the year ending
 December 31, 1996
  Customer A.......................... $11,068       17.6%           19.9%
  Customer B..........................   9,977       15.9%           13.4%
  Customer C..........................   9,415       15.0%            0.0%
  Customer D..........................   9,048       14.4%           27.2%
  Customer E..........................   7,705       12.3%           19.1%
As of and for the year ending
 December 31, 1997
  Customer A.......................... $24,471       41.6%           18.5%
  Customer B..........................   6,661       11.3%           13.6%

 
16. SUBSEQUENT EVENT
 
On August 17, 1998 the stockholders of the Company agreed to sell all of the
outstanding common stock of the Company to West Virginia--Indiana Coal Holding
Company, Inc. for approximately $11,000.
 
 
                                     F-131

 
INDEPENDENT AUDITORS' REPORT
 
To the Board of Directors of AEI Resources, Inc.:
 
We have audited the accompanying balance sheets of Martiki Coal Corporation (a
wholly-owned subsidiary of MAPCO Coal, Inc.) as of December 31, 1997, and
September 30, 1998, and the related statements of operations, stockholder's
equity, and cash flows for the seven months ended July 31, 1996 (predecessor),
and for the five months ended December 31, 1996, the year ended December 31,
1997, and the nine months ended September 30, 1998 (successor). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Martiki Coal Corporation at December 31,
1997, and September 30, 1998, and the results of its operations and its cash
flows for the seven months ended July 31, 1996 (predecessor), and for the five
months ended December 31, 1996, the year ended December 31 1997, and the nine
months ended September 30, 1998 (successor), in conformity with generally
accepted accounting principles.
 
As discussed in Note 1, effective August 1, 1996, Martiki Coal Corporation's
parent became a wholly owned subsidiary of Alliance Coal Corporation in a
business combination accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on fair values. Accordingly, the predecessor
financial statements for the seven months ended July 31, 1996, are not
necessarily comparable to the successor financial statements subsequent to
August 1, 1996.
 
DELOITTE & TOUCHE LLP
 
Tulsa, Oklahoma
January 7, 1999
 
                                     F-132

 
                            MARTIKI COAL CORPORATION
                (A Wholly-Owned Subsidiary of MAPCO Coal, Inc.)
 
                                 BALANCE SHEETS
 
                    December 31, 1997 and September 30, 1998
                (Amounts in Thousands, Except Per Share Amount)
 


                                                               1997     1998
                           ASSETS                             -------  -------
                                                                 
CURRENT ASSETS:
  Accounts receivable........................................ $ 9,095  $ 7,914
  Inventory..................................................   8,732    6,801
  Prepaid expenses and other current assets..................      99       --
                                                              -------  -------
    Total current assets.....................................  17,926   14,715
PROPERTY, PLANT AND EQUIPMENT--Net...........................  34,238   25,557
DEFERRED INCOME TAXES--Net...................................   1,137    2,022
OTHER ASSETS.................................................      47       47
                                                              -------  -------
TOTAL........................................................ $53,348  $42,341
                                                              =======  =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
  Accounts payable........................................... $ 3,863  $ 2,746
  Accrued expenses...........................................   2,246    1,881
  Due to Parent..............................................   1,688    1,236
                                                              -------  -------
    Total current liabilities................................   7,797    5,863
RECLAMATION AND MINE CLOSING.................................   4,268    4,465
ACCRUED PNEUMOCONIOSIS BENEFITS..............................   1,534    1,553
WORKERS COMPENSATION AND OTHER LONG-TERM LIABILITIES.........     773      770
                                                              -------  -------
    Total liabilities........................................  14,372   12,651
                                                              -------  -------
STOCKHOLDER'S EQUITY:
  Common stock, $3,000 par value per share--authorized,
   issued,
   and outstanding, 1 share..................................       3        3
  Additional paid-in capital.................................  39,360   35,315
  Accumulated deficit........................................    (387)  (5,628)
                                                              -------  -------
    Total stockholder's equity...............................  38,976   29,690
                                                              -------  -------
TOTAL........................................................ $53,348  $42,341
                                                              =======  =======

 
                       See notes to financial statements.
 
                                     F-133

 
                            MARTIKI COAL CORPORATION
 
                (A Wholly-Owned Subsidiary of MAPCO Coal, Inc.)
 
                            STATEMENTS OF OPERATIONS
 
  Seven Months Ended July 31, 1996 (Predecessor) and for the Five Months Ended
     December 31, 1996, Year Ended December 31, 1997, and Nine Months Ended
                         September 30, 1998 (Successor)
                             (Amounts in Thousands)
 


                                                                     Predecessor                  Successor
                                                                     ----------- ---------------------------------------
                                                                      July 31,   December 31, December 31, September 30,
                                                                        1996         1996         1997         1998
                                                                     ----------- ------------ ------------ -------------
                                                                                                         
REVENUES............................................................   $52,589     $42,730      $73,857       $54,371
                                                                       -------     -------      -------       -------
OPERATING EXPENSES:
  Cost of operations................................................    43,649      31,285       67,333        51,648
  Depreciation and amortization.....................................     5,299       7,167        9,702         8,621
  General and administrative........................................     1,231         932        2,963         2,434
                                                                       -------     -------      -------       -------
    Total operating expenses........................................    50,179      39,384       79,998        62,703
                                                                       =======     =======      =======       =======
INCOME (LOSS) FROM OPERATIONS.......................................     2,410       3,346       (6,141)       (8,332)
OTHER INCOME........................................................       126         119          559            93
                                                                       -------     -------      -------       -------
INCOME (LOSS) BEFORE INCOME TAXES...................................     2,536       3,465       (5,582)       (8,239)
INCOME TAX EXPENSE (BENEFIT)........................................       358         183       (1,913)       (2,998)
                                                                       -------     -------      -------       -------
NET INCOME (LOSS)...................................................   $ 2,178     $ 3,282      $(3,669)      $(5,241)
- --------------------------------------------------
                                                                       =======     =======      =======       =======

 
 
                       See notes to financial statements.
 
                                     F-134

 
                            MARTIKI COAL CORPORATION
                (A Wholly-Owned Subsidiary of MAPCO Coal, Inc.)
 
                            STATEMENTS OF OPERATIONS
 
  Seven Months Ended July 31, 1996 (Predecessor) and for the Five Months Ended
     December 31, 1996, Year Ended December 31, 1997, and Nine Months Ended
                         September 30, 1998 (Successor)
                             (Amounts in Thousands)
 


                                                            Retained    Total
                                               Additional   Earnings    Stock-
                                        Common  Paid-In   (Accumulated holder's
                                        Stock   Capital     Deficit)    Equity
                                        ------ ---------- ------------ --------
                                                           
PREDECESSOR BALANCE, JANUARY 1, 1996...  $  3   $31,062     $ 16,111   $47,176
  Net income...........................   --        --         2,178     2,178
                                         ----   -------     --------   -------
PREDECESSOR BALANCE, JULY 31, 1996.....     3    31,062       18,289    49,354
  Purchase price allocation in business
   combination (Note 1)................   --     15,798      (18,289)   (2,491)
                                         ----   -------     --------   -------
SUCCESSOR BALANCE, AUGUST 1, 1996......     3    46,860          --     46,863
  Net income...........................   --        --         3,282     3,282
  Capital contributed..................   --      2,040          --      2,040
                                         ----   -------     --------   -------
BALANCE, DECEMBER 31, 1996.............     3    48,900        3,282    52,185
  Net loss.............................   --        --        (3,669)   (3,669)
  Return of capital....................   --     (9,540)         --     (9,540)
                                         ----   -------     --------   -------
BALANCE, DECEMBER 31, 1997.............     3    39,360         (387)   38,976
  Net loss.............................   --        --        (5,241)   (5,241)
  Return of capital....................   --     (4,045)         --     (4,045)
                                         ----   -------     --------   -------
BALANCE, SEPTEMBER 30, 1998............  $  3   $35,315     $ (5,628)  $29,690
                                         ====   =======     ========   =======

 
 
 
 
                       See notes to financial statements.
 
 
                                     F-135

 
                            MARTIKI COAL CORPORATION
                (A Wholly-Owned Subsidiary of MAPCO Coal, Inc.)
 
                            STATEMENTS OF CASH FLOWS
 
  Seven Months Ended July 31, 1996 (Predecessor) And For The Five Months Ended
     December 31, 1996, Year Ended December 31, 1997, And Nine Months Ended
                         September 30, 1998 (Successor)
                             (Amounts in Thousands)
 


                                                                          Predecessor                Successor
                                                                          ----------- ---------------------------------------
                                                                           July 31,   December 31, December 31, September 30,
                                                                             1996         1996         1997         1998
                                                                                                    
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)......................................................   $ 2,178     $ 3,282      $(3,669)      $(5,241)
  Adjustments to reconcile net income (loss) to net cash provided by
   operating activities:
  Depreciation and amortization..........................................     5,299       7,167        9,702         8,621
  Deferred income taxes..................................................     1,915      (2,067)      (1,407)         (885)
  Gain on sale of property and equipment.................................        (1)         --           (2)           (4)
  Changes in operating assets and liabilities:
   (Increase) decrease in accounts receivable............................     2,323      (8,096)       6,499         1,181
   (Increase) decrease in inventory......................................    (1,765)       (775)      (1,741)        1,931
   (Increase) decrease in prepaid expenses and other current assets......       (32)         10          (99)           99
   (Increase) decrease in other assets...................................       251         (38)          31            --
   Increase (decrease) in accounts payable...............................     1,398      (3,103)         150        (1,117)
   Increase (decrease) in accrued expenses...............................      (269)        756           18          (365)
   Increase (decrease) in due to Parent..................................    (6,372)      1,113          574          (452)
   Increase (decrease) in accrued pneumoconiosis benefits................        45         (42)          76            19
   Increase in reclamation and mine closing..............................        96          89          259           197
   Increase (decrease) in workers compensation and other long-term
    liabilities..........................................................       269         236           67            (3)
                                                                            -------     -------      -------       -------
    Net cash provided by (used in) operating activities..................     5,335      (1,468)      10,458         3,981
                                                                            -------     -------      -------       -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property, plant and equipment..............................    (5,399)       (572)      (1,138)           --
  Proceeds from sale of property, plant and equipment....................        64          --          220            64
                                                                            -------     -------      -------       -------
    Net cash provided by (used in) investing activities..................    (5,335)       (572)        (918)           64
                                                                            -------     -------      -------       -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Capital contributed by Parent..........................................        --       2,040           --            --
  Return of capital to Parent............................................        --          --       (9,540)       (4,045)
                                                                            -------     -------      -------       -------
    Net cash provided by (used in) financing activities..................        --       2,040       (9,540)       (4,045)
                                                                            -------     -------      -------       -------
NET CHANGE IN CASH AND CASH EQUIVALENTS AND BALANCE AT END OF PERIOD.....   $    --     $    --      $    --       $    --
                                                                            =======     =======      =======       =======
SUPPLEMENTAL CASH FLOW INFORMATION:
 Income taxes paid (refunded) through Parent (Note 2)....................   $(1,557)    $ 2,250      $  (506)      $(2,113)
- --------------------------------------------------
                                                                            =======     =======      =======       =======

 
                       See notes to financial statements.
 
                                     F-136

 
                            MARTIKI COAL CORPORATION
                (A Wholly-Owned Subsidiary of MAPCO Coal, Inc.)
 
                         NOTES TO FINANCIAL STATEMENTS
 
     Seven Months Ended July 31, 1996 (Predecessor) and for the Five Months
     Ended December 31, 1996, Year Ended December 31, 1997 and Nine Months
                      Ended September 30, 1998 (Successor)
 
1. ORGANIZATION AND BASIS OF PRESENTATION
 
Organization--Martiki Coal Corporation (the "Company") produces and markets
coal from a surface mine complex located in Kentucky. Coal is sold primarily to
electric utilities located in the eastern United States. The Company is a
wholly-owned subsidiary of MAPCO Coal, Inc., that, since August 1, 1996, has
been a wholly-owned subsidiary of Alliance Coal Corporation ("Alliance") and
represents the successor company ("Successor"). Prior to August 1, 1996, MAPCO
Coal, Inc. was a wholly-owned subsidiary of MAPCO Inc. ("MAPCO") and represents
the predecessor company ("Predecessor").
 
Basis of Presentation--The accompanying financial statements present the
assets, liabilities, revenues and expenses related to the Company. Effective
August 1, 1996, pursuant to a stock purchase agreement by and between Alliance
and MAPCO, Alliance acquired all of the outstanding stock of MAPCO Coal, Inc.
The allocation of the acquisition costs among the acquired assets and assumed
liabilities was based on fair values using appraisals, actuarial valuations,
and management estimates using the purchase method of accounting for business
combinations. Operating results prior to August 1, 1996 for the Predecessor are
presented on a historical cost basis and are not necessarily comparable to
operating results subsequent to August 1, 1996 for the Successor primarily due
to depreciation and amortization.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Estimates in the Financial Statements--The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
 
Fair Value of Financial Instruments--The carrying amounts for accounts
receivable, accounts payable and amounts due from Parent approximate fair value
because of the short maturity of those instruments.
 
Cash Management--The Company participated in the cash management program of
Alliance subsequent to August 1, 1996 and MAPCO prior to August 1, 1996. All
cash transactions for the Company, including current income taxes attributable
to the Company, were processed by Alliance and MAPCO's treasury function during
the respective periods and reflected through Due to Parent.
 
Inventories--Inventories are stated at the lower of cost or market. Coal and
supplies inventories are determined on an average cost basis.
 
Property, Plant, and Equipment--Property, plant, and equipment were presented
at fair value at August 1, 1996 and at historical cost prior to that date.
Additions and replacements constituting improvements are capitalized.
Maintenance, repairs, and minor replacements are expensed as incurred.
Depreciation and amortization is computed principally on the straight-line
method based upon the estimated useful lives of the assets or the estimated
life of the mine (6 years at revaluation date of August 1, 1996), whichever is
less. Depreciable lives for mining equipment and processing facilities range
from 3 to 6 years. Depreciable lives for land and land improvements range from
6 to 10 years. Depreciable lives for buildings, office equipment and
improvements are 6 years. Gains or losses arising from retirements are included
in current operations.
 
                                     F-137

 
                            MARTIKI COAL CORPORATION
                 A Wholly-Owned Subsidiary of MAPCO Coal Inc.)
 
                   NOTES TO FINANCIAL STATEMENTS--(Continued)
 
The Company reviews the carrying value of property, plant and equipment for
impairment whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable based upon estimated future cash flows.
As of September 30, 1998, the Company had not recorded any impairments.
 
Advance Royalties--Advance royalties are included in Other Assets and represent
rights to coal mineral leases acquired through advance royalty payments.
Management assesses the recoverability of royalty prepayments based on
estimated future production and capitalizes these amounts accordingly. As
mining occurs on those leases, the royalty prepayments are included in the cost
of mined coal. Royalty prepayments estimated to be nonrecoverable are expensed.
 
Coal Supply Agreement--A portion of the acquisition costs ($3.2 million) at
August 1, 1996 was allocated to a coal supply agreement which was amortized to
expense during the five months ended December 31, 1996 due to the expiration of
the coal supply agreement on December 31, 1996.
 
Reclamation and Mine Closing Costs--Estimates for the cost of future mine
reclamation and closing procedures are recorded on a present value basis.
Accruals for estimated future reclamation and mine closing costs are subject to
potential changes in conditions, such as regulatory requirements, that affect
these estimates. Ongoing reclamation costs are expensed as incurred.
 
Workers' Compensation and Pneumoconiosis ("Black Lung") Benefits--The Company
is self-insured for workers' compensation benefits, including black lung
benefits. The Company accrues a workers' compensation liability for the
estimated present value of current and future workers' compensation benefits
based on actuarial valuations. These estimates are subject to potential changes
in benefit development factors that affect management's projections of the
ultimate benefits liability.
 
Income Taxes--The Company uses the asset and liability method of accounting for
income taxes. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial and tax reporting purposes. For the predecessor, the Company's
operations were included in the consolidated U.S. income tax return of MAPCO.
For the successor, the Company's operations have been included in the
consolidated U.S. income tax return of Alliance. Accordingly, income tax
balances will ultimately be settled through the intercompany account with the
Parent. The Company files a separate state income tax return in Kentucky. For
purposes of preparing the financial statements, federal and state income taxes
are determined as if the Company filed separate income tax returns.
 
Revenue Recognition--Revenues are recognized when coal is shipped from the
mine.
 
Return of Capital--By way of directive from Alliance, $9,540,000 and $4,045,000
of capital was returned to Alliance on December 31, 1997 and September 30,
1998, respectively.
 
New Accounting Standards - Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
No. 131"), requires publicly-held companies to report financial and descriptive
information about operating segments in financial statements issued to
shareholders for interim and annual periods. SFAS No. 131 also requires
additional disclosures with respect to products and services, geographic areas
of operation, and major customers. The Company adopted SFAS No. 131 effective
January 1998. The Company has no reportable segments due to its operations
consisting solely of producing and marketing coal, and the Company has
disclosed major customer sales information (Note 10) and geographic areas of
operation (Note 1) in accordance with SFAS No. 131.
 
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). The statement
 
                                     F-138

 
                            MARTIKI COAL CORPORATION
                 A Wholly-Owned Subsidiary of MAPCO Coal Inc.)
 
                   NOTES TO FINANCIAL STATEMENTS--(Continued)
 
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company has not determined the impact on
its financial statements that may result from adoption of SFAS No. 133, which
is required no later than January 1, 2000.
 
3. INVENTORIES
 
Inventories consist of the following (in thousands):
 


                                                      December 31, September 30,
                                                          1997         1998
                                                      ------------ -------------
                                                             
   Coal..............................................    $5,815       $4,031
   Supplies..........................................     2,917        2,770
                                                         ------       ------
                                                         $8,732       $6,801
                                                         ======       ======

 
4. PROPERTY, PLANT, AND EQUIPMENT
 
Property, plant, and equipment consist of the following (in thousands):
 


                                                     December 31, September 30,
                                                         1997         1998
                                                     ------------ -------------
                                                            
   Mining equipment and processing facilities.......   $44,703       $44,533
   Land and land improvements.......................     2,605         2,610
   Buildings, office equipment and improvements.....       587           587
                                                       -------       -------
                                                        47,895        47,730
   Less accumulated depreciation and amortization...   (13,657)      (22,173)
                                                       -------       -------
                                                       $34,238       $25,557
                                                       =======       =======

 
5. INCOME TAXES
 
The Company recognizes a deferred tax asset for the future tax benefits
attributable to deductible temporary differences to the extent that realization
of such benefits is more likely than not. Realization of these future tax
benefits is dependent on the Company's ability to generate future taxable
income. Management believes that future taxable income will be sufficient to
recognize a portion of the tax benefits and has established a valuation
allowance for the remaining portion. There can be no assurance, however, that
the Company will generate sufficient taxable income in the future.
 
The Company has approximately $1,305,000 and $6,715,000 of net operating loss
carryforwards ("NOLs") as of December 31, 1997 and September 30, 1998,
respectively, that expire during 2012 and 2013. The Company has established a
100% valuation allowance for the tax benefit of these NOLs due to the
uncertainty of realizing these benefits on future consolidated tax returns for
Alliance.
 
                                     F-139

 
                            MARTIKI COAL CORPORATION
                 A Wholly-Owned Subsidiary of MAPCO Coal Inc.)
 
                   NOTES TO FINANCIAL STATEMENTS--(Continued)
 
 
The tax effects of significant items comprising the Company's net deferred tax
asset are as follows (in thousands):
 


                                                                   Nine Months
                                                      Year Ended      Ended
                                                     December 31, September 30,
                                                         1997         1998
                                                     ------------ -------------
                                                            
DEFERRED TAX ASSETS:
  Coal supply agreements............................    $2,166       $2,039
  Accrued reclamation and mine closing..............     1,707        1,786
  Accrued workers' compensation and pneumoconiosis
   benefits.........................................       818          816
  Accrued expenses not currently deductible.........       329          342
  Net operating loss carryforwards..................       522        2,686
                                                        ------       ------
                                                         5,542        7,669
  Valuation allowance...............................    (1,409)      (3,626)
                                                        ------       ------
  Deferred tax asset................................     4,133        4,043
                                                        ------       ------
DEFERRED TAX LIABILITIES:
  Differences between book and tax basis of
   property, plant and equipment....................     2,906        2,021
  Other.............................................        90          --
                                                        ------       ------
  Deferred tax liability............................     2,996        2,021
                                                        ------       ------
NET DEFERRED TAX ASSET..............................    $1,137       $2,022
                                                        ======       ======

 
Income (loss) before income taxes is derived from domestic operations.
Significant components of income tax expense (benefit) are as follows (in
thousands):
 


                                                                         Predecessor                 Successor
                                                                         ------------ ---------------------------------------
                                                                         Seven Months Five Months                Nine Months
                                                                            Ended        Ended      Year Ended      Ended
                                                                           July 31,   December 31, December 31, September 30,
                                                                             1996         1996         1997         1998
                                                                         ------------ ------------ ------------ -------------
                                                                                                    
CURRENT:
  Federal...............................................................   $(1,362)      $2,012      $  (457)      $(1,893)
  State.................................................................      (195)         238          (49)         (220)
                                                                           -------       ------      -------       -------
  Total.................................................................    (1,557)       2,250         (506)       (2,113)
                                                                           -------       ------      -------       -------
DEFERRED:
  Federal...............................................................     1,676       (1,809)      (1,230)         (776)
  State.................................................................       239         (258)        (177)         (109)
                                                                           -------       ------      -------       -------
  Total.................................................................     1,915       (2,067)      (1,407)         (885)
                                                                           -------       ------      -------       -------
INCOME TAX EXPENSE (BENEFIT)............................................   $   358       $  183      $(1,913)      $(2,998)
                                                                           =======       ======      =======       =======

 
                                     F-140

 
                            MARTIKI COAL CORPORATION
                 A Wholly-Owned Subsidiary of MAPCO Coal Inc.)
 
                   NOTES TO FINANCIAL STATEMENTS--(Continued)
 
 
Income tax expense (benefit) differs from the amount computed by applying the
statutory federal income tax rate of 35% to income (loss) before income taxes
due to the following (in thousands):
 


                                                                         Predecessor                 Successor
                                                                         ------------ ---------------------------------------
                                                                         Seven Months Five Months      Year      Nine Months
                                                                            Ended        Ended        Ended         Ended
                                                                           July 31,   December 31, December 31, September 30,
                                                                             1996         1996         1997         1998
                                                                         ------------ ------------ ------------ -------------
                                                                                                    
Computed tax at federal statutory rate..................................     $888        $1,213      $(1,954)      $(2,884)
Increase (decrease) resulting from:
Excess of tax over book depletion.......................................     (577)       (1,190)         --            --
Change in valuation allowance...........................................      --            --            50            50
State income taxes, net of Federal benefit..............................     (128)          157          (32)         (169)
Other...................................................................      175             3           23             5
                                                                             ----        ------      -------       -------
Actual income tax expense (benefit).....................................     $358        $  183      $(1,913)      $(2,998)
                                                                             ====        ======      =======       =======

 
6. EMPLOYEE BENEFIT PLANS
 
Defined Contribution Plans--Prior to August 1, 1996, the Company's employees
participated in a defined contribution profit sharing and savings plan
sponsored by MAPCO which covered substantially all full-time employees. The
plan provisions were similar to the provisions of the plan sponsored by
Alliance discussed below.
 
The Company's employees currently participate in a defined contribution profit
sharing and savings plan sponsored by Alliance which covers substantially all
full-time employees. Plan participants may elect to make voluntary
contributions to this plan up to a specified amount of their compensation.
Alliance makes contributions based on matching 75% of employee contributions up
to 3% of their annual compensation. Additionally, Alliance contributes a
defined percentage of eligible earnings for employees not covered by the
defined benefit plan described below. The Company's expense for the profit
sharing and savings plans allocated by MAPCO and Alliance was approximately
$40,000 for the seven months ended July 31, 1996, $20,000 for the five months
ended December 31, 1996, $78,000 for the year ended December 31, 1997, and
$55,000 for the nine months ended September 30, 1998.
 
Defined Benefit Plans--Prior to August 1, 1996, the Company participated in
MAPCO's defined benefit plan which covered substantially all employees at the
mining operations. Effective January 1, 1997, Alliance established a defined
benefit plan covering substantially all employees at its mining operations,
including those employed by the Company. Total accrued pension expense
(benefit) included in the Company's operating expenses was allocated to the
Company by MAPCO and Alliance, respectively, based on its proportional number
of employees participating in the plans. The allocated net pension expense
(benefit) included in operating expenses for the seven months ended July 31,
1996, the year ended December 31, 1997, and the nine months ended September 30,
1998 was approximately $(116,000), $239,000, and $192,000, respectively. The
allocated pension expense (benefit) were settled through Due to Parent. The
Company did not participate in a defined benefit plan during the five months
ended December 31, 1996.
 
7. RECLAMATION AND MINE CLOSING COSTS
 
The Company is governed by state statutes and the Federal Surface Mining
Control and Reclamation Act of 1977 which establish reclamation and mine
closing standards. These regulations, among other requirements, require
restoration of property in accordance with specified standards and an approved
reclamation plan. The
 
                                     F-141

 
                            MARTIKI COAL CORPORATION
                 A Wholly-Owned Subsidiary of MAPCO Coal Inc.)
 
                   NOTES TO FINANCIAL STATEMENTS--(Continued)
 
Company has estimated the costs and timing of future reclamation and mine
closing costs and recorded those estimates on a present value basis using a 6%
discount rate.
 
8. PNEUMOCONIOSIS ("BLACK LUNG") BENEFITS
 
The Company is liable under state statutes and the Federal Coal Mine Health and
Safety Act of 1969, as amended, to pay black lung benefits to eligible
employees and former employees and their dependents. The Company provides self-
insurance accruals, determined by independent actuaries, at the present value
of the actuarially computed present and future liabilities for such benefits.
The actuarial studies utilize a 6% discount rate and various assumptions as to
the frequency of future claims, inflation, employee turnover, and life
expectancies.
 
The cost of black lung benefits charged to operations for the seven months
ended July 31, 1996, the five months ended December 31, 1996, the year ended
December 31, 1997, and the nine months ended September 30, 1998 was
approximately $57,000, $30,000, $92,000, and $69,000, respectively.
 
9. COMMITMENTS AND CONTINGENCIES
 
General Litigation--The Company is involved in various lawsuits, claims, and
regulatory proceedings incidental to its business. In the opinion of
management, the outcome of such matters will not have a material adverse effect
on the Company's business, financial position, or results of operations.
 
10. MAJOR CUSTOMERS
 
The Company has significant long-term coal supply agreements at sales prices
above current spot market prices. The contracts contain price adjustment
provisions designed to reflect changes in market conditions, labor, and other
production costs and, when the coal is sold other than FOB shipping point,
changes in railroad and/or barge freight rates. Sales to major customers which
exceed ten percent of total revenues are as follows (in thousands):
 


                            Predecessor                 Successor
                            ------------ ---------------------------------------
                            Seven Months  Five Month                Nine Months
                               Ended        Ended      Year Ended      Ended
                              July 31,   December 31, December 31, September 30,
                                1996         1996         1997         1998
                            ------------ ------------ ------------ -------------
                                                       
Customer A.................   $15,073      $18,621      $   --        $   --
Customer B.................    23,446       16,988       51,614        29,682
Customer C.................       --           --         9,585        13,645

 
The coal supply agreements with customers B and C expired in December 1998 and
January 1998, respectively. The coal supply agreement with customer A expired
at the end of 1996.
 
11. DUE TO PARENT
 
The Company was charged for certain corporate services rendered by MAPCO for
the seven months ended July 31, 1996 and by Alliance for the periods subsequent
to August 1, 1996. The expenses allocated to the Company primarily related to
executive management, accounting, treasury, land administration, environmental
management, legal and information and technology services. These allocations
were primarily based on the
 
                                     F-142

 
                            MARTIKI COAL CORPORATION
                 A Wholly-Owned Subsidiary of MAPCO Coal Inc.)
 
                   NOTES TO FINANCIAL STATEMENTS--(Continued)
 
relative size of the direct mining operating costs incurred by the respective
mine locations of MAPCO Coal Inc., including the Company. The allocations of
general and administrative expenses were approximately $1,231,000, $932,000,
$2,963,000 and $2,434,000 for the seven months ended July 31, 1996, the five
months ended December 31, 1996, year ended December 31, 1997 and the nine
months ended September 30, 1998. Management is of the opinion that the
allocations used are reasonable and appropriate and reasonably approximate
costs that would be incurred and paid to unrelated parties for similar
services.
 
12. SUBSEQUENT EVENT
 
On November 6, 1998, pursuant to a stock purchase agreement, AEI acquired all
of the outstanding common stock of the Company for $32 million.
 
                                  * * * * * *
 
                                     F-143

 
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 We have not authorized anyone to give you any information or to make any rep-
resentations about the transactions we discuss in this Prospectus other than
those contained herein or in the documents we incorporate herein by reference.
If you are given any information or representations about these matters that
is not discussed or incorporated in this Prospectus, you must not rely on that
information. This Prospectus is not an offer to sell or a solicitation of an
offer to buy securities anywhere or to anyone where or to whom we are not per-
mitted to offer or sell securities under applicable law. The delivery of this
Prospectus offered hereby does not, under any circumstances, mean that there
has not been a change in our affairs since the date hereof. It also does not
mean that the information in this Prospectus or in the documents we incorpo-
rate herein by reference is correct after this date.
 
                                ---------------
 
                               TABLE OF CONTENTS
 


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[Copy for Contents Pages to Come]..........................................

 
                                ---------------
 
 Until      , 1999, All dealers effecting transactions in the new Notes,
whether or not participating in this distribution, may be required to deliver
a Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
 
 Offer to Exchange All Outstanding 10 1/2% Senior Notes Due December 15, 2005
 
                For 10 1/2% Senior Notes Due December 15, 2005
 
                              AEI Resources, Inc.
                                      and
                          AEI Holding Company, Inc.,
                          its wholly owned subsidiary
 
                                ---------------
 
                                  PROSPECTUS
 
                                ---------------
 
 
                                      , 1999
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

 
                                    PART II
 
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
Item 20. Indemnification of Directors and Officers.
 
  Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes
indemnification of directors, officers, employees, and agents of the Company,
allows the advancement of costs of defending against litigation, and permits
companies incorporated in Delaware to purchase insurance on behalf of
directors, officers, employees, and agents against liabilities whether or not
in the circumstances such companies would have the power to indemnify against
such liabilities under the provisions of the statute.
 
  The Company's Certificate of Incorporation provides that no director will be
personally liable to the Company for monetary damages for any breach of
fiduciary duty by such director as a director. However, a director will be
liable, to the extent provided by applicable law, (i) for any breach of a
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) as provided in Section 174 of the DGCL, or (iv)
for any transaction from which a director derived an improper personal benefit.
 
  The Company's Certificate of Incorporation and Bylaws also require the
Company, to the extent permitted by the DGCL and any other applicable law, to
indemnify and advance expenses to directors and executive officers with respect
to all threatened, pending or completed actions, suits or proceedings in which
the director or executive officer was, is, or is threatened to be made a named
defendant or respondent because he is or was a director or executive officer of
the Company. The Certificate of Incorporation obligates the Company to
indemnify and advance expenses to the executive officer or director only in
connection with proceedings arising from the person's conduct in his official
capacity with the Company to the extent permitted by the DGCL, as amended from
time to time.
 
  The Company's Bylaws allow it to purchase and maintain insurance on behalf of
a person who is or was a director, officer, employee, fiduciary or agent of the
Company, or was, at the Company's request, serving in a similar capacity for
another entity. The Company currently maintains insurance covering its
executive officers and directors.
 
  Insofar as indemnification by the Company for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors and executive officers of the Company pursuant to the foregoing
provisions, the Company has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
 
Item 21. Exhibits and Financial Statement Schedules.
 
  (a) Exhibits.
 
  The exhibits to the Registration Statement are listed in the Exhibit Index
which precedes the exhibits to this Registration Statement and is hereby
incorporated herein by reference.
 
  (b) Financial Statement Schedules.
 
  The financial statement schedules (1) are listed in the Exhibit Index which
immediately precedes the exhibits to this Registration Statement and is hereby
incorporated herein by reference, or (2) have been omitted because the
information required to be set forth therein is not applicable or is shown in
the financial statements or notes thereto.
 
                                      II-1

 
Item 22. Undertakings.
 
  The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed to be underwriters, in addition to the information
called for by the other items of the applicable form.
 
  The Registrant undertakes that every prospectus (i) that is filed pursuant to
the immediately preceding undertaking or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
 
  Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
 
  The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
 
  The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the Registration Statement when it became effective.
 
                                      II-2

 
                                   SIGNATURES
 
  Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement, or amendment thereto, to be signed on its
behalf by the undersigned, thereunto duly authorized, February 8, 1999.
 
                                          AEI Resources, Inc.
 
                                                  /s/ Kevin Crutchfield
                                          By: _________________________________
                                                     Kevin Crutchfield
                                               President and Chief Operating
                                                          Officer
 
                               POWER OF ATTORNEY
 
  We, the undersigned directors and officers of AEI Resources, Inc. do hereby
constitute and appoint William H. Haselhoff, Vic Grubb and John Lynch, or any
one of them, our true and lawful attorneys and agents, to do any and all acts
and things in our name and on our behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our names in the
capacities indicated below, which said attorneys and agents, or either of them,
may deem necessary or advisable to enable the Company to comply with the
Securities Act and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with this Registration Statement,
including specifically, but without limitation, power and authority to sign for
us or any of us in our names in the capacities indicated below, any and all
amendments (including post-effective amendments) hereto and we do hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue hereof.
 
  Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
 


              Signature                          Title                   Date
              ---------                          -----                   ----
 
                                                            
        /s/ Kevin Crutchfield          President and Chief         February 8, 1999
______________________________________  Operating Officer
          Kevin Crutchfield             (Principal Executive)
 
            /s/ John Baum              Chief Financial Officer     February 8, 1999
______________________________________  (Principal Financial and
              John Baum                 Accounting Officer)
 
         /s/ Larry Addington           Chairman of the Board and   February 8, 1999
______________________________________  Director
           Larry Addington
 
         /s/ Robert Addington          Vice President/Eastern      February 8, 1999
______________________________________  Operations and Director
           Robert Addington
 
          /s/ Stonie Barker            Director                    February 8, 1999
______________________________________
            Stonie Barker
 
        /s/ Stephen Addington          Director                    February 8, 1999
______________________________________
          Stephen Addington
 
           /s/ Bob Anderson            Director                    February 8, 1999
______________________________________
             Bob Anderson
 

 
 
                                      II-3

 
                                   SIGNATURES
 
  Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement, or amendment thereto, to be signed on its
behalf by the undersigned, thereunto duly authorized, February   , 1999.
 
                                          AEI Holding Company, Inc.
 
                                                  /s/ Kevin Crutchfield
                                          By: _________________________________
                                                     Kevin Crutchfield
                                               President and Chief Operating
                                                          Officer
 
                               POWER OF ATTORNEY
 
  We, the undersigned directors and officers of AEI Holding Company, Inc. do
hereby constitute and appoint William H. Haselhoff, Vic Grubb and John Lynch,
or any one of them, our true and lawful attorneys and agents, to do any and all
acts and things in our name and on our behalf in our capacities as directors
and officers and to execute any and all instruments for us and in our names in
the capacities indicated below, which said attorneys and agents, or either of
them, may deem necessary or advisable to enable the Company to comply with the
Securities Act and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with this Registration Statement,
including specifically, but without limitation, power and authority to sign for
us or any of us in our names in the capacities indicated below, any and all
amendments (including post-effective amendments) hereto and we do hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue hereof.
 
  Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
 


              Signature                          Title                   Date
              ---------                          -----                   ----
 
                                                            
        /s/ Kevin Crutchfield          President and Chief         February   , 1999
______________________________________  Operating Officer
          Kevin Crutchfield             (Principal Executive
                                        Officer)
            /s/ John Baum              Chief Financial Officer     February   , 1999
______________________________________  (Principal Financial and
              John Baum                 Accounting Officer)
         /s/ Robert Addington          Senior Vice President--     February   , 1999
______________________________________  Eastern Operations and a
           Robert Addington             Director
         /s/ Larry Addington           Chairman of the Board and   February   , 1999
______________________________________  a Director
           Larry Addington
         /s/ Donald P. Brown           Vice Chairman and a         February   , 1999
______________________________________  Director
           Donald P. Brown
          /s/ Stonie Barker            Director                    February   , 1999
______________________________________
            Stonie Barker
           /s/ Bob Anderson            Director                    February   , 1999
______________________________________
             Bob Anderson

 
 
                                     II- 4

 
                                   SIGNATURES
 
  Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement, or amendment thereto, to be signed on its
behalf by the undersigned, thereunto duly authorized, February 8, 1999.
 
                                          AEI Resources Holding, Inc.
 
                                                   /s/ Donald P. Brown
                                          By: _________________________________
                                                     Donald P. Brown
                                                        President
 
                               POWER OF ATTORNEY
 
  We, the undersigned directors and officers of AEI Resources Holding, Inc. do
hereby constitute and appoint William H. Haselhoff, Vic Grubb and John Lynch,
or any one of them, our true and lawful attorneys and agents, to do any and all
acts and things in our name and on our behalf in our capacities as directors
and officers and to execute any and all instruments for us and in our names in
the capacities indicated below, which said attorneys and agents, or either of
them, may deem necessary or advisable to enable the Company to comply with the
Securities Act and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with this Registration Statement,
including specifically, but without limitation, power and authority to sign for
us or any of us in our names in the capacities indicated below, any and all
amendments (including post-effective amendments) hereto and we do hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue hereof.
 
  Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
 


              Signature                          Title                   Date
              ---------                          -----                   ----
 
                                                            
         /s/ Donald P. Brown           President and Vice          February 8, 1999
______________________________________  Chairman (Principal
           Donald P. Brown              Executive Officer)
 
            /s/ John Baum              Chief Financial Officer     February 8, 1999
______________________________________  (Principal Financial and
              John Baum                 Accounting Officer)
 
         /s/ Larry Addington           Chairman of the Board of    February 8, 1999
______________________________________  Directors and Director
           Larry Addington
 
         /s/ Robert Addington          Director                    February 8, 1999
______________________________________
           Robert Addington
 
          /s/ Stonie Barker            Director                    February 8, 1999
______________________________________
            Stonie Barker
 
        /s/ Stephen Addington          Director                    February 8, 1999
______________________________________
          Stephen Addington
 
           /s/ Bob Anderson            Director                    February 8, 1999
______________________________________
             Bob Anderson
 

 
 
                                      II-5

 
                                   SIGNATURES
 
  Pursuant to the requirements of the Securities Act, each of the Co-
Registrants listed on Attachment A hereto has duly caused this Registration
Statement, or amendment thereto, to be signed on its behalf by the undersigned,
thereunto duly authorized, February 8, 1999.
 
                                          The Co-Registrants Listed on
                                          Attachment A Hereto
 
                                                  /s/ Kevin Crutchfield
                                          By: _________________________________
                                                    Kevin Crutchfield
                                                        President
 
                               POWER OF ATTORNEY
 
  We, the undersigned directors and officers of the Co-Registrants listed on
Attachment A hereto do hereby constitute and appoint William H. Haselhoff, Vic
Grubb and John Lynch, or any one of them, our true and lawful attorneys and
agents, to do any and all acts and things in our name and on our behalf in our
capacities as directors and officers and to execute any and all instruments for
us and in our names in the capacities indicated below, which said attorneys and
agents, or either of them, may deem necessary or advisable to enable the
Company to comply with the Securities Act and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Registration Statement, including specifically, but without limitation, power
and authority to sign for us or any of us in our names in the capacities
indicated below, any and all amendments (including post-effective amendments)
hereto and we do hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
 
  Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
 


              Signature                          Title                   Date
              ---------                          -----                   ----
 
                                                            
        /s/ Kevin Crutchfield          President (Principal        February 8, 1999
______________________________________  Executive Officer)
          Kevin Crutchfield
 
            /s/ John Baum              Chief Financial Officer     February 8, 1999
______________________________________  (Principal Financial and
              John Baum                 Accounting Officer)
 
         /s/ Larry Addington           Director                    February 8, 1999
______________________________________
   Larry Addington
 
 
 
                                      II-6

 
                                  ATTACHMENT A
 
Aceco, Inc.
Addington Mining, Inc.
Highland Coal, Inc.
Ikerd-Bandy Co., Inc.
Leslie Resources, Inc.
Leslie Resources Management, Inc.
Mining Technologies, Inc.
Mountain--Clay Incorporated
Pro-Land, Inc. d/b/a Kem Coal Company
River Coal Company, Inc.
Coal Ventures Holding Company, Inc.
17 West Mining, Inc.
Appalachian Realty Company
Ayrshire Land Company
CC Coal Company
Grassy Cove Coal Mining
Meadowlark, Inc.
Mega Minerals, Inc.
Mid-Vol Leasing, Inc.
Midwest Coal Sales Company
Premium Processing, Inc.
Roaring Creek Coal Company
Straight Creek Coal Resources Coal Company
Zeigler Coal Holding Company
American Development Company
Bellaire Trucking Company
Bluegrass Coal Development Company
East Kentucky Energy Corporation
Employee Benefits Management, Inc.
Encoal Corporation
EnerZ Corporation
Evergreen Mining Company
Fairview Land Company
Franklin Coal Sales Company
Heritage Mining Company
Phoenix Land Company
Premium Coal Development Company
R&F Coal Company
Sheppard River Coal Terminal Company
Turris Coal Company
Wyoming Coal Technology, Inc.
Zeigler Environmental Services Company
Zenergy, Inc.
AEI Coal Sales Company, Inc.
 
                                      II-7

 
                                   SIGNATURES
 
  Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement, or amendment thereto, to be signed on its
behalf by the undersigned, thereunto duly authorized, February 8, 1999.
 
                                          Bowie Resources Limited
 
                                                    /s/ Keith Sieber
                                          By: _________________________________
                                                      Keith Sieber
                                                        President
 
                               POWER OF ATTORNEY
 
  We, the undersigned directors and officers of Bowie Resources Limited do
hereby constitute and appoint William H. Haselhoff, Vic Grubb and John Lynch,
or any one of them, our true and lawful attorneys and agents, to do any and all
acts and things in our name and on our behalf in our capacities as directors
and officers and to execute any and all instruments for us and in our names in
the capacities indicated below, which said attorneys and agents, or either of
them, may deem necessary or advisable to enable the Company to comply with the
Securities Act and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with this Registration Statement,
including specifically, but without limitation, power and authority to sign for
us or any of us in our names in the capacities indicated below, any and all
amendments (including post-effective amendments) hereto and we do hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue hereof.
 
  Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
 


              Signature                          Title                   Date
              ---------                          -----                   ----
 
                                                            
           /s/ Keith Sieber            President (Principal        February 8, 1999
______________________________________  Executive Officer)
             Keith Sieber
 
            /s/ John Baum              Chief Financial Officer     February 8, 1999
______________________________________  (Principal Financial and
              John Baum                 Accounting Officer)
 
         /s/ Larry Addington           Director                    February 8, 1999
______________________________________
   Larry Addington
 
 
 
                                      II-8

 
                                   SIGNATURES
 
  Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement, or amendment thereto, to be signed on its
behalf by the undersigned, thereunto duly authorized, February 8, 1999.
 
                                          Tennessee Mining, Inc.
 
                                                    /s/ Bernie Mason
                                          By: _________________________________
                                                      Bernie Mason
                                                        President
 
                               POWER OF ATTORNEY
 
  We, the undersigned directors and officers of Tennessee Mining, Inc., do
hereby constitute and appoint William H. Haselhoff, Vic Grubb and John Lynch,
or any one of them, our true and lawful attorneys and agents, to do any and all
acts and things in our name and on our behalf in our capacities as directors
and officers and to execute any and all instruments for us and in our names in
the capacities indicated below, which said attorneys and agents, or either of
them, may deem necessary or advisable to enable the Company to comply with the
Securities Act and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with this Registration Statement,
including specifically, but without limitation, power and authority to sign for
us or any of us in our names in the capacities indicated below, any and all
amendments (including post-effective amendments) hereto and we do hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue hereof.
 
  Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
 


              Signature                          Title                   Date
              ---------                          -----                   ----
 
                                                            
           /s/ Bernie Mason            President (Principal        February 8, 1999
______________________________________  Executive Officer)
             Bernie Mason
 
            /s/ John Baum              Chief Financial Officer     February 8, 1999
______________________________________  (Principal Financial and
              John Baum                 Accounting Officer)
 
         /s/ Larry Addington           Director                    February 8, 1999
______________________________________
           Larry Addington

 
                                      II-9

 
                                   SIGNATURES
 
  Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement, or amendment thereto, to be signed on its
behalf by the undersigned, thereunto duly authorized, February 8, 1999.
 
                                          Bentley Coal Company
                                          Kentucky Prince Mining Company
                                          Skyline Coal Company
 
                                          By: Grassy Cove Coal Mining Company,
                                             Roaring Creek Coal Company,
                                               each as General Partner of each
                                               of the entities listed above.
 
                                             /s/ Kevin Crutchfield
                                          By: _________________________________
                                            Name: Kevin Crutchfield
                                            Title: President
 
                               POWER OF ATTORNEY
 
  We, the undersigned directors and officers of Bentley Coal Company, do hereby
constitute and appoint William H. Haselhoff, Vic Grubb and John Lynch, or any
one of them, our true and lawful attorneys and agents, to do any and all acts
and things in our name and on our behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our names in the
capacities indicated below, which said attorneys and agents, or either of them,
may deem necessary or advisable to enable the Company to comply with the
Securities Act and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with this Registration Statement,
including specifically, but without limitation, power and authority to sign for
us or any of us in our names in the capacities indicated below, any and all
amendments (including post-effective amendments) hereto and we do hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue hereof.
 
  Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
 


              Signature                          Title                   Date
              ---------                          -----                   ----
 
                                                            
        /s/ Kevin Crutchfield          President (Principal        February 8, 1999
______________________________________  Executive Officer)
          Kevin Crutchfield
 
            /s/ John Baum              Chief Financial Officer     February 8, 1999
______________________________________  (Principal Financial and
              John Baum                 Accounting Officer)

 
                                     II-10

 
                                   SIGNATURES
 
  Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement, or amendment thereto, to be signed on its
behalf by the undersigned, thereunto duly authorized, February 8, 1999.
 
                                          Kermit Coal Company
 
                                                    /s/ James Morris
                                          By: _________________________________
                                                      James Morris
                                                        President
 
                               POWER OF ATTORNEY
 
  We, the undersigned directors and officers of Kermit Coal Company, Inc. do
hereby constitute and appoint William H. Haselhoff, Vic Grubb and John Lynch,
or any one of them, our true and lawful attorneys and agents, to do any and all
acts and things in our name and on our behalf in our capacities as directors
and officers and to execute any and all instruments for us and in our names in
the capacities indicated below, which said attorneys and agents, or either of
them, may deem necessary or advisable to enable the Company to comply with the
Securities Act and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with this Registration Statement,
including specifically, but without limitation, power and authority to sign for
us or any of us in our names in the capacities indicated below, any and all
amendments (including post-effective amendments) hereto and we do hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue hereof.
 
  Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
 


              Signature                          Title                   Date
              ---------                          -----                   ----
 
                                                            
           /s/ James Morris            President (Principal        February 8, 1999
______________________________________  Executive Officer)
             James Morris
 
            /s/ John Baum              Chief Financial Officer     February 8, 1999
______________________________________  (Principal Financial and
              John Baum                 Accounting Officer)
 
           /s/ James Morris            Director                    February 8, 1999
______________________________________
             James Morris

 
                                     II-11

 
                                   SIGNATURES
 
  Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement, or amendment thereto, to be signed on its
behalf by the undersigned, thereunto duly authorized, February 8, 1999.
 
                                          Nu Coal LLC
 
                                          By: American Development Company,
                                             Encoal Corporation
                                               each as a Member
 
                                                  /s/ Kevin Crutchfield
                                          By: _________________________________
                                                   Kevin Crutchifield
                                                        President
 
                               POWER OF ATTORNEY
 
  We, the undersigned directors and officers of Nu Coal LLC, do hereby
constitute and appoint William H. Haselhoff, Vic Grubb and John Lynch, or any
one of them, our true and lawful attorneys and agents, to do any and all acts
and things in our name and on our behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our names in the
capacities indicated below, which said attorneys and agents, or either of them,
may deem necessary or advisable to enable the Company to comply with the
Securities Act and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with this Registration Statement,
including specifically, but without limitation, power and authority to sign for
us or any of us in our names in the capacities indicated below, any and all
amendments (including post-effective amendments) hereto and we do hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue hereof.
 
  Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
 


              Signature                          Title                   Date
              ---------                          -----                   ----
 
                                                            
        /s/ Kevin Crutchfield          President (Principal        February 8, 1999
______________________________________  Executive Officer)
          Kevin Crutchfield
 
            /s/ John Baum              Chief Financial Officer     February 8, 1999
______________________________________  (Principal Financial and
              John Baum                 Accounting Officer)

 
                                     II-12

 
                                  SIGNATURES
 
  Pursuant to the requirements of the Securities Act, each of the Co-
Registrants listed on Attachment B hereto has duly caused this Registration
Statement, or amendment thereto, to be signed on its behalf by the
undersigned, thereunto duly authorized, February 8, 1999.
 
                                          The Co-Registrants Listed on
                                          Attachment B Hereto
 
                                                   /s/ James Campbell
                                          By: _________________________________
                                                     James Campbell
                                                        President
 
                               POWER OF ATTORNEY
 
  We, the undersigned directors and officers of the Co-Registrants listed on
Attachment B hereto do hereby constitute and appoint William H. Haselhoff, Vic
Grubb and John Lynch, or any one of them, our true and lawful attorneys and
agents, to do any and all acts and things in our name and on our behalf in our
capacities as directors and officers and to execute any and all instruments
for us and in our names in the capacities indicated below, which said
attorneys and agents, or either of them, may deem necessary or advisable to
enable the Company to comply with the Securities Act and any rules,
regulations and requirements of the Securities and Exchange Commission, in
connection with this Registration Statement, including specifically, but
without limitation, power and authority to sign for us or any of us in our
names in the capacities indicated below, any and all amendments (including
post-effective amendments) hereto and we do hereby ratify and confirm all that
said attorneys and agents, or either of them, shall do or cause to be done by
virtue hereof.
 
  Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated:
 


              Signature                          Title                   Date
              ---------                          -----                   ----
 
                                                            
          /s/ James Campbell           President (Principal        February 8, 1999
______________________________________  Executive Officer)
            James Campbell
 
       /s/ William H. Haselhoff        Secretary and Treasurer     February 8, 1999
______________________________________  (Principal Financial and
         William H. Haselhoff           Accounting Officer)
 
          /s/ James Campbell           Director                    February 8, 1999
______________________________________
            James Campbell

 
                                     II-13

 
                                  ATTACHMENT B
 
West Virginia--Indiana Coal Holding Company, Inc.
Cannelton, Inc.
Cannelton Industries, Inc.
Cannelton Land Company
Cannelton Sales Company
Dunn Coal & Dock Company
Kanawha Corporation
Mountain Coal Corporation
Moutaineer Coal Development
 
                                     II-14

 
                                   SIGNATURES
 
  Pursuant to the requirements of the Securities Act, each of the Co-
Registrants listed on Attachment C hereto has duly caused this Registration
Statement, or amendment thereto, to be signed on its behalf by the undersigned,
thereunto duly authorized, February 8, 1999.
 
                                          The Co-Registrants Listed on
                                          Attachment C Hereto
 
                                                   /s/ James R. Morris
                                          By: _________________________________
                                                     James R. Morris
                                                        President
 
                               POWER OF ATTORNEY
 
  We, the undersigned directors and officers of the Co-Registrants listed on
Attachment C hereto do hereby constitute and appoint William H. Haselhoff, Vic
Grubb and John Lynch, or any one of them, our true and lawful attorneys and
agents, to do any and all acts and things in our name and on our behalf in our
capacities as directors and officers and to execute any and all instruments for
us and in our names in the capacities indicated below, which said attorneys and
agents, or either of them, may deem necessary or advisable to enable the
Company to comply with the Securities Act and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Registration Statement, including specifically, but without limitation, power
and authority to sign for us or any of us in our names in the capacities
indicated below, any and all amendments (including post-effective amendments)
hereto and we do hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
 
  Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
 


              Signature                          Title                   Date
              ---------                          -----                   ----
 
                                                            
         /s/ James R. Morris           President (Principal        February 8, 1999
______________________________________  Executive Officer)
           James R. Morris
 
       /s/ William H. Haselhoff        Secretary and Treasurer     February 8, 1999
______________________________________  (Principal Financial and
         William H. Haselhoff           Accounting Officer)
 
         /s/ James R. Morris           Director                    February 8, 1999
______________________________________
           James R. Morris

 
                                     II-15

 
                                  ATTACHMENT C
 
Beech Coal Company
Hayman Holdings, Inc.
Kindill Holding, Inc.
Kindill Mining, Inc.
Midwest Coal Company
Old Ben Coal Company
 
                                     II-16

 
                                 EXHIBIT INDEX
 
                            DESCRIPTION OF DOCUMENT
 
      
 2.1      CC Coal Company Purchase of the Crockett Assets from Addington
           Enterprises, Inc. dated as of June 26, 1998.
 2.2*     AEI Resources, Inc. Purchase of Shares of Certain Subsidiaries of
           Cyprus Amax Coal Company dated as of June 29, 1998.
 2.3      Stock Purchase Agreement dated as of July 10, 1998 among Coal
           Ventures, Inc. and the shareholders of each of Mid-Vol, Inc., Mega
           Minerals, Inc. and Premium Processing, Inc.
 2.4*     Agreement and Plan of Merger by and among AEI Resources, Inc.,
           Zeigler Acquisition Corporation and Zeigler Coal Holding Company
           dated as of August 3, 1998, is incorporated by reference to Schedule
           14D-1 of Zeigler Acquisition Corporation, AEI Resources, Inc. and
           Larry Addington with respect to Zeigler Coal Holding Company filed
           August 5, 1998.
 2.5      AEI Resources, Inc. Purchase of Stock of Bowie Resources, Limited
           from Mitsui Matsushima America, Inc. dated as of September 2, 1998.
 2.6*     Stock Purchase Agreement dated as of September 2, 1998, among West
           Virginia--Indiana Coal Holding Company, Inc. and the Shareholders of
           Kindill Holding, Inc.
 2.7*     Stock Purchase Agreement, dated as of September 2, 1998 among West
           Virginia-Indiana Coal Holding Company, Inc. and the Shareholders of
           Hayman Holdings, Inc.
 2.8*     Purchase and Sale Agreement by and among Kinder Morgan Energy
           Partners, L.P., Kinder Morgan Operating L.P. "C," Mountaineer Coal
           Development Company, Shipyard River Coal Terminal Company and
           Zeigler Coal Holding Company dated as of December 9, 1998.
 2.9*     Stock Purchase Agreement dated as of December 29, 1998 among Old Ben
           Coal Company, Kanawha Corporation, Kindill Mining, Inc., Beech Coal
           Company, Dunn Coal & Dock Company, Mountain Coals Corporation and
           Mountaineer Coal Development Company and Employers Risk Services,
           Inc.
 2.10*    Stock Purchase Agreement among MAPCO Coal Inc. and Coal Ventures
           Holding Company, Inc.
 3.1(a)   Certificate of Incorporation of AEI Resources, Inc.
 3.1(b)   Bylaws of AEI Resources, Inc.
 3.2(a)   Certificate of Incorporation of AEI Resources Holding, Inc.
 3.2(b)   Bylaws of AEI Resources Holding, Inc.
 3.3(a)   Articles of Incorporation of Bowie Resources, Limited.
 3.3(b)*  Bylaws of Bowie Resources, Limited.
 3.4(a)*  Amended and Restated Articles of Incorporation of Ikerd-Bandy
           Company, Inc.
 3.4(b)*  Amended and Restated Bylaws of Ikerd-Bandy Co., Inc.
 3.5(a)*  Articles of Incorporation of Tennessee Mining, Inc.
 3.5(b)*  Bylaws of Tennessee Mining, Inc.
 3.6(a)   Articles of Incorporation of Addington Mining, Inc.
 3.6(b)   Bylaws of Addington Mining, Inc.
 3.7(a)   Articles of Incorporation of Mining Technologies, Inc.
 3.7(b)   Bylaws of Mining Technologies, Inc.
 3.8(a)*  Amended and Restated Articles of Incorporation of Leslie Resources,
           Inc.
 3.8(b)*  Amended and Restated Bylaws of Leslie Resources, Inc.
 3.9(a)*  Amended and Restated Articles of Incorporation of Leslie Resources
           Management, Inc.
 3.9(b)*  Amended and Restated Bylaws of Leslie Resources Management, Inc.
 3.10(a)* Amended and Restated Articles of Incorporation of Pro-Land, Inc.,
           d/b/a Kem Coal Company.
 3.10(b)  Amended and Restated Bylaws of Pro-land, Inc. d/b/a Kem Coal Company.
 3.11(a)* Amended and Restated Articles of Incorporation of Aceco, Inc.
 3.11(b)* Amended and Restated Bylaws of Aceco, Inc.
 3.12(a)* Amended and Restated Articles of Incorporation of Mountain-Clay, Inc.
           d/b/a Mountain Clay, Inc.
 3.12(b)* Amended and Restated Bylaws of Mountain-Clay, Inc. d/b/a Mountain
           Clay, Inc.

 

 
      
 3.13(a)* Amended and Restated Articles of Incorporation of Highland Coal, Inc.
 3.13(b)* Amended and Restated Bylaws of Highland Coal, Inc.
 3.14(a)* Amended and Restated Articles of Incorporation of River Coal Company,
           Inc.
 3.14(b)* Amended and Restated Bylaws of River Coal Company, Inc.
 3.15(a)  Certificate of Incorporation of 17 West Mining, Inc.
 3.15(b)  Amended and Restated Bylaws of 17 West Mining, Inc.
 3.16(a)  Articles of Incorporation of AEI Coal Sales Company, Inc.
 3.16(b)  Amended and Restated Bylaws of AEI Coal Sales Company, Inc.
 3.17(a)  Articles of Incorporation of Americoal Development Company.
 3.17(b)  Bylaws of Americoal Development Company.
 3.18(a)* Articles of Incorporation of Appalachian Realty Company.
 3.18(b)  Amended and Restated Bylaws of Appalachian Realty Company.
 3.19(a)  Articles of Incorporation of Ayrshire Land Company.
 3.19(b)  Amended and Restated Bylaws of Ayrshire Land Company.
 3.20(a)  Certificate of Incorporation of Bellaire Trucking Company.
 3.20(b)  Amended and Restated Bylaws of Bellaire Trucking Company.
 3.21(a)* Articles of Incorporation of Bluegrass Coal Development Company.
 3.21(b)* Amended and Restated Bylaws of Bluegrass Coal Development Company.
 3.22(a)  Articles of Incorporation of CC Coal Company.
 3.22(b)  Bylaws of CC Coal Company.
 3.23(a)  Certificate of Incorporation of Coal Ventures Holding Company, Inc.
 3.23(b)  Bylaws of Coal Ventures Holding Company, Inc.
 3.24(a)* Articles of Incorporation of East Kentucky Energy Corporation.
 3.24(b)  Amended and Restated Bylaws of East Kentucky Energy Corporation.
 3.25(a)* Articles of Incorporation of Employee Benefits Management, Inc.
 3.25(b)* Bylaws of Employee Benefits Management, Inc.
 3.26(a)  Certificate of Incorporation of Encoal Corporation.
 3.26(b)  Amended and Restated Bylaws of Encoal Corporation.
 3.27(a)  Certificate of Incorporation of Enerz Corporation.
 3.27(b)  Amended and Restated Bylaws of Enerz Corporation.
 3.28(a)  Articles of Incorporation of Evergreen Mining Company.
 3.28(b)  Amended and Restated Bylaws of Evergreen Mining Company.
 3.29(a)  Articles of Incorporation of Fairview Land Company.
 3.29(b)  Amended and Restated Bylaws of Fairview Land Company.
 3.30(a)* Articles of Incorporation of Franklin Coal Sales Company.
 3.30(b)  Amended and Restated Bylaws of Franklin Coal Sales Company.
 3.31(a)  Certificate of Incorporation of Grassy Cove Coal Mining Company.
 3.31(b)  Bylaws of Grassy Cove Coal Mining Company.
 3.32(a)  Certificate of Incorporation of Heritage Mining Company.
 3.32(b)  Amended and Restated Bylaws of Heritage Mining Company.
 3.33(a)* Articles of Incorporation of Kermit Coal Company.
 3.33(b)  Amended and Restated Bylaws of Kermit Coal Company.
 3.34(a)* Articles of Incorporation of Meadowlark, Inc.
 3.34(b)  Amended Bylaws of Meadowlark, Inc.
 3.35(a)  Articles of Incorporation of Mega Minerals, Inc.
 3.35(b)  Amended and Restated Bylaws of Mega Minerals, Inc.
 3.36(a)  Certificate of Incorporation of Midwest Coal Sales Company.
 3.36(b)  Amended and Restated Bylaws of Midwest Coal Sales Company.
 3.37(a)  Articles of Incorporation of Mid-Vol Leasing, Inc.
 3.37(b)  Amended and Restated Bylaws of Mid-Vol Leasing, Inc.

 
 
                                       2

 
      
 3.38(a)  Certificate of Incorporation of Phoenix Land Company.
 3.38(b)  Amended and Restated Bylaws of Phoenix Land Company.
 3.39(a)* Articles of Incorporation of Premium Processing, Inc.
 3.39(b)  Bylaws of Premium Processing, Inc.
 3.40(a)  Certificate of Incorporation of Premium Coal Development Company.
 3.40(b)  Amended and Restated Bylaws of Premium Coal Development Company.
 3.41(a)* Articles of Incorporation of R. & F. Coal Company.
 3.41(b)* Bylaws of R. & F. Coal Company.
 3.42(a)* Skyline Coal Corporation Partnership Agreement dated as of January 1,
           1998 between Roaring Creek Coal Company and Grassy Cove Coal Mining
           Company
 3.42(b)* Kentucky Prince Mining Company dated as of January 1, 1998 between
           Roaring Creek Coal Company and Grassy Cove Coal Mining Company
 3.42(c)* Bently Coal Company Partnership Agreement dated as of January 1, 1998
           between Roaring Creek Coal Company and Grassy Cove Coal Mining
           Company
 3.43(a)* Articles of Incorporation of Shipyard River Coal Terminal Company.
 3.43(b)  Amended and Restated Amended and Restated Bylaws of Shipyard River
           Coal Terminal Company.
 3.44(a)* Articles of Incorporation of Straight Creek Coal Resources Company.
 3.44(b)  Amended and Restated Amended and Restated Bylaws of Straight Creek
           Coal Resources Company.
 3.45(a)* Articles of Incorporation of Turris Coal Company.
 3.45(b)  Amended and Restated Bylaws of Turris Coal Company.
 3.46(a)  Articles of Incorporation of Wyoming Coal Technology Inc.
 3.46(b)  Bylaws of Wyoming Coal Technology Inc.
 3.47(a)* Restated Certificate of Incorporation of Zeigler Coal Holding
           Company.
 3.47(b)* Bylaws of Zeigler Coal Holding Company.
 3.48(a)* Certificate of Incorporation of Zeigler Environmental Services
           Company.
 3.48(b)  Amended and Restated Bylaws of Zeigler Environmental Services
           Company.
 3.49(a)* Articles of Incorporation of Zenergy, Inc.
 3.49(b)  Amended and Restated Bylaws of Zenergy, Inc.
 3.50(a)  Articles of Incorporation of Beech Coal Company.
 3.50(b)  Amended and Restated Bylaws of Beech Coal Company.
 3.51(a)* Certificate of Incorporation of Cannelton, Inc.
 3.51(b)  Amended and Restated Bylaws of Cannelton, Inc.
 3.52(a)* Articles of Incorporation of Cannelton Industries, Inc.
 3.52(b)  Amended and Restated Bylaws of Cannelton Industries, Inc.
 3.53(a)  Articles of Incorporation of Cannelton Land Company.
 3.53(b)  Amended and Restated Bylaws of Cannelton Land Company.
 3.54(a)  Articles of Incorporation of Cannelton Sales Company .
 3.54(b)  Bylaws of Cannelton Sales Company.
 3.55(a)* Articles of Incorporation of Dunn Coal & Dock Company.
 3.55(b)  Amended and Restated Bylaws of Dunn Coal & Dock Company.
 3.56(a)* Articles of Incorporation of Hayman Holdings, Inc.
 3.56(b)  Amended and Restated Bylaws of Hayman Holdings, Inc.
 3.57(a)  Articles of Incorporation of Kanawha Corporation.
 3.57(b)  Amended and Restated Bylaws of Kanawha Corporation.
 3.58(a)* Articles of Incorporation of Kindill Holding, Inc.
 3.58(b)* Amended and Restated Bylaws of Kindill Holding, Inc.
 3.59(a)  Articles of Incorporation of Kindill Mining, Inc.
 3.59(b)* Amended and Restated Bylaws of Kindill Mining, Inc.
 3.60(a)* Articles of Incorporation of Midwest Coal Company.
 3.60(b)* Amended and Restated Bylaws of Midwest Coal Company.
 3.61(a)* Articles of Incorporation of Mountaineer Coal Development Company.
 3.61(b)  Amended and Restated Bylaws of Mountaineer Coal Development Company.

 
 
                                       3

 
      
 3.62(a)* Certificate of Incorporation of Mountain Coals Corporation.
 3.62(b)  Amended and Restated Bylaws of Mountain Coals Corporation.
 3.63(a)  Certificate of Incorporation of Old Ben Coal Company.
 3.63(b)  Amended and Restated Bylaws of Old Ben Coal Company.
 3.64(a)* Articles of Incorporation of West Virginia-Indiana Coal Holding
           Company, Inc.
 3.64(b)  Bylaws of West Virginia-Indiana Coal Holding Company, Inc.
 3.65(a)  Certificate of Incorporation of AEI Holding Company, Inc.
 3.65(b)  Amended & Restated Bylaws of AEI Holding Company, Inc.
 3.66(a)* Articles of Formation of NuCoal, LLC.
 3.66(b)* Limited Liability Company Agreement of NuCoal, LLC.
 3.67(a)* Certificate of Incorporation of Zeigler Property Development
           Corporation.
 3.67(b)* Amended and Restated Bylaws of Zeigler Property Development
           Corporation.
 4.1(a)   Registration Rights Agreement dated as of December 14, 1998 by and
           among AEI Resources, Inc. and AEI Resources Holding, Inc., as
           Issuers, the Subsidiary Guarantors, and Warburg Dillon Read LLC as
           Dealer Manager, $200,000,000 10 1/2% Senior Notes Due 2005.
 4.1(b)   $200,000,000 10 1/2% Senior Notes Due 2005 Indenture dated as of
           December 14, 1998 among AEI Resources, Inc. and AEI Resources
           Holding, Inc. as the Issuers, the Guarantors and IBJ Schroder Bank &
           Trust Company, as Trustee.
 4.1(c)   Cross reference of Trust Indenture Act to Senior Notes Indenture.
 4.2(a)   Registration Rights Agreement dated as of December 14, 1998 by and
           among AEI Resources, Inc., as Issuer, the named Subsidiary
           Guarantors, as Guarantors and Warburg Dillon Read LLC, $150,000,000
           11 1/2% Senior Subordinated Notes 2006.
 4.2(b)   Up to $225,000,000 11 1/2% Senior Subordinated Notes Due 2006
           Indenture dated as of December 14, 1998, among the AEI Resources,
           Inc., the Issuers, the Guarantors and State Street Bank & Trust
           Company, as Trustee.
 4.2(c)   Cross reference of Trust Indenture Act to Senior Subordinated Notes
           Indenture .
 4.3      Form of Notes (included in Exhibits 4.1(b) and 4.2(b) above).
 4.4**    AEI Resources, Inc., as Borrower and the Guarantors, $500,000,000
           Amended and Restated Senior Subordinated Credit Agreement dated as
           of September 2, 1998 Amended and Restated as of December 14, 1998,
           Warburg Dillon Read LLC, as Arranger and Syndication Agent, and UBS
           AG, Stamford Branch as Administrative Agent
 4.5*     Amended and Restated Credit Agreement dated as of September 2, 1998,
           amended and restated as of December 14, 1998, among AEI Resources,
           Inc., as Borrower, the Guarantors party hereto Warburg, Dillon, Read
           LLC as Arranger and Syndication Agent, and UBS AG, Stamford Branch,
           as Administrative Agent.
 5.1*     Opinion of Latham & Watkins regarding the validity of the Exchange
           Notes
 10.1*    Stock Purchase Agreement dated as of September 24, 1993, between
           Addington Holding, Inc. and Pittston Acquisition Company.
 10.2*    Indemnity Agreement dated as of January 14, 1994 among Addington
           Resources, Inc., Addington Holding Company, Inc., Pittston Minerals
           Group, Inc. and Pittston Acquisition Company.
 10.3*    Amended and Restated Stock Purchase Agreement effective as of
           December 18, 1997, among AEI Holding Company, Inc., Addington
           Enterprises, Inc. and Greg Wells
 10.4*    Promissory Note dated January 15, 1998 in the amount of $8,050,000.00
           payable to the order of Greg Wells.
 10.5*    Employment and Consulting Agreement dated as of January 15, 1997
           between Leslie Resources, Inc., AEI Holding Company, Inc. and Greg
           Wells.
 10.6*    Asset Purchase Agreement dated as of December 18, 1997 between Mining
           Technologies, Inc. and Addington Enterprises, Inc.
 10.7*    Assignment of Contracts dated as of January 2, 1998 between Addington
           Enterprises, Inc. and Mining Technologies, Inc.
 10.8*    Bill of Sale, Conveyance and Assignment dated January 2, 1998 between
           Mining Technologies, Inc. and Addington Enterprises, Inc.

 
 
                                       4

 
      
10.9*    Guaranty Agreement dated as of January 2, 1998 between AEI Holding Company, Inc. and Addington
          Enterprises, Inc.
10.10*   Non-Competition Agreement dated as of January 2, 1998 among Mining Technologies, Inc., Addington
          Enterprises, Inc. and Larry Addington.
10.11*   Stock Purchase Agreement dated as of October 17, 1997, among Addington Enterprises, Inc., James J.
          Kocian, Bert I. Koenig and William N. Rich.
10.12*   Promissory Note dated October 17, 1997 in the amount of $2,600,000.00 payable to the order of Bert
          I. Koenig.
10.13*   Promissory Note dated October 17, 1997 in the amount of $2,600,000.00 payable to the order of James
          J. Kocian.
10.14*   Promissory Note dated October 17, 1997 in the amount of $1,300,000.00 payable to the order of
          William N. Rich.
10.15*   Agreement dated November 6, 1997 between Task Trucking, Inc. and AEI Holding Company, Inc.
10.16*   Service Agreement dated October 22, 1997 between Mining Machinery, Inc. and AEI Holding Company,
          Inc.
10.17*   AEI Holding Company, Inc. Stock Option Plan.
10.18*   Form of Stock Option Agreement for the AEI Holding Company, Inc., Stock Option Plan.
12.1*    Statements Regarding Computation of Ratios.
21.1*    Subsidiaries of Registrant.
23.1     Consent of Arthur Andersen LLP.
23.2(a)  Consent of Deloitte & Touche LLP (Zeigler Coal Holding Company).
23.2(b)  Consent of Deloitte & Touche LLP (Kindill Holding, Inc.).
23.2(c)  Consent of Deloitte & Touche LLP (Martiki Coal Corporation).
23.3     Consent of PriceWaterhouseCoopers LLP.
23.4     Consent of Faesy, Schmitt & Company, PSC.
23.5     Consent of Marshall Miller & Associates.
23.6     Consent of Weir International Mining Consultants.
23.7     Consent of Stagg Engineering Services, Inc.
23.8     Consent of Norwest Mine Services.
23.9*    Consent of Latham & Watkins (included as part of its opinion filed as Exhibit 5.1 hereto).
25.1     Statement of Eligibility of IBJ Whitehall Bank & Trust Company on Form T-1.
25.2     Statement of Eligibility of State Street Bank and Trust Company on Form T-1.
27.1*    Financial Data Schedules (for SEC Use Only).
99.1     Form of Letter of Transmittal.
99.2*    Form of Notice of Guaranteed Delivery.
99.3*    Form of Letter to Securities Dealers, Commercial Banks, Trust Companies and Other Nominees.
99.4*    Form of Letter to Clients.
99.5*    Guidelines for Certification of Taxpayer Identification Number on Form W-9.


- --------
* To be filed by Amendment.
 
                                       5

EX-2.1

 
                           ASSETS PURCHASE AGREEMENT

                           dated as of June 26, 1998

                                    between

                                CC COAL COMPANY
                                  (Purchaser)


                                      and


                          ADDINGTON ENTERPRISES, INC.
                                    (Seller)


 
                               TABLE OF CONTENTS
                               -----------------
 
 
                                                                      Page
                                                                      ----
Article 1 - Definitions..............................................   1
    1.1   Definitions................................................   1
    1.2   Additional Terms...........................................   2

Article 2 - Purchase and Sale........................................   2
    2.1   Purchase of the Assets.....................................   2
    2.2   Purchase Price.............................................   3
    2.3   Allocation of Purchase Price...............................   3
    2.4   Assumption of Bond and Permit Liability....................   3
    2.5   Assumed Liabilities........................................   3

Article 3 - Representations and Warranties of Seller.................   3
    3.1  Encumbrances................................................   3
    3.2  Organization................................................   3
    3.3  Authority...................................................   3

Article 4 - Representations and Warranties of Purchaser..............   4
    4.1  Organization................................................   4
    4.2  Authority...................................................   4

Article 5 - Conditions to Obligations of Purchaser...................   4
    5.1  No Material Adverse Change..................................   4
    5.2  Statutory Requirements......................................   4
    5.3  Deliveries..................................................   4
    5.4  Closing.....................................................   4
    5.5  Representations, Warranties and Covenants...................   4
    5.6  Financing...................................................   4

Article 6 - Conditions to Obligations of Seller......................   5
    6.1  Representations, Warranties and Covenants...................   5
    6.2  Statutory Requirements......................................   5
    6.3  Deliveries..................................................   5
    6.4  Closing.....................................................   5

Article 7 - Miscellaneous............................................   5
    7.1  Notices.....................................................   5
    7.2  Waivers.....................................................   6
    7.3  Expenses....................................................   6
    7.4  Headings; Interpretation....................................   6

                                      (i)

 
    7.5  Annexes and Schedules.......................................   6
    7.6  Entire Agreement............................................   6
    7.7  Governing Law...............................................   6
    7.8  Brokers.....................................................   6
    7.9  Counterparts................................................   7
    7.10 Severability................................................   7
    7.11 Benefit and Binding Effect..................................   7
    7.12 Risk of Loss................................................   7
    7.13 Further Assurances..........................................   7
    7.14 Prorations and Adjustments..................................   7
    7.15 Sales and Transfer Taxes and Fees...........................   7

                                     (ii)

 
                           ASSETS PURCHASE AGREEMENT
                           -------------------------


     This is an Assets Purchase Agreement (this "Agreement"), dated June 26,
1998, between (i) CC Coal Company ("Purchaser"), a Kentucky corporation and (ii)
Addington Enterprises, Inc., ("Seller"), a Kentucky corporation.

                                    RECITALS
                                    --------

     A.   Seller wishes to sell, and Purchaser wishes to purchase, upon the
terms and conditions set forth in this Agreement, certain assets of Seller.

     B.   This Agreement is the definitive acquisition agreement contemplated by
and among the parties.

     NOW, THEREFORE, in consideration of the mutual benefits and covenants
contained herein, and subject to the terms and conditions set forth herein, the
parties agree as follows:

                                   Article 1
                                  Definitions
                                  -----------

      1.1 Definitions.  As used in this Agreement, the following terms shall
          -----------                                                       
have the following meanings:

          (a) "Assets" shall mean the Seller's assets described on Schedules
1.1(g), 1.1(i)(1), (i)(2), (i)(3), (m), (o)(1), and (o)(2), being the Contracts,
Equipment, Permits, and Real Property.

          (b) "Assignment of Contracts" shall mean the Assignment of Contracts,
substantially in the form attached hereto as Annex 1.1(b), pursuant to which
Seller shall assign the Contracts to Purchaser.

          (c) "Assignment of Leases" shall mean the Assignment of Leases,
substantially in the form attached hereto as Annex 1.1(c), pursuant to which
Seller shall assign to Purchaser the various leases of that portion of the Real
Property which Seller leases.

          (d) "Bill of Sale" shall mean the Bill of Sale, substantially in the
form attached hereto as Annex 1.1(d), pursuant to which Seller shall transfer to
Purchaser the Equipment and any other tangible personal property included in the
Assets, and Seller shall transfer to Purchaser the Permits.

          (e) "Closing" shall mean the consummation of the transactions
contemplated in this Agreement in accordance with the provisions of Section 9.

          (f) "Closing Date" shall mean June 29, 1998, or such other date to
which the parties may mutually agree.

 
          (g) "Contracts" shall mean all agreements, contracts and commitments
listed on Schedule 1.1(g).

          (h) "Deeds" shall mean the Deeds, substantially in the form attached
hereto as Annex 1.1(h), pursuant to which Seller shall convey to Purchaser the
tracts of Real Property which are owned by Seller.

          (i) "Equipment" shall mean Seller's furniture, fixtures, machinery,
equipment and other tangible personal property, as described on Schedules
1.1(i)(1), (2) and (3), together with all manufacturers' warranties pertaining
to the same, to the extent that such warranties may exist and be assignable.

          (j) "Liabilities" shall mean all accounts payable, notes payable,
liabilities, commitments, indebtedness or obligations of any kind whatsoever,
whether absolute, accrued, contingent, matured or unmatured, direct or indirect,
arising from or relating to the ownership or operation of the Assets.

          (k) "Material" (whether or not capitalized) shall include any matter
which might influence Purchaser's decision to consummate the transactions
contemplated herein.

          (l) "Other Agreements" shall mean the Assignment of Contracts,
Assignment of Leases, Bill of Sale and Deeds, and all other agreements,
certificates, opinions, instruments or documents contemplated by, required by or
referred to in, this Agreement for the consummation of the transactions
contemplated hereby.

          (m) "Permits" shall mean all permits, licenses, franchises, approvals,
certificates or authorizations of any federal, state or local governmental or
regulatory body required in order to permit Seller to own and operate the
Assets, as described on Schedule 1.1(m).

          (n) "Person" shall mean any person, firm, trust, partnership,
corporation or other business entity.

          (o) "Real Property" shall mean all real estate owned of record by
Seller, or leased or used by it, a description of which, including a brief
description of all structures and improvements located thereon, is set forth on
Schedules 1.1(o) (1) and (2).

      1.2 Additional Terms.  Other capitalized terms used in this Agreement but
          ----------------                                                     
not defined in Section 1.1 above shall have the meanings ascribed to them
wherever such terms first appear in this Agreement; or, if no meanings are so
ascribed, the meanings customarily associated with such terms in the coal mining
industry.

                                      -2-

 
                                   Article 2
                               Purchase and Sale
                               -----------------

      2.1 Purchase of the Assets.  Subject to the terms and conditions of this
          ----------------------                                              
Agreement, Seller hereby agrees to sell, transfer and deliver to Purchaser, and
Purchaser hereby agrees to pur  chase from Seller all the Assets.

      2.2 Purchase Price.  The purchase price (the "Purchase Price") for the
          --------------                                                    
Assets shall be Three Million Seven Hundred Fifty Thousand Dollars
($3,750,000.00), which shall be paid in cash or cash equivalent in immediately
available funds at the Closing.

      2.3 Allocation of Purchase Price.  The Purchase Price shall be allocated
          ----------------------------                                        
among the Assets as set forth on Schedule 2.3 hereto. Purchaser and Seller shall
report the transactions con  templated herein for all tax purposes in accordance
with such allocation and, in any proceeding related to the determination of any
tax, neither Purchaser nor Seller shall contend or represent that such
allocation is not a correct allocation.

      2.4 Assumption of Bond and Permit Liability.  At Closing, Seller shall
          ---------------------------------------                           
turn over to Purchaser all Seller's files relating to the Permits.  Purchaser
shall prepare all documents necessary, and Seller and Purchaser shall cooperate,
and Purchaser shall take such action as may be reasonably requested to cause the
Permits to be transferred to Purchaser and to obtain the approvals of the
regulatory authorities for such transfers, but no action shall be taken which
would have the effect of violating the applicant violator system regulations or
interpretations of the Office of Surface Mining and/or "permit blocking"
Purchaser by any such transfer.  To that end, Purchaser shall submit to the
regulatory authorities, within thirty (30) days of Closing, applications to
transfer the Permits to Purchaser and diligently pursue the same.  Purchaser
shall assume at Closing all responsibilities associated with the Permits,
including but not limited to all reclamation responsibility with respect to the
Permit sites and related regulatory approvals.  The Permits and the associated
reclamation status are accurately reflected on Schedule 2.4(a). Purchaser shall,
within thirty (30) days of Closing, submit bonds for replacement of the
reclamation bonds and security therefor associated with the Permits,
specifically those bonds as listed on Schedule 2.4 (b) (the "Bonds").  After
Closing, Purchaser, provided Purchaser shall first have submitted bonds in
replacement of the Bonds, may operate under the Permits prior to approval of
their transfer (and whether or not the Bonds have then been released), and shall
indemnify and hold Seller harmless from any liability with respect thereto.

      2.5 Assumed Liabilities.  In addition to the liability assumed by
          -------------------                                          
Purchaser pursuant to Section 2.4, Purchaser hereby assumes all of the
Liabilities.

                                   Article 3
                    Representations and Warranties of Seller
                    ----------------------------------------

      3.1 Encumbrances.  Seller represents and warrants to Purchaser that Seller
          ------------                                                          
has not created any lien, mortgage, pledge, charge or other encumbrances upon
any of the Assets.

                                      -3-

 
      3.2 Organization.  Purchaser is a corporation duly organized and validly
          ------------                                                        
existing under the laws of the Commonwealth of Kentucky, and has full corporate
power and authority to own and lease its properties as such properties are now
owned and leased, and to conduct its business as and where its business is now
conducted.

      3.3 Authority.  Purchaser has full right, power, authority and capacity to
          ---------                                                             
execute and deliver this Agreement, and to perform its obligations under this
Agreement.  This Agreement constitutes valid and legally binding obligations of
Purchaser, enforceable in accordance with its terms.

                                   Article 4
                  Representations and Warranties of Purchaser
                  -------------------------------------------

     Purchaser represents and warrants to Sellers as follows:

      4.1 Organization.  Purchaser is a corporation duly organized and validly
          ------------                                                        
existing under the laws of the Commonwealth of Kentucky, and has full corporate
power and authority to own and lease its properties as such properties are now
owned and leased, and to conduct its business as and where its business is now
conducted.

      4.2 Authority.  Purchaser has full right, power, authority and capacity to
          ---------                                                             
execute and deliver this Agreement, and to perform its obligations under this
Agreement.  This Agreement constitutes valid and legally binding obligations of
Purchaser, enforceable in accordance with its terms.

                                   Article 5
                     Conditions to Obligations of Purchaser
                     --------------------------------------

     The obligations of Purchaser to consummate the transactions contemplated
herein shall be subject to the satisfaction of the following conditions at or
before the Closing:
 
      5.1 No Material Adverse Change.  There shall not have occurred any
          --------------------------                                    
material adverse change since the date of this Agreement to the Assets.

      5.2 Statutory Requirements.  All statutory requirements for the valid
          ----------------------                                           
consummation by Purchaser of the transactions contemplated by this Agreement
shall have been fulfilled, and all authorizations, consents and approvals of all
federal, state, local and foreign governmental agencies and authorities required
to be obtained in order to permit the consummation by Purchaser of the
transactions contemplated by this Agreement, and to permit Purchaser to use and
operate the Assets in the same manner as Seller in all material respects
immediately following the Closing, shall have been obtained.

      5.3 Deliveries.  At or before the Closing, Seller shall have made all of
          ----------                                                          
its deliveries contemplated in this Agreement.

                                      -4-

 
      5.4 Closing.  The Closing shall occur on or before June 29, 1998, or such
          -------                                                              
other date as the parties may mutually agree.

      5.5 Representations, Warranties and Covenants.  The representations and
          -----------------------------------------                          
warranties of Purchaser contained herein shall be true on the Closing Date, with
the same effect as though made at such time, except to the extent of changes
permitted by the terms of this Agreement.

      5.6 Financing.  Purchaser shall have arranged financing with such lenders,
          ---------                                                             
in such amounts, at such rates, and upon such terms as Purchaser deems, in
Purchaser's sole discretion, necessary and sufficient to consummate the
transactions contemplated in this Agreement.

                                   Article 6
                      Conditions to Obligations of Seller
                      -----------------------------------

     The obligations of Seller to consummate the transactions contemplated
herein shall be subject to the satisfaction of the following conditions at or
before the Closing:

      6.1 Representations, Warranties and Covenants.  The representations and
          -----------------------------------------                          
warranties of Purchaser contained herein shall be true on the Closing Date, with
the same effect as though made at such time, except to the extent of changes
permitted by the terms of this Agreement.

      6.2 Statutory Requirements.  All statutory requirements for the valid
          ----------------------                                           
consummation by Sellers of the transactions contemplated by this Agreement shall
have been fulfilled, and all authorizations, consents and approvals of all
federal, state, local and foreign governmental agencies and authorities required
to be obtained in order to permit the consummation by Seller of the transactions
contemplated by this Agreement shall have been obtained.

      6.3 Deliveries.  At or before the Closing, Purchaser shall have made all
          ----------                                                          
of its deliveries contemplated in this Agreement.

      6.4 Closing.  The Closing shall occur on or before June 29, 1998, or such
          -------                                                              
other date as the parties may mutually agree.


                                   Article 7
                                 Miscellaneous
                                 -------------

      7.1 Notices.  Any notices or other communications required or permitted
          -------                                                            
hereunder shall be deemed to have been duly given (a) if delivered in person and
a receipt is given; or (b) if sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed as follows:

                                      -5-

 
   (a)  If to Purchaser:

        CC Coal Company
        1500 North Big Run Road
        Ashland, Kentucky 41102
        Attention: Donald P. Brown

        with a copy to:

        Brown, Todd & Heyburn PLLC
        2700 Lexington Financial Center
        Lexington, Kentucky 40507
        Attention: Paul E. Sullivan

   (b)  If to Seller:

        Addington Enterprises, Inc.
        1500 North Big Run Road
        Ashland, Kentucky  41102
        Attention: Donald P. Brown

        with a copy to:

        Brown, Todd & Heyburn PLLC
        2700 Lexington Financial Center
        Lexington, Kentucky  40507
        Attention: Paul E. Sullivan

or if sent to such substituted address as any of the parties has given to the
others in writing in accordance with this Section 10.1.

      7.2 Waivers.  No waiver or failure to insist upon strict compliance with
          -------                                                             
any obligation, covenant, agreement or condition of this Agreement shall operate
as a waiver of, or an estoppel with respect to, any subsequent or other failure.

      7.3 Expenses.  Each party shall assume its respective expenses incurred in
          --------                                                              
connection with the transactions contemplated by this Agreement.

      7.4 Headings; Interpretation.  The headings in this Agreement have been
          ------------------------                                           
included solely for ease of reference and shall not be considered in the
interpretation or construction of this Agreement.  All references herein to the
masculine, neuter or singular shall be construed to include the masculine,
feminine, neuter or plural, as appropriate.

      7.5 Annexes and Schedules.  The Annexes and Schedules to this Agreement
          ---------------------                                              
are incorporated herein by reference and expressly made a part hereof.

                                      -6-

 
      7.6 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, and there are no representations, warranties, understandings or
agreements with respect to the subject matter hereof other than those expressly
set forth herein or on an Annex or Schedule delivered in connection herewith.
 
      7.7 Governing Law.  This Agreement shall be governed by, and construed and
          -------------                                                         
interpreted in accordance with, the laws of the Commonwealth of Kentucky.  Each
party agrees that any action brought in connection with this Agreement against
another shall be filed and heard in Boyd County, Kentucky, and each party hereby
submits to the jurisdiction of the Circuit Court of Boyd County, Kentucky, and
the U.S. District Court for the Eastern District of Kentucky, Lexington
Division.

      7.8 Brokers.  The parties covenant and agree with one another that they
          -------                                                            
have not dealt with any broker or finder in connection with any of the
transactions contemplated in this Agreement and, insofar as they know, no broker
or other Person is entitled to a commission or finders' fee in connection with
these transactions.  Each party shall indemnify and hold the other parties
harmless from and against any claim by any agent or broker claiming by or
through it for any fee or other compensation due or allegedly due that broker or
agent.

      7.9 Counterparts.  This Agreement may be executed in any number of
          ------------                                                  
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.

      7.10 Severability.  If any provision of this Agreement or its application
           ------------                                                        
will be 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.

      7.11 Benefit and Binding Effect.  This Agreement shall be binding upon,
           --------------------------                                           
and shall inure to the benefit of, Purchaser, Seller, and each of their
successors and assigns; provided, however, that no party to this Agreement shall
assign his or its rights or obligations hereunder without the express written
consent of the other parties, which consent shall not be unreasonably withheld.

      7.12 Risk of Loss.  The risk of any loss or damage to any of the Assets by
           ------------                                                         
fire or any other casualty or cause shall be borne by Seller at all times
through the Closing, and by Purchaser thereafter.  If, prior to the consummation
of the Closing, the Assets shall be damaged or destroyed to the extent that the
cost of repair or replacement would exceed $100,000, either Seller or Purchaser
may, at their election, terminate this Agreement and, upon such termination, no
party to this Agreement shall have any further obligation hereunder to the
others.  If neither Seller nor Purchaser elects to terminate this Agreement
pursuant to this Section 10.12, Purchaser shall be entitled to all insurance
proceeds relating to the casualty to the Assets, and Seller shall not have any
further liability to Purchaser as a result of such casualty.

      7.13 Further Assurances.  From time to time at another party's request and
           ------------------                                                   
without further consideration, a party shall execute and deliver such further
instruments of conveyance, assignment 

                                      -7-

 
and transfer, and take such other actions as the requesting party may reasonably
request, in order to more effectively convey and transfer any of the Assets. In
addition, any monies collected by a party which are due and payable to another
party will be promptly remitted to such party upon receipt thereof.

      7.14 Prorations and Adjustments.  All income and operating expenses
           --------------------------                                    
pertaining to the Assets shall be prorated as of the Closing Date, so that, as
between Seller and Purchaser, Seller shall receive all revenues and be
responsible for all expenses, costs and liabilities (including, but not limited
to, ad valorem property taxes, lease payments, etc.) allocable to the period
prior to the Closing Date, and Purchaser shall receive all revenues and be
responsible for all expenses, costs and liabilities allocable to the Closing
Date and thereafter.

      7.15 Sales and Transfer Taxes and Fees.  In connection with this Agreement
           ---------------------------------                                    
and the transactions contemplated hereby, Purchaser shall be responsible for and
pay any sales tax, recordation, filing fees, and real estate transfer taxes.
The parties will assist each other in the filing of all necessary tax returns
and other documentation with respect to all such taxes and fees, and, if
required by applicable law, will join in the execution of any such tax returns
or other documentation.

     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date set forth in the preamble hereto, but actually on the dates set
forth below.

                              ADDINGTON ENTERPRISES, INC.


                              By:
                                    -----------------------------

                              Title:
                                    -----------------------------

                              Date:
                                    -----------------------------


                              CC COAL COMPANY



                              By:
                                    -----------------------------

                              Title:
                                    -----------------------------

                              Date:
                                    -----------------------------

                                      -8-

 
                                    ANNEXES


     1.1(b)  Assignment of Contracts
     1.1(c)  Assignment of Leases
     1.1(d)  Bill of Sale
     1.1(h)  Deeds



                                   SCHEDULES



     1.1(g)     Contracts
     1.1(i)(1)  Major Equipment Listing
     1.1(i)(2)  Buildings, Facilities & Other Structures
     1.1(i)(3)  Vehicle Listing
     1.1(m)     Mine License, Permits, Etc.
     1.1(o)(1)  Real Property Interests - Owned
     1.1(o)(2)  Real Property Interests - Leased
     2.3        Allocation of Purchase Price
     2.4(a)     Mine Permit & Reclamation Status
     2.4(b)     Bond Amounts in Place
     10.15      Prepaid Royalty Amounts

 
                          Additions Made at Closing to
                          ----------------------------
                       Schedules 1.1(i)(1) and 1.1(i)(2)
                       ---------------------------------

                                   BUILDINGS


Good Coal #1
- ------------

       Block lamphouse and locker room
       Metal office building
       Wooden storage building

Burnett:

       Block mine office and lamphouse
       Wooden storage building


Prep Plant
- ----------

       Block pumphouse
       Parts trailer/office trailer
       Wooden building located at head of refuse belt
       30' x 30' wooden addition to the construction shop
       12' x 30' trailer added to the construction shop
       Block pump building adjacent to office and warehouse

Good Coal #2
- ------------

       2 Metal Buildings

 
                                  TRANSFORMERS


3      Pole mounted transformers located above entries near water tank at Good
        Coal #1

3      Transformers located on ground pad at loadout for Good Coal #1

3      Rack mounted transformers located between Prep Plant & raw coal dump bin

3      Transformers on pad adjacent to clean coal stockpile

1      Pole mounted transformer located above Prep Plant

3      Pole mounted transformers located at head of refuse belt

1      Pole mounted transformer located at head of refuse belt

1      Rack mounted transformer for pump behind impoundment

3      Track mounted transformers at equipment shop

1      Pole mounted transformer at equipment shop

1      Pole mounted transformer at equipment shop for lights

3      Rack mounted transformers and switch adjacent to the loadout

1      Pad mounted transformer and switch adjacent to the loadout

1      Pole mounted transformer adjacent to the lab building


The above list of transformers was prepared by Purchaser's representatives.  It
is the parties' intent that all transformers on site and being used shall be
transferred to Purchaser.

 
                                SCHEDULE 1.1(g)

                             Coal Sales Agreements
                             ---------------------



 
        Type       Date                                  Description
     Agreement
- ---------------------------------------------------------------------------------------------------
                  
 
 1    Contract   10/16/89  Coal Term Contract No. 90P-20-T4 by and between Tennessee Valley
                           Authority (TVA) and Tom Coal Company, dated October 16, 1989.
                           Contract was assigned to Great Western Coal, Inc. on February 1, 1992,
                           and subsequently acquired by New Horizons Holding, Inc. in a stock
                           transaction with Great Western Resources, Inc. on August 15, 1995.
                           A renegotiation of the Contract was carried out and executed with TVA
                           on January 26, 1996.  Contract was transferred to Addington
                           Enterprises, Inc. pursuant to Assignment and Assumption Agreement
                           dated May 5, 1998.


 
                                SCHEDULE 1.1(g)

                                Other Agreements
                                ----------------



 
         Type          Date                                   Description
      Agreement
- ---------------------------------------------------------------------------------------------------------
                      
 
1  Commission        01/01/96  Agreement between Smoky Mountain Coal Corporation (Sales Agent)
                               and Great Western Coal, Inc. (Producer) setting a commission of 1%
                               of the sales price for all coal shipped to the Tennessee Valley Authority
                               on Contract No. 90P-20-T4.  Contract was acquired by New Horizons
                               Holding, Inc. in a stock transaction with Great Western Resources, Inc.
                               on August 15, 1995.  Agreement transferred to Addington Enterprises,
                               Inc. pursuant to Assignment and Assumption Agreement dated May 5,
                               1998.
 
2  Railroad Track    01/07/80  Agreement between South Mississippi Electric Power Association, Inc.
                               (SMEPA) and Bow Valley Coal Resources, Inc., as subsequently
                               assigned or conveyed.  Agreement allows Crockett Collieries, Inc. to
                               use railroad track owned by SMEPA for loading coal from its
                               operation.  Agreement transferred to Addington Enterprises, Inc.
                               pursuant to Assignment and Assumption Agreement dated May 5, 1998.
 
3  Railroad Track    01/08/80  Agreement between L&N Railroad (CSX Property Services) and
                               Crockett Collieries (Kentucky), Inc., successor to Bow Valley Coal
                               Resources, Inc., for use of rail at its loading operations.  Written copy
                               of Contract can not be found, but annual invoice from CSX Property
                               Services (for $150.00/yr.) refers to the 01/08/80 Agreement.
                               Agreement transferred to Addington Enterprises, Inc. pursuant to
                               Assignment and Assumption Agreement dated May 5, 1998.
 
4  Water Analysis    02/14/96  Agreement between Crockett Collieries (Kentucky), Inc., et al and
                               Technical Water Laboratories, Inc., as amended by a Letter Agreement
                               between the parties dated 05/30/96.  Agreement covers handling of all
                               water samples, analysis, and reporting of data required by DSMRE.
                               Agreement transferred to Addington Enterprises, Inc. pursuant to
                               Assignment and Assumption Agreement dated May 5, 1998.
 
5  Electrical        03/30/93  Agreement between Kentucky Utilities and Crockett Collieries
   Usage                       (Kentucky), Inc. for electricity usage at the Preparation Plant complex,
                               including the Unit train loadout, coal crushing plant, coal wash plant,
                               offices, etc.  Agreement transferred to Addington Enterprises, Inc.
                               pursuant to Assignment and Assumption Agreement dated May 5, 1998.



 


 
         Type          Date                                   Description
      Agreement
- ---------------------------------------------------------------------------------------------------------
                      


6  Electrical        04/11/94  Agreement between Kentucky Utilities and Crockett Collieries
   Usage                       (Kentucky), Inc. for electricity usage at the major electrical substation
                               at Redbird, providing power to individual mines and other field
                               operations.  Agreement transferred to Addington Enterprises, Inc.
                               pursuant to Assignment and Assumption Agreement dated May 5, 1998.
 
7 Asset Purchase               Asset Purchase Agreement between Addington Enterprises, Inc., Great Western Coal
                               (Kentucky) Inc., d/b/a Crockett Collieries (Kentucky) Inc., Harley Land Company, 
                               New Horizons Holding, Inc., and Yukon Coal Company dated May 5, 1998.



 
                                  SCHEDULE 2.3

                          Allocation of Purchase Price
                          ----------------------------


 
 
Asset Description                          Amount
- -------------------------------------  --------------
                                    
 
TVA Contract                            $  150,000.00
Real Property Interests---Owned             40,000.00
Real Property Interests--Leased            100,000.00
Preparation Plant                          250,000.00
Buildings and Structures                    50,000.00
Vehicles                                    25,000.00
Machinery & Equipment                    3,135,000.00
                                        -------------
 
               Total Purchase Price     $3,750,000.00
                                        -------------


 
                                    ANNEX A
                                    -------

                                Other Agreements
                                ----------------




 
         Type          Date                                   Description
      Agreement
- ---------------------------------------------------------------------------------------------------------
                      
 
1  Commission        01/01/96  Agreement between Smoky Mountain Coal Corporation (Sales Agent)
                               and Great Western Coal, Inc. (Producer) setting a commission of 1%
                               of the sales price for all coal shipped to the Tennessee Valley Authority
                               on Contract No. 90P-20-T4.  Contract was acquired by New Horizons
                               Holding, Inc. in a stock transaction with Great Western Resources, Inc.
                               on August 15, 1995.  Agreement transferred to Addington Enterprises,
                               Inc. pursuant to Assignment and Assumption Agreement dated May 5,
                               1998.
 
2  Railroad Track    01/07/80  Agreement between South Mississippi Electric Power Association, Inc.
                               (SMEPA) and Bow Valley Coal Resources, Inc., as subsequently
                               assigned or conveyed.  Agreement allows Crockett Collieries, Inc. to
                               use railroad track owned by SMEPA for loading coal from its
                               operation.  Agreement transferred to Addington Enterprises, Inc.
                               pursuant to Assignment and Assumption Agreement dated May 5, 1998.
 
3  Railroad Track    01/08/80  Agreement between L&N Railroad (CSX Property Services) and
                               Crockett Collieries (Kentucky), Inc., successor to Bow Valley Coal
                               Resources, Inc., for use of rail at its loading operations.  Written copy
                               of Contract can not be found, but annual invoice from CSX Property
                               Services (for $150.00/yr.) refers to the 01/08/80 Agreement.
                               Agreement transferred to Addington Enterprises, Inc. pursuant to
                               Assignment and Assumption Agreement dated May 5, 1998.
 
4  Water Analysis    02/14/96  Agreement between Crockett Collieries (Kentucky), Inc., et al and
                               Technical Water Laboratories, Inc., as amended by a Letter Agreement
                               between the parties dated 05/30/96.  Agreement covers handling of all
                               water samples, analysis, and reporting of data required by DSMRE.
                               Agreement transferred to Addington Enterprises, Inc. pursuant to
                               Assignment and Assumption Agreement dated May 5, 1998.
 
5  Electrical        03/30/93  Agreement between Kentucky Utilities and Crockett Collieries
   Usage                       (Kentucky), Inc. for electricity usage at the Preparation Plant complex,
                               including the Unit train loadout, coal crushing plant, coal wash plant,
                               offices, etc.  Agreement transferred to Addington Enterprises, Inc.
                               pursuant to Assignment and Assumption Agreement dated May 5, 1998.



 


 
         Type          Date                                   Description
      Agreement
- ---------------------------------------------------------------------------------------------------------
                      

6  Electrical        04/11/94  Agreement between Kentucky Utilities and Crockett Collieries
   Usage                       (Kentucky), Inc. for electricity usage at the major electrical substation
                               at Redbird, providing power to individual mines and other field
                               operations.  Agreement transferred to Addington Enterprises, Inc.
                               pursuant to Assignment and Assumption Agreement dated May 5, 1998.


 
                             Coal Sales Agreements
                             ---------------------




 
        Type       Date                                  Description
     Agreement
- --------------------------------------------------------------------------------------------------
                  
 
 1    Contract   10/16/89  Coal Term Contract No. 90P-20-T4 by and between Tennessee Valley
                           Authority (TVA) and Tom Coal Company, dated October 16, 1989.
                           Contract was assigned to Great Western Coal, Inc. on February 1, 1992,
                           and subsequently acquired by New Horizons Holding, Inc. in a stock
                           transaction with Great Western Resources, Inc. on August 15, 1995.
                           A renegotiation of the Contract was carried out and executed with TVA
                           on January 26, 1996.  Contract was transferred to Addington
                           Enterprises, Inc. pursuant to Assignment and Assumption Agreement
                           dated May 5, 1998.

EX-2.3

 
================================================================================



                            STOCK PURCHASE AGREEMENT

                           dated as of July 10, 1998

                                     among

                              COAL VENTURES, INC.,

                                    and the

                 SHAREHOLDERS OF EACH OF MID-VOL LEASING, INC.,
               MEGA MINERALS, INC., AND PREMIUM PROCESSING, INC.



================================================================================

 
                               TABLE OF CONTENTS
                               -----------------

                                                         Page
                                                         ----
 
Article 1 - Definitions .................................   2

  1.1   Definitions......................................   2
  1.2   Additional Terms.................................   6
  1.3   Rules of Interpretation..........................   6

Article 2 - Purchase and Sale............................   7

  2.1   Purchase of the Shares...........................   7
  2.2   Purchase Price...................................   8

    (a)   Initial Payment................................   8
    (b)   Deferred Amounts...............................   8
    (c)   Net Working Capital Adjustment.................   9
    (d)   Interest on Deferred Payments..................  10
    (e)   Prepayment.....................................  10
    (f)   Reduction in Deferred Payments.................  10

      (i)   Adjustments..................................  10
      (ii)  Offsets......................................  10
      (iii) Evidence of Debt.............................  11

  2.3   Preparation of Returns...........................  11
  2.4   Section 338 Election.............................  11
  2.5   Liabilities......................................  11
  2.6   Allocation of Purchase Price.....................  11
  2.7   Transfer Taxes...................................  12

Article 3 - Representations and Warranties of the
            Shareholders.................................  12

  3.1   Organization.....................................  12
  3.2   Capitalization...................................  12
  3.3   Title to Stock...................................  13
  3.4   Subsidiaries.....................................  13
  3.5   Authority.......................................   13
  3.6   Financial Statements............................   14
  3.7   Tangible Assets.................................   14
  3.8   Absence of Material Change......................   15
  3.9   Tax Matters.....................................   16
  3.10  Undisclosed Liabilities.........................   17
  3.11  Compliance with Law.............................   18

 
                                                           Page
                                                           ----
  3.12  Contracts.........................................   18
  3.13  Litigation and Pending Proceedings................   19
  3.14  Real Property.....................................   19
  3.15  Condemnation......................................   21
  3.16  Inventory.........................................   21
  3.17  Notes and Accounts Receivable.....................   21
  3.18  Banks, Directors and Officers, and Life Insurance.   21
  3.19  Permits and Bonds.................................   22
  3.20  Intellectual Property.............................   22
  3.21  Proprietary Information...........................   23
  3.22  Insurance.........................................   23
  3.23  Labor Relations...................................   23
  3.24  Employee Benefit Plans............................   24
  3.25  Indebtedness......................................   26
  3.26  Environmental Matters.............................   26
  3.27  Immigration Matters...............................   28
  3.28  Permit Blocking...................................   28
  3.29  Consents and Notices..............................   29
  3.30  Transactions with Affiliates......................   29
  3.31  Distributions.....................................   29
  3.32  Powers of Attorney................................   29
  3.33  Completeness of Statements........................   29
 
Article 4 - Representations and Warranties of Purchaser...   29

  4.1   Organization......................................   29
  4.2   Authority.........................................   30
  4.3   Litigation and Claims.............................   30
  4.4   Investment Intent.................................   30
  4.5   Financing.........................................   30
  4.6   Permit Blocking...................................   30

Article 5 - Covenants of the Principal Shareholder........   31

  5.1   Record Retention..................................   31
  5.2   Resignations......................................   31
  5.3   Permits...........................................   31
  5.4   Benefit Plans.....................................   31

Article 6 - Covenants of Purchaser........................   31

  6.1   Shareholder Guarantees............................   32
  6.2   Ownership and Control.............................   32

 
                                                            Page
                                                            ----

Article 7 - Conditions to Obligations of Purchaser........   32

  7.1   Representations, Warranties and Covenants.........   32
  7.2   No Material Adverse Change........................   32
  7.3   Statutory Requirements............................   33
  7.4   Ancillary Agreements..............................   33
  7.5   Deliveries........................................   33
  7.6   Financing.........................................   33
  7.7   Closing...........................................   33
  7.8   Third-Party Consents and Approvals................   33
  7.9   No Injunction.....................................   33
  7.10  No Pending Action.................................   34
  7.11  Due Diligence.....................................   34
  7.12  Board Approval....................................   34

Article 8 - Conditions to Obligations of the Shareholders.   34

  8.1   Representations, Warranties and Covenants.........   34
  8.2   Statutory Requirements............................   34
  8.3   Ancillary Agreements..............................   34
  8.4   Deliveries........................................   35
  8.5   Third-Party Consents and Approvals................   35
  8.6   No Injunction.....................................   35
  8.7   No Pending Action.................................   35
  8.8   Closing...........................................   35

Article 9 - The Closing/Termination.......................   35

  9.1   Date and Place....................................   35
  9.2   Deliveries........................................   35

Article 10 - Survival of Representations and
             Warranties -- Indemnification................   35

 10.1   Survival..........................................   35
 10.2   Indemnity by the Principal Shareholder............   35
 10.3   Indemnity by Purchaser............................   36
 10.4   Remedies; Right of Offset.........................   36
 10.5   Limitations on Indemnity Obligations..............   36
 10.6   Control of Indemnified Matters....................   37
 10.7   Sole and Exclusive Remedy.........................   38
 10.8   No Other Representations, Rescission..............   38
        
        
        
        
        
        
      


                                                            Page
                                                            ----

Article 11 - Arbitration..................................   38

  11.1  Dispute Resolution................................   38
  11.2  Selection of Arbitrators..........................   39
  11.3  Temporary Injunctive Relief.......................   39
  11.4  Arbitration Rules.................................   39
  11.5  Arbitration Proceedings...........................   39

Article 12 - Miscellaneous................................   39

  12.1  Notices...........................................   39
  12.2  Waivers...........................................   40
  12.3  Expenses..........................................   41
  12.4  Headings; Interpretation..........................   41
  12.5  Annexes and Schedules.............................   41
  12.6  Entire Agreement..................................   41
  12.7  Representations and Warranties, Etc...............   41
  12.8  Governing Law.....................................   42
  12.9  Brokers...........................................   42
  12.10 Counterparts......................................   42
  12.11 Benefit and Binding Effect........................   42
  12.12 Specific Performance..............................   42
  12.13 Severability......................................   42
  12.14 No Consequential Damages..........................   43
  12.15 Post-Closing Assistance...........................   43
  12.16 Cooperation.......................................   43
  12.17 Representations and Warranties....................   43
  12.18 Publicity.........................................   43
  12.19 Hart-Scott-Rodino.................................   43
  12.20 Surety Bond.......................................   43

 
                           STOCK PURCHASE AGREEMENT
                           ------------------------

     This is a Stock Purchase Agreement, dated July 10, 1998 (this "Agreement"),
among (i) Coal Ventures, Inc. ("Purchaser"), a Delaware corporation; and (ii)
Richard G. Preservati ("Principal Shareholder"), Nancy Karen Preservati, Richard
G. Preservati, II, Nicholas Shea Preservati, Timothy Boggess and Gina Denise
Boggess, who are all of the shareholders (collectively, the "Shareholders") of
Mid-Vol Leasing, Inc. ("Mid-Vol"), a West Virginia corporation, Mega Minerals,
Inc. ("MMI"), a West Virginia corporation, and Premium Processing, Inc. ("PPI"),
a West Virginia corporation (collectively, the "Companies").

                                    RECITALS
                                    --------

     A.   The Companies are engaged in the business of mining coal in West
Virginia and control coal mining properties in West Virginia and Virginia.

     B.   The Shareholders collectively own one hundred percent (100%) of the
issued and outstanding shares of the capital stock of the Companies (the
"Shares") in the following amounts:



Company           Shareholder         Shares
- ---------  -------------------------  ------
                                
Mid-Vol    Richard G. Preservati          81
           Nancy Karen Preservati         13
           Nicholas Shea Preservati        2
           Gina Denise Boggess             2
           Richard G. Preservati, II       2
 
MMI        Richard G. Preservati          81
           Nancy Karen Preservati         19
 
PPI        Timothy Boggess                75
           Richard G. Preservati           9
           Nancy Karen Preservati          9
           Richard G. Preservati, II       7


     C.   The Shareholders wish to sell, and Purchaser wishes to purchase, all
of the Shares pursuant to the terms and conditions of this Agreement.

     This Agreement is the definitive acquisition agreement which was
contemplated by and which supersedes the Letter of Intent among the parties
dated March 25, 1998.

     NOW, THEREFORE, in consideration of the mutual benefits and covenants
contained herein, and subject to the terms and conditions set forth herein, the
parties agree as follows:

 
                                   Article 1
                                  Definitions
                                  -----------

      1.1 Definitions.  As used in this Agreement, the following terms shall
          -----------                                                       
have the following meanings:

          (a) "Act" shall have the meaning given in Section 3.27.

          (b) "Affiliate" of any Person shall mean (i) a Person that, directly
or indirectly, through one or more intermediaries, controls or is controlled by,
or is controlled by a Person that controls, such Person; (ii) any trust or
estate in which such Person has a beneficial interest or as to which such Person
serves as a trustee or in another fiduciary capacity; and (iii) any spouse,
parent or lineal descendent of such Person.  As used in this definition,
"control" shall mean possession, directly or indirectly, of power to direct or
cause the direction of management or policies, whether through ownership of
securities, partnership or other ownership interests, by contract or otherwise.

          (c) "Assumed Liabilities" shall have the meaning given in Section 2.5.

          (d) "Bonds" shall have the meaning given in Section 3.19(b).

          (e) "Business Days" shall have the meaning given in Section l.3(h).

          (f) "CERCLA" shall have the meaning given in Section 3.26(a).

          (g) "Change of Control" shall mean a sale of substantially all of a
Person's assets to a Person other than an Affiliate of the selling party, or the
sale of the majority of such Person's stock to a Person other than an Affiliate
of the selling party.

          (h) "Charges" shall have the meaning given in Section 3.3.

          (i) "Closing" shall mean the consummation of the transactions
contemplated in this Agreement in accordance with the provisions of Article 9.

          (j) "Closing Agreement" shall have the meaning given in Section
3.9(h).

          (k) "Closing Date" shall mean July 10, 1998, or such other date upon
which the parties may mutually agree.

          (l) "Code" shall have the meaning given in Section 3.9(a).

          (m) "Companies' Accounting Principles" shall mean normal income tax
basis accounting principles, consistent with past practices as applied in the
ordinary course of business by the Companies. Schedule 1.1(m) lists the known
differences between the Companies' Accounting Principles and  GAAP.

 
          (n) "Companies' Benefit Plans" shall have the meaning given in Section
3.24(b).

          (o) "Companies' Intellectual Property" shall have the meaning given in
Section 3.21.

          (p) "Consents" shall have the meaning given in Section 3.29.

          (q) "Contract Mining Agreement" shall mean the Contract Mining
Agreement, in the form attached hereto as Annex 1.1(q), dated of even date
herewith, by and between Mid-Vol and Extra Energy, Inc. ("EEI").

          (r) "Contributed Assets" shall have the meaning given in Section
2.1(b).

          (s) "Contributed Permit" shall have the meaning given in Section
3.19(a).

          (t) "Current Assets" shall have the meaning given in Section
2.2(c)(i).

          (u) "Current Liabilities" shall have the meaning given in Section
2.2(c)(i).

          (v) "Deductible" shall have the meaning given in Section 10.5(a)(ii).

          (w) "Deferred Payments" shall have the meaning given in Section
2.2(b).

          (x) "employee benefit plan(s)" shall have the meaning given in Section
3.24(a).

          (y) "employee pension benefit plan(s) shall have the meaning given in
Section 3.24(a).

          (z) "Environmental Complaint" shall have the meaning given in Section
3.26(f).

          (aa) "ERISA" shall have the meaning given in Section 3.24(a).

          (bb) "Excluded Assets" shall have the meaning given in Section 2.1(b).

          (cc) "Financial Statements" shall mean the annual unaudited balance
sheet and statement of income for each of the Companies prepared in accordance
with the Companies' Accounting Principles for the fiscal year ended December 31,
1997, a copies of which are attached hereto as Annex 1.1(cc).

          (dd) "Future Relationship Agreement" shall mean the Coal Marketing,
Non-Competition and Right of First Refusal Agreement, substantially in the form
attached hereto as Annex 1.1(dd), to be entered into and delivered at Closing by
Purchaser and Richard G. Preservati or any Affiliates of both, which are
mutually acceptable to Richard G. Preservati and Purchaser.

 
          (ee) "GAAP" shall mean generally accepted accounting principles in
effect from time to time.

          (ff) "Hazardous Discharge" shall have the meaning given in Section
3.26(e).

          (gg) "Hazardous Material" shall have the meaning given in Section
3.26(a).

          (hh) "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 and the regulations and Premerger Notification and Report Form
promulgated thereunder.

          (ii) "Initial Payment" shall have the meaning given in Section 2.2(a).

          (jj) "Intellectual Property" shall mean trade names, trademarks or
service marks, together with the good will associated therewith, and patents
held by the Companies material to and used in the ordinary course of the
business of the Companies.

          (kk) "Interim Financial Statements" shall mean each Company's most
recent unaudited balance sheet, prepared in accordance with the Companies'
Accounting Principles, available at the date of this Agreement (the "Interim
Balance Sheet"), and each Company's most recent related unaudited statement of
income, prepared in accordance with the Companies' Accounting Principles
consistent with past practices and in the ordinary course of business, available
at the date of this Agreement (the "Interim Income Statement"), copies of which
are attached hereto as Annex 1.1(kk).

          (ll) "Leased Real Property" shall have the meaning given in Section
3.14(a).

          (mm) "Leases" shall have the meaning given in Section 3.14(a).

          (nn) "Liabilities" (whether or not capitalized) shall mean all
accounts payable, notes payable, liabilities, commitments, indebtedness or
obligations of any kind whatsoever, whether absolute, accrued, contingent,
matured or unmatured, of any Company, or to which any  property or assets of any
Company are subject.

          (oo) "Loss" shall have the meaning given in Section 10.2.

          (pp) "Material" (whether or not capitalized) shall mean, with respect
to any Person, changes in the business, assets, financial condition or results
of operations of such Person resulting in a loss therefrom in excess of Two
Hundred Fifty Thousand Dollars ($250,000.00); provided, however, that, to the
extent Material shall relate to more than one Person, then Material shall mean,
with respect to such group of Persons, changes in business, assets, financial
condition or results of operations of such group of Persons (taken as a whole)
resulting in a loss therefrom, in the aggregate, in excess of Two Hundred Fifty
Thousand Dollars ($250,000.00).

          (qq) "Mid-Vol Permits" shall have the meaning given in Section
3.19(a).

 
          (rr) "Mining Data" shall mean all geological data, reserve data, mine
maps, core hole logs and associated data, coal measurements, coal samples,
lithologic data, coal reserve calculations or reports, washability analysis or
reports, mine plans, mining permit applications and supporting data, engineering
studies and all other information, legal documents, maps, reports and data in
the possession of the Companies with regard to the coal relating to or affecting
the coal reserves, coal ownership, the Real Property, mining conditions, mines
and mining plans of the Companies as prepared and utilized by them in the
ordinary course of their operations.

          (ss) "multi-employer plan" shall have the meaning given in Section
3.24(i).

          (tt) "Net Working Capital" shall have the meaning given in Section
2.2(c)(i).

          (uu) "Note" shall have the meaning given in Section 2.2(f)(iii).

          (vv) "Notices" shall have the meaning given in Section 12.1.

          (ww) "Other Documents" shall mean the Future Relationship Agreement,
the Contract Mining Agreement, the Regal Rock Agreement and all other
agreements, certificates, opinions, instruments or documents contemplated by,
required by or referred to in, this Agreement for the consummation of the
transactions contemplated hereby.

          (xx) "Owned Real Property" shall have the meaning given in Section
3.14(b).

          (yy) "Owned Tangible Assets" shall have the meaning given in Section
3.7(a).

          (zz) "PCBs" shall have the meaning given in Section 3.26(a).

          (aaa) "Permits" shall have the meaning given in Section 3.19(a).

          (bbb) "Permitted Encumbrances" shall have the meaning given in Section
3.14(c).

          (ccc) "Person" shall mean any person, firm, trust, partnership,
corporation or other business entity.

          (ddd) "Principal Shareholder's knowledge" shall have the meaning given
in Section 12.6.

          (eee) "Production Payments" shall have the meaning given in Section
2.2(b)(ii).

          (fff) "Purchase Price" shall have the meaning given in Section 2.2.

          (ggg) "Real Property" shall mean the Owned Real Property and the
Leased Real Property, collectively.

          (hhh) "Regal Rock" shall mean Regal Rock, Inc.

 
          (iii) "Regal Rock Agreement" shall mean the Agreement of even date
herewith, between Mid-Vol, Regal Rock, Inc., and Liberty Land LLC.

          (jjj) "Related Party Agreement" shall mean any contract, agreement or
understanding between any Company, on the one hand, and any Shareholder or
Affiliate of any Shareholder, on the other hand, other than the Contract Mining
Agreement, the Future Relationship Agreement,  the Transition Services
Agreement, and the Bill of Sale of even date herewith between Mid-Vol and
Ritchie Equipment, Inc., for the coal fines owned by Ritchie Equipment, Inc.

          (kkk) "Required Consents" shall have the meaning given in Section
3.29.

          (lll) "Rules" shall have the meaning given in Section 11.4.

          (mmm) "Shareholder Guarantees" shall have the meaning given in Section
6.1.

          (nnn) "Surety Bond" shall have the meaning given in Section 12.20.

          (ooo) "Tangible Contributed Assets" shall have the meaning given in
Section 3.7(a).

          (ppp) "Tax" shall have the meaning given in Section 3.9(a).

          (qqq) "Tax Return" shall have the meaning given in Section 3.9(a).

          (rrr) "Transition Services Agreement" shall mean the Transition
Services Agreement of even date herewith among Purchaser, Richard G. Preservati,
Michael J. Quillen and Ritchie Equipment, Inc.

          (sss) "Working Capital Statement" shall have the meaning given in
Section 2.2(c)(ii).

      1.2 Additional Terms.  Other capitalized terms used in this Agreement but
          ----------------                                                     
not defined in Section 1.1 above shall have the meanings ascribed to them
wherever such terms first appear in this Agreement; or, if no meanings are so
ascribed, the meanings customarily associated with such terms in the coal mining
industry.

      1.3 Rules of Interpretation.
          ----------------------- 

          (a) The singular includes the plural and the plural includes the
singular.

          (b)  The word "or" is not exclusive.

          (c) A reference to a Person includes its permitted successors and
permitted assigns.

          (d) The words "include," "includes" and "including" are not limiting.

 
          (e) A reference in a document to an Article, Section, Exhibit,
Schedule, Annex or Appendix is to the Article, Section, Exhibit, Schedule, Annex
or Appendix of such document unless otherwise indicated.  Exhibits, Schedules,
Annexes or Appendices to any document shall be deemed incorporated by reference
in such document.

          (f) References to any document, instrument or agreement (a) shall
include all exhibits, schedules and other attachments thereto, (b) shall include
all documents, instruments or agreements issued or executed in replacement
thereof, and (c) shall mean such document, instrument or agreement, or
replacement or predecessor thereto, as amended, modified and supplemented from
time to time and in effect at any given time.

          (g) The words "hereof," "herein" and "hereunder" and words of similar
import when used in any document shall refer to such document as a whole and not
to any particular provision of such document.

          (h) References to "days" shall mean calendar days, unless the term
"Business Days" shall be used.  "Business Days" shall mean all days other than
any Saturday, Sunday or legal holiday in West Virginia.

          (i) This Agreement and the Other Documents are the result of
negotiations among, and have been reviewed by, Purchaser and the Shareholders.
Accordingly, this Agreement and the Other Documents shall be deemed to be the
product of all parties thereto, and no ambiguity shall be construed in favor of
or against any party.

                                   Article 2
                               Purchase and Sale
                               -----------------

      2.1 Purchase of the Shares.
          ---------------------- 

          (a) Subject to the terms and conditions of this Agreement, the
Shareholders hereby agree to sell, transfer and deliver to Purchaser, and
Purchaser hereby agrees to purchase, the Shares.

          (b) The Shareholders or Affiliates thereof shall retain and assume, as
the case may be, pursuant to agreements and instruments (including instruments
of conveyance) reasonably acceptable to the Shareholders and Purchaser, the
assets and rights listed on Schedule 2.1(b)(i) hereof (collectively, the
"Excluded Assets").  As soon as reasonably possible after the Closing, the
Shareholders or their Affiliates shall transfer or contribute to the Companies
the Contributed Permits and railroad siding agreements as set forth on Schedule
2.1(b)(iii) hereof (collectively, and along with the items set forth on Schedule
2.1(b)(ii), the "Contributed Assets").  All costs and expenses incurred in
connection with the transfer to the Shareholders or their Affiliates, as the
case may be, of the Excluded Assets and for the transfer to the Companies of the
Contributed Assets, as contemplated by this Section 2.1, shall be for the
account of and shall be paid by the Shareholders, and the Shareholders shall pay
and discharge, and indemnify Purchaser and hold Purchaser harmless

 
from and against, all such costs and expenses, including all transfer or stamp
duty taxes, if any, due and payable in connection with the transfer of the
Excluded Assets.

      2.2 Purchase Price.  Subject to the adjustments as provided in this
          --------------                                                 
Article 2, the purchase price (the "Purchase Price") for the Shares shall be
Thirty-Five Million Dollars ($35,000,000.00), plus the Production Payments (as
defined below), which shall be paid to the Shareholders as follows:

          (a) Initial Payment.  At Closing, Purchaser shall wire to an account
              ---------------                                                 
designated by the Shareholders Twenty Million Dollars ($20,000,000.00) in cash
or cash equivalent (the "Initial Payment") as adjusted under Section 2.2(c).
The Shareholders and Principal Shareholders shall allocate the Initial Payment
to each of the individual Shareholders other than Principal Shareholder in the
amount agreed by each such individual Shareholder to fully pay each such
individual Shareholder the full amount of the Purchase Price allocated to the
Shares of such  individual Shareholder with the balance of the Initial Payment
to be paid to Principal Shareholder.

           (b) Deferred Amounts.
               ---------------- 

               (i) Subject to any adjustment pursuant to Section 2.2(c),
Purchaser shall pay to Principal Shareholder the deferred amount of Fifteen
Million Dollars ($15,000,000.00) in equal annual payments of Three Million
Dollars ($3,000,000.00) for five (5) years commencing on the first (1st)
anniversary of the Closing Date and payable on the following four (4)
anniversaries of the Closing Date (the "Deferred Payments").

               (ii) Purchaser shall pay to Principal Shareholder a production
payment equal to One Dollar ($1.00) per ton of clean, marketable coal mined and
sold by Purchaser or its Affiliates from the Real Property or any other
properties in McDowell County, West Virginia or Tazewell County, Virginia, now
owned or hereafter acquired by Purchaser or its Affiliates (the "Production
Payments").  Purchaser shall pay the Principal Shareholder a Production Payment
on the last day of each month for clean, marketable tons of coal mined and sold
during the previous month.  Upon a Change of Control of Purchaser, or any direct
or indirect parent of Purchaser, Purchaser and Principal Shareholder shall
negotiate in good faith for a buy-out of the Production Payment or the granting
of reasonable additional security (based on amounts owed by Purchaser and the
financial condition of the purchasing party) to secure the Production Payments.
Upon a sale, assignment, lease, sublease, grant or other transfer of any
economic interest in coal on or under any Real Property in McDowell County, West
Virginia or Tazewell County, Virginia by Purchaser or its Affiliates to any
Person other than an Affiliate of Purchaser and its Affiliates, Purchaser shall
ensure that the obligation to make Production Payments to Principal Shareholder
is binding on the Person acquiring such interest, and Purchaser and Principal
Shareholder shall negotiate in good faith for a buy-out of the portion of the
Production Payment relating to the transfer of such property or the granting of
reasonable additional security (based on amounts owed by Purchaser and the
financial condition of the purchasing party) to secure the portion of the
Production Payment relating to the transfer of such property.

          (c) Net Working Capital Adjustment.  To the extent that the Net
              ------------------------------                             
Working Capital is greater than $0.00 as of the Closing Date, subject to Section
2.2(d)(vi), Purchaser shall pay to the

 
individual Shareholders (as directed by the Shareholders) the amount by which
the Net Working Capital of the Companies is greater than $0.00 within five (5)
days from the final determination of the amount of Net Working Capital greater
than $0.00 with interest thereon on a per diem basis from the Closing Date to
the date of payment at the same rate of interest set forth as applicable to the
Deferred Payments in Section 2.2(d) of this Agreement. To the extent that the
Net Working Capital is less than $0.00 as of the Closing Date, the principal
amount of the first Deferred Payment (and, if necessary, any other Deferred
Payments) shall be reduced by the amount by which Net Working Capital is less
than $0.00 as of the Closing Date pursuant to the terms of this Section 2.2(c).

               (i) "Net Working Capital" means the current assets listed on
Schedule 2.2(c) (the "Current Assets") minus the current liabilities listed on
Schedule 2.2(c) (the "Current Liabilities"), with Current Assets and Current
Liabilities accounts determined and calculated in accordance with the Companies'
Accounting Principles, subject to the last sentence of Section 2.2(c)(iii).

               (ii) Within ten (10) Business Days after the Closing Date, the
Shareholders shall prepare and deliver to Purchaser a statement of working
capital showing the Net Working Capital as of the Closing Date which shall be
prepared (and for which working capital shall be calculated) in accordance with
Schedule 2.2(c) (the "Working Capital Statement").  The parties acknowledge that
this calculation is made solely for the purposes of computing the adjustment to
the Purchase Price based on the Net Working Capital of the Companies under this
Section 2.2(c).

               (iii) For purposes of the determination of and inclusion in the
Current Assets, the Principal Shareholder shall make a physical inventory of the
coal inventory in the stockpiles of the Companies as of the close of business on
the Closing Date.  The taking of the coal inventory may be observed and
monitored by Purchaser and/or its engineer representatives.  Such coal inventory
shall be determined by methods consistent with the Companies' past practices or
as otherwise agreed upon by Purchaser and the Principal Shareholder.  The
physical count and verification of coal inventory shall be certified by the
Principal Shareholder's engineering firm and confirmed by Purchaser's
engineering firm.  The Principal Shareholder and Purchaser shall each bear the
fees, costs and expenses of their respective engineering firms. The coal
inventory of the Companies in the stockpiles shall be included in the Current
Assets of the Companies at a value per ton agreed to in writing by the Principal
Shareholder and Purchaser.

               (iv) The Working Capital Statement shall become final for all
purposes on the date that is twenty-five (25) Business Days after the Closing
Date unless Purchaser has delivered to the Shareholders a statement describing
its objections thereto prior to such date. Purchaser and the Shareholders shall
use reasonable efforts to resolve any such objections.  If the parties do not
achieve a final resolution of such objections within ten (10) days following the
expiration of such 25-day period, Purchaser and the Shareholders shall select a
mutually acceptable accounting firm to resolve any remaining objections.  If
Purchaser and the Shareholders are unable to agree on the choice of an
accounting firm before the expiration of the foregoing 10-day period, they shall
select a nationally recognized accounting firm by lot (after excluding their
respective regular outside auditors) before the expiration of such 10-day
period. The determination of the accounting firm so selected regarding the
matters in dispute will be set forth in writing and will be

 
conclusive and binding upon the parties. The selected accounting firm shall be
retained jointly by the parties on the condition, among other things, that it
shall notify the parties of its determination within thirty (30) days after its
selection. The Working Capital Statement prepared by such accounting firm shall
be final and binding on the parties for purposes of this Section 2.2(c). The
parties shall each pay one-half of the fees and expenses of such accounting
firm.

               (v) Purchaser shall make the books, records and financial staff
of the Companies available to the Shareholders, their accountants and other
representatives at reasonable times and upon reasonable notice during the
preparation by the Shareholders of the Working Capital Statement and the
resolution by the parties of any objections thereto.

               (vi) Notwithstanding the above provisions in this Section 2.2(c),
Purchaser shall pay to the Principal Shareholder as part of the Net Working
Capital Adjustment the full amount of all amounts received by Purchaser or the
Companies as payment for all outstanding accounts receivable as of the Closing
Date for coal sales (Accounts Receivable-Trade) made by the Companies.  Such
payment shall be made to the Principal Shareholder by Purchaser within five (5)
business days from receipt thereof by Purchaser or the Companies.

          (d) Interest on Deferred Payments.  Purchaser shall pay interest on
              -----------------------------                                  
the outstanding balance of the Purchase Price until the Purchase Price is paid
in full.  Accrued interest shall be due and payable annually on each anniversary
of the Closing Date that any amount of the Purchase Price is outstanding.  The
interest rate shall be equal to the prime rate listed in The Wall Street Journal
Money Section on the date that is five (5) Business Days preceding the date the
interest payment is due and payable, provided, however, that the interest rate
shall not be greater than nine percent (9%) or less than five percent (5%).

          (e) Prepayment.  Purchaser shall have the right to prepay the
              ----------                                               
Deferred Payments in part or in full without penalty.

          (f) Reduction in Deferred Payments.
              ------------------------------ 

               (i) Adjustments.  If the Deferred Payments are adjusted downward
                   -----------                                                 
pursuant to this Article 2, Purchaser shall be entitled to withhold and retain
any and all Deferred Payments up to the amount of such adjustment.  Such
adjustment to the Deferred Payments shall be effective on the date that
Purchaser provides written notice of the adjustment to the Principal
Shareholder.

               (ii) Offsets.  Purchaser shall have a right to offset the
                    -------                                             
Deferred Payments by all amounts due and owing by Principal Shareholder to
Purchaser under this Agreement or otherwise.  Such offset right shall be
effective against the Deferred Payments in inverse order of maturity upon the
date that Purchaser provides written notice of the offset to the Principal
Shareholder; provided, however, that any right of offset shall be effective
against any and all Deferred Payments to the extent and only to the extent that
(i) the Principal Shareholder has admitted in writing that such amount is owed
to Purchaser, or (ii) such amount is owed pursuant to any final court judgment
or binding arbitration award.

 
              (iii) Evidence of Debt.  Purchaser shall execute a promissory note
                    ----------------                                            
(the "Note") for the benefit of Principal Shareholder evidencing the
indebtedness from Purchaser to Principal Shareholder of the Deferred Payments
payable as the Deferred Payments with interest thereon and upon terms and
conditions as set forth above in this Article 2. The Note shall be in the form
attached hereto as Annex 2.2(f) and shall be delivered at the Closing to
Principal Shareholder duly executed by Purchaser.

      2.3 Preparation of Returns.  Shareholders hereby reserve and shall have
          ----------------------                                             
the right to prepare and file the final S Corporation returns for Mid-Vol and
MMI for the period ending on the Closing Date.

      2.4 Section 338 Election.  In the event Purchaser desires to make an
          --------------------                                            
election pursuant to Code Section 338(h)(10) (the discretion to make such
election being exercisable in the sole and absolute discretion of Purchaser),
the Shareholders shall cause the Companies to (i) make, consent to, and
undertake all reasonable actions necessary to give effect to such election, and
(ii) agree and consent to Purchaser's allocation of the Purchase Price of the
Shares to the Assets of the Companies after Closing and prepare all Tax Returns
in accordance with such election; provided, however, that the Shareholders'
obligations under this Section 2.4 shall arise only if Purchaser agrees in
writing to pay the Shareholders an amount agreed upon by the parties as the
amount by which the Shareholders' federal and state income Tax liability arising
from their sale of the Shares increases as a result of making such election, the
purchase price allocation  and the payment of the additional amount for the
increased income Tax liability of the Shareholders.  If the Purchaser and the
Principal Shareholder cannot agree on the amount of additional income Tax
liability to be paid under the previous sentence, Purchaser and Principal
Shareholder agree to resolve such dispute in accordance with the procedure set
forth in Section 2.2(c)(iv).

      2.5 Liabilities.  The Companies shall retain, and Purchaser shall
          -----------                                                  
indemnify Shareholders for, all liabilities of the Companies which have been
disclosed by this Agreement, or have otherwise been specifically disclosed to
Purchaser, including all items listed on the Schedules and Annexes hereto,
except for the items listed on Schedule 2.5.  The Principal Shareholder hereby
assumes the liabilities of the Companies set forth on Schedule 2.5 (the "Assumed
Liabilities") and all liabilities of any Company which have not been disclosed
by this Agreement or otherwise specifically disclosed to Purchaser.

      2.6 Allocation of Purchase Price.  The parties agree to file any and all
          ----------------------------                                        
applicable Tax Returns and other required tax schedules in accordance with such
allocation and Code Section 338 and will not adopt or otherwise assert tax
positions inconsistent therewith.  The parties each shall prepare and file
completed Form 8023 for the taxable year in which the Closing takes place, which
form shall be consistent with the requirements set forth in this Section 2.6.

      2.7 Transfer Taxes.  The Shareholders shall pay any (i) real property
          --------------                                                   
transfer taxes payable in connection with the conveyances hereunder and (ii)
recording and other fees in connection therewith.

 
                                   Article 3
               Representations and Warranties of the Shareholders
               --------------------------------------------------

     The Principal Shareholder represents and warrants to Purchaser, as of the
date hereof and as of the Closing Date, as follows and the other Shareholders
join the Principal Shareholder in making the representations and warranties set
forth in Sections 3.3 and 3.5(a):

      3.1 Organization.
          ------------ 

          (a) Each Company is a corporation duly organized and validly existing
under the laws of the State of West Virginia, and has full corporate power and
authority to own, lease and operate its properties as such properties are now
owned, leased and operated, and to conduct its business as and where its
business is now conducted.  Each Company is qualified to do business and is in
good standing in all jurisdictions in which the character of the properties
owned or leased by it, or the nature of the activities conducted by it, makes
such qualification necessary. Schedule 3.1(a) lists the jurisdictions in which
each Company is qualified to do business.

          (b) True and complete copies, with all amendments, of the articles of
incorporation of each Company (certified as of a recent date by the West
Virginia Secretary of State), the bylaws of each Company (certified as of the
date hereof by the Secretary of such Company), and the minute books of each
Company have been furnished to Purchaser by the Principal Shareholder.  The
corporate minute books of each Company are correct and complete in all material
respects, authorize or ratify the material corporate actions taken by the
directors and shareholders of each Company, and record all resolutions adopted
by them.  None of the Companies is in violation of its articles of incorporation
or bylaws.  All material corporate actions required of each Company have been
taken, and all material reports or returns required to be filed by each Company
have been filed and all material amounts due and owing thereunder have been paid
in full. No Company is a party to any agreement or instrument, is subject to any
charter or other corporate restriction or to any judgment, decree, writ,
injunction, order, award, or, other than in the ordinary course of business, any
law, rule, regulation, code or ordinance which materially adversely affects, or
might reasonably be expected to materially and adversely affect the properties
or assets, earnings, business, operation, affairs, prospects or condition
(financial or otherwise) of any of the Companies or the ability of the Companies
to consummate the transactions contemplated by this Agreement.

      3.2 Capitalization.
          -------------- 

          (a) The authorized capital stock of Mid-Vol consists of one hundred
(100) shares of common stock of Ten Dollars ($10.00) par value, of which one
hundred (100) shares are issued and outstanding, and no shares of preferred
stock.  The authorized capital stock of MMI consists of one hundred (100) shares
of common stock of Ten Dollars ($10.00) par value, of which one hundred (100)
shares are issued and outstanding, and no shares of preferred stock.  The
authorized capital stock of PPI contains one hundred (100) shares of common
stock of Ten Dollars ($10.00) par value, of which one hundred (100) shares are
issued and outstanding, and no shares of preferred stock.

 
          (b) All of the Shares have been duly authorized and validly issued,
and are fully paid and nonassessable. To the best of Principal Shareholder's
knowledge, no ownership interest in any of the Companies has ever been
challenged and no Person has ever threatened to challenge such interest.  There
are no outstanding subscription rights, warrants, options, conversion rights, or
other rights or agreements of any kind whatsoever entitling any Person to
purchase or acquire any interest in any of the Shares.  There are no agreements
between the Shareholders and any other Person with respect to the voting and
transfer of the Company's capital stock or the control of the Companies. None of
the Shares have been issued in violation of any federal, state or other law
pertaining to the issuance of securities or in violation of any rights,
preemptive or otherwise, of any Person.

      3.3 Title to Stock.  The Shareholders have, and at the Closing will have,
          --------------                                                       
good and marketable (legal and beneficial) title to the Shares, free and clear
of all liens, pledges, proxies, voting trusts, licenses, security interests,
options, claims, charges, restrictions or encumbrances of any kind or nature
whatsoever (collectively, "Charges"), and there are no outstanding purchase
agreements, options, warrants, or other rights of any kind whatsoever entitling
any Person to purchase or acquire an interest in any of the Shares or
restricting their transfer in accordance with this Agreement.  Each Shareholder
owns of record and beneficially the Shares set forth by his name in Recital B.
Upon delivery of the certificates representing the Shares, and upon receipt of
the Initial Payment, good and valid title to the Shares will pass to Purchaser,
free and clear of all Charges.

      3.4 Subsidiaries.  No Company owns, or has ever owned, any capital stock
          ------------                                                        
of any other corporation or any interest in any other Person.

      3.5 Authority.
          --------- 

          (a) The Shareholders have full right, power, authority, and capacity
to execute and deliver this Agreement and the Other Documents, and to perform
their respective obligations under this Agreement and the Other Documents. This
Agreement and the Other Documents constitute valid and legally binding
obligations of the Shareholders, enforceable in accordance with their terms,
subject to any required third-party consents.

          (b) The execution and delivery of this Agreement and the Other
Documents, except as set forth on Schedule 3.5(b), the consummation of the
transactions contemplated hereby and thereby, and the performance and
fulfillment of their respective obligations and undertakings hereunder and
thereunder by the Shareholders and the Companies will not:  (i) violate or
conflict with any provision of, or result in the breach of or accelerate or
permit the acceleration of any performance required by the terms of, or create
in any Person the right to terminate, modify, cancel or require any notice
under:  (A) the articles of incorporation or bylaws of any Company, (B) any
material contract, agreement, arrangement, license or undertaking to which any
Company or any Shareholder is a party or by which any of them may be bound, (C)
any judgment, decree, writ, injunction, order or award of any arbitration panel,
court or governmental authority, or (D) any applicable law, ordinance, rule or
regulation of any governmental body; (ii) result in the creation of any Charge
upon any of the properties or assets (whether real or personal, tangible or
intangible) of any Company; (iii) terminate or cancel, or result in the
termination or cancellation of, any material agreement or undertaking to which
any Company is a party or by which any Company is bound; or

 
(iv) in any way affect or violate the terms or conditions of, or result in the
cancellation, modification, revocation or suspension of any of the Mid-Vol
Permits.

          (c) Except as set forth on Schedule 3.5(c), the execution and delivery
of, and the performance and consummation of the transactions contemplated by,
this Agreement and the Other Documents have been duly authorized by all
requisite corporate and personal action.  All other material consents,
approvals, authorizations, releases or orders required of or for the Company and
the Shareholders for the authorization, execution, and delivery of, and for the
performance and consummation of the transactions contemplated by, this Agreement
and the Other Documents will have been obtained prior to the Closing.  Except as
set forth on Schedule 3.5(c), no notices, filings or authorizations are required
to be given, filed or obtained from any Governmental Authority.

      3.6 Financial Statements.  The Principal Shareholder has delivered to
          --------------------                                             
Purchaser, and there are attached hereto as Annexes 1.1(cc) and 1.1(kk),
respectively, true and complete copies of the Interim Financial Statements and
the Financial Statements.  The Interim Financial Statements and Financial
Statements have been prepared in accordance with the Companies' Accounting
Principles and present fairly the assets, liabilities, revenues, and expenses on
the income tax basis of accounting at the time of their preparation.

      3.7 Tangible Assets.
          --------------- 

          (a) Schedule 3.7(a) sets forth a true and complete list of all the
principal items of machinery, equipment, vehicles, and other tangible personal
property now owned by each Company in its business other than owned Excluded
Assets (the "Owned Tangible Assets").  Except as set forth on Schedule 3.7(a),
as of the Closing Date and immediately following the consummation of the
transactions at Closing, each Company will have good and marketable title to its
Owned Tangible Assets, free and clear of all Charges.  Except as set forth on
Schedule 3.7 (a), immediately following the transfer into a Company of the
Contributed Assets that are tangible assets (the "Tangible Contributed Assets"),
the Companies shall have good and marketable title to their Tangible Contributed
Assets, free and clear of all charges.  The execution and delivery of this
Agreement, and the consummation of the transactions contemplated by this
Agreement, will not result in the creation of any Charge on any of the Owned
Tangible Assets or the Tangible Contributed Assets.  The Owned Tangible Assets
and the Tangible Contributed Assets shall be in substantially the same condition
on the Closing Date as they were at the time they were inspected by Purchaser,
except for normal wear and tear and deterioration associated with the operation
of such assets in the ordinary course of the Companies' business, and are
suitable for the purposes for which they are presently used.

          (b) There are no principal items of machinery, equipment, vehicles,
and other tangible personal property now leased by each Company in its business
other than leased Excluded Assets.

 
      3.8 Absence of Material Change.
          -------------------------- 

          (a) Except as set forth on Schedule 3.8(a), the business and affairs
of the Companies have been conducted only in the ordinary course.

          (b) Except as set forth on Schedule 3.8(b), since March 25, 1998, (i)
there has been no material adverse change in the condition (financial or
otherwise), assets, liabilities, or earnings, or, to the best of Principal
Shareholder's knowledge, the business, operations or affairs of the Companies,
other than changes in the ordinary course of business, none of which either
singly or in the aggregate has been materially adverse; and (ii) there has been
no damage, destruction, loss or other occurrence or development (whether or not
insured against), which either singly or in the aggregate materially adversely
affects (and the Principal Shareholder does not know, or have any reasonable
grounds to know, of any threatened occurrence or development which could
materially adversely affect) the condition (financial or otherwise), assets,
liabilities, earnings, business, operations or affairs of the Companies.

          (c) Except as set forth on Schedule 3.8(c), since March 25, 1998, no
Company has:  (i) created or incurred any liability, commitment or obligation
(absolute or contingent), of Fifty Thousand Dollars ($50,000.00) or more, except
unsecured current liabilities incurred for money borrowed in the ordinary course
of business; (ii) mortgaged, pledged or subjected to any lien or otherwise
encumbered any of its assets, tangible or intangible other than the Excluded
Assets; (iii) discharged or satisfied any lien, security interest or
encumbrance, or paid any obligation or liability (absolute or contingent), other
than current liabilities due and payable in the ordinary course of business,
except as necessary to transfer the Excluded Assets or to terminate the Related
Party Agreements; (iv) made any investment in or loan to another Person totaling
more than One Hundred Thousand Dollars ($100,000.00) or outside the ordinary
course of business; (v) changed any accounting practice (including, without
limitation, any accounting practice followed or employed in preparing the
Financial Statements or the Interim Financial Statements) or any material
business practice; (vi) entered into any employment contract or collective
bargaining agreement; (vii) waived any rights of substantial value or terminated
or amended, or suffered the termination or amendment of, any contract, lease,
agreement or license involving an annual consideration of Fifty Thousand Dollars
($50,000.00) or more, except as necessary to transfer the Excluded Assets or to
terminate the Related Party Agreements; (viii) made any capital expenditures or
any capital additions or betterments which in the aggregate exceeded One Hundred
Thousand Dollars ($100,000.00); (ix) adopted, amended, modified or terminated
any bonus, profit-sharing, incentive or severance plan; (x) made any loan to, or
entered into any transaction with, any of its officers, directors, or employees
which loan or transaction shall not terminate prior to the closing; (xi) sold or
otherwise disposed of assets, tangible or intangible for an aggregate
consideration of Fifty Thousand Dollars ($50,000.00) or more, except in the
ordinary course of business or in contemplation of the performance of the terms
and conditions of this Agreement; (xii) directly or indirectly purchased,
retired, redeemed, or otherwise acquired, any shares of any Company's stock;
(xiii) paid or agreed to pay, conditionally or otherwise, any bonus, extra
compensation, pension or severance pay to any Company's present or former
stockholders, directors, officers, agents or employees, or increased the
compensation (including salaries, fees, commissions, bonuses, profit sharing,
incentive, pension, retirement or other similar payments) being paid as of March
25, 1998, to any Company's

 
stockholders, directors, officers or employees; (xiv) renewed, amended, become
bound by or entered into any material contract, commitment or transaction other
than in the ordinary course of business which will be binding upon any Company
after the Closing and involves consideration of Fifty Thousand Dollars
($50,000.00) or more; or (xv) committed to doing any of the foregoing.

      3.9 Tax Matters.
          ----------- 

          (a) As used in this Agreement, the term "Code" means the Internal
Revenue Code of 1986, as amended.  The term "Tax" means any federal, state,
local or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code Section 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.  The term "Tax Return" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.

          (b) Except as described on Schedule 3.9(b), each Company has filed all
Tax Returns that it was required to file; all such Tax Returns were correct and
complete in all material respects; all Taxes owed by each Company (whether or
not shown on any Tax Return) have been paid when due; no Company currently is
the beneficiary of any extension of time within which to file any Tax Return; no
claim has ever been made by an authority in a jurisdiction where any Company
does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction; and there are no liens on any of the assets of any Company that
arose in connection with any failure (or alleged failure) to pay any Tax.

          (c) Except as described on Schedule 3.9(c), each Company has withheld
and paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor, or
other third party, and each Company has collected and paid all taxes required to
have been collected and paid in connection with any amounts received from any
customer or other third party.

          (d) Except as described on Schedule 3.9(d)(i), there is no adverse
dispute or claim concerning any Tax liability of any Company either (i) claimed
or raised by any authority in writing, or (ii) as to which any of the
Shareholders has knowledge based upon personal contact with any agent of such
authority.  Schedule 3.9(d)(ii) lists all federal, state, local, and foreign
income Tax Returns filed with respect to the Companies for taxable periods ended
on or after December 31, 1995; indicates those Tax Returns that have been
audited; and indicates those Tax Returns that currently are the subject of
audit.  The Principal Shareholder has delivered to Purchaser correct and
complete copies of all federal income Tax Returns filed by the all of the
Companies since their respective dates of incorporation and all examination
reports and statements of deficiency assessed against or agreed to by any of the
Companies since their respective dates of incorporation.

 
          (e) Except as described on Schedule 3.9(e), no Company has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.

          (f) Except as described on Schedule 3.9(f), no Company has made any
payments, is obligated to make any payments, or is a party to any agreement that
under certain circumstances could obligate it to make any payments that will not
be deductible under Code Section 280G or any corresponding provision of state or
local law.  Each Company has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Section 6662.  No Company has any
liability for unpaid Taxes because it once was a member of an affiliated group
during any part of any consolidated return year.

          (g) Mid-Vol and MMI have made valid elections under Code Section 1362
and any corresponding state or tax provisions to be S corporations for all
taxable years since their respective dates of incorporation and such elections
have not been terminated or revoked.

          (h) Except as described on Schedule 3.9(h), none of the Companies will
be required as a result of a change in method of accounting for a taxable period
ending on or prior to the Closing Date, to include any material adjustment to
taxable income for any taxable period (or portion thereof) ending after the
Closing Date.  None of the Companies will be required to include any material
item of income in, or exclude any material item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Closing Date
as a result of:  (i) any "Closing Agreement" as described in Code Section 7121
(or any corresponding provision of state or local income tax law); (ii) any sale
occurring on or before the Closing Date that is accounted for under the
"installment method" as described in Code Section 453 (or any corresponding
provision of state or local income tax law); or (iii) any prepaid income
received on or prior to the Closing Date.

          (i) In the event Purchaser  voluntarily amends any income Tax Return
for the Companies filed after Closing by Purchaser other than in connection with
an examination by the Internal Revenue Service or a state taxing authority,
Purchaser shall indemnify and hold harmless the Shareholders from any and all
additional federal, state or local income Tax liability arising therefrom or
from the payment of any indemnity amount.

      3.10 Undisclosed Liabilities.
           ----------------------- 

          (a) Except as set forth on Schedule 3.10(a), no Company is, and no
Company's properties or assets, other than the Excluded Assets, are subject to
any liability, commitment, indebtedness or obligation of Fifty Thousand Dollars
($50,000.00) or more of any kind whatsoever, whether absolute, accrued,
contingent, matured or unmatured, which, as of the Closing, (i) is not shown and
adequately reserved against in the Financial Statements; (ii) is not shown and
adequately reserved against in the Interim Financial Statements; (iii) is not
listed on a Schedule to this Agreement; or (iv) was incurred subsequent to the
date of the Interim Financial Statements other than in the ordinary course of
business and not in violation of any provision of this Agreement.

 
      3.11 Compliance with Law.  Except as set forth on Schedule 3.11, and
           -------------------
except for matters routinely encountered in the ordinary course of business by a
Company engaged in coal mining in the jurisdictions in which the Company
conducts business that have been otherwise specifically disclosed to Purchaser,
the Shareholders and the Companies have substantially complied with, are not in
material default under, have not been charged with any material violation of,
and, have not to the best of Principal Shareholder's knowledge been threatened
or placed under any investigation with respect to any charge concerning any
violation of any provision of any federal, state, local or other law,
regulation, rule or order (whether executive, judicial, legislative or
administrative) or any order, writ, injunction or decree of any court, agency or
instrumentality, which would have an adverse effect of Fifty Thousand Dollars
($50,000.00) or more on the Companies and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand or notice which would have an
adverse effect of Fifty Thousand Dollars ($50,000.00) or more on the Companies
has been filed or commenced.

      3.12 Contracts.
           --------- 

          (a) Schedule 3.12(a) lists all of the written and oral contracts,
agreements and commitments to which any Company is a party to or bound by, or by
which any Company's business or assets are bound, involving an annual
consideration of Fifty Thousand Dollars ($50,000.00) or more including, but not
limited to, any (i) lease; (ii) contract; (iii) mining agreement; (iv) coal
supply agreement; (v) employment agreement; (vi) bonus, profit-sharing, deferred
compensation, hospitalization, retirement, insurance, pension, welfare, stock
option or stock purchase plan, arrangement or agreement or any other plan,
arrangement or agreement providing for employee benefits or for the remuneration
by any Company of its stockholders, directors, officers or employees; (vii)
agreement with any shareholder, director or officer of any Company; (ix)
agreement containing covenants by each Company not to compete in any lines of
business or commerce; (x) franchise or distributorship agreement; (xi) loan,
credit or financing agreement, including all agreements for any commitments for
future loans, credit or financing; (xii) guarantee; (xiii) mortgage or security
agreement; (xiv) agreement to purchase raw materials, packaging, supplies or
services used regularly in any Company's business; or (xv) agreement to sell the
products or services provided by any company. Schedule 3.12(a) includes a
summary of the terms of any unwritten contract or commitment to which any
Company is a party or by which any Company is bound.

          (b) Except as set forth on Schedule 3.12(b), all contracts and
commitments listed on Schedule 3.12(a) are legal, valid, binding, enforceable,
and in full force and effect and will continue to be legal, valid, binding,
enforceable and in full force and effect on substantially the same or identical
terms immediately following the transactions contemplated hereby unless
modified, terminated, assigned or otherwise transferred to effect the conveyance
of the Excluded Assets or to terminate the Related Party Agreements.  Except as
set forth on Schedule 3.12(b), each Company has performed all obligations
required to be performed by it to date under all contracts and commitments
listed on Schedule 3.12(a), and the Principal Shareholder has no knowledge that
any other party is in default (or would be in default on the giving of notice or
the lapse of time or both) under any such contract or commitment.  No event has
occurred which would permit any Person to terminate, accelerate or modify any
such contract.

 
          (c) True and complete copies of all written contracts and commitments
which are listed on Schedule 3.12(a) or which are otherwise referred to in this
Agreement, including any Schedule or Annex hereto, have been delivered to
Purchaser or made available for Purchaser's inspection, and there are no
amendments to or modifications of, or significant agreements of the parties
relating to, any such contract, agreement or commitment which have not been
disclosed to Purchaser, and each such contract, agreement or commitment is valid
and binding on the parties thereto in accordance with its respective terms.

          (d) The prices which each Company shall receive or pay under all
outstanding contracts, agreements and commitments with its customers, suppliers
and others have been determined in the ordinary course of each Company's
business.

          (e) The Principal Shareholder does not know, or have any reasonable
grounds to know, that any customer under any coal supply contract or purchase
order listed on Schedule 3.12(a) has terminated or expects to terminate, other
than in accordance with the terms of such contract or purchase order, its normal
business with any of the Companies as a result of the transactions contemplated
by this Agreement.

      3.13 Litigation and Pending Proceedings.  Except as set forth on Schedule
           ----------------------------------                                  
3.13, there are no material claims of any kind or any material actions, suits,
proceedings, arbitrations or investigations pending or threatened in any court
or before any governmental agency or instrumentality or arbitration panel, by or
against any Company or Shareholder, which would have a material adverse effect
on any Company's business operations, condition (financial or otherwise), or any
of any Company's properties or assets, or which would prevent the performance of
this Agreement or the Other Documents or any of the transactions contemplated
hereby or thereby, or which declare or would declare the same unlawful.

      3.14 Real Property.
           ------------- 

          (a) Schedule 3.14(a) lists all material interests in land, including
coal, mining and surface rights, easements, rights of way and options leased by
the Companies, other material contractual rights in and to any real property
held by the Companies, and all rights by which the Companies may be entitled to
receive income from any Person as a result of the use or occupancy of any real
property by such Person.  (The leases and other agreements identified on
Schedule 3.14(a), as each may have been amended, supplemented or otherwise
modified by contemporaneous or subsequent written agreements, are hereinafter
referred to as the "Leases," and the property and property rights granted
therein are hereinafter referred to as the "Leased Real Property").  Each of the
Leases is a valid, binding and enforceable agreement in accordance with its
terms, and no Company is in default under any Lease, and, to the best of
Principal Shareholder's knowledge, no other party is in default under any Lease.

          (b) Schedule 3.14(b) lists all interests in land, including coal,
mining and surface rights, easements, rights of way, options and other interests
in real property owned by the Companies (the "Owned Real Property").

 
          (c) Except as set forth on Schedule 3.14(c), each Company holds good
and marketable fee or leasehold title (as the case may be) as generally accepted
in the Appalachian coal industry to its Owned Real Property and its Leased Real
Property, and, upon its date of transfer to the applicable Company, the
Contributed Assets that are real property, free and clear of any Charges except
for Permitted Encumbrances.  The Shareholders warrant specially the title to the
Owned Real Property and the Companies' interest in the Leased Real Property.  As
used herein, the term "Permitted Encumbrances" means:  (i) liens for current ad
valorem taxes and other inchoate statutory liens not yet delinquent or which are
being contested in good faith and by appropriate proceedings; (ii) carriers',
warehousemen's, mechanics', materialmen's, repairmen's or other like liens
arising in the ordinary course of business which are less than One Hundred
Thousand Dollars ($100,000.00) in amount and which are being contested in good
faith and by appropriate proceedings; (iii) private, public and utility
easements, tenant leases, cemeteries, leases and subleases, reconveyance
agreements, rights-of-way and roads and highways, encroachments, restrictions,
conditions and other similar encumbrances incurred or suffered in the ordinary
course of the coal mining business, or to which other coal properties similarly
situated are commonly or ordinarily similarly subject and which do not
materially impair the Companies' business operations as presently conducted;
(iv) any matter of public record except those in derogation of the special
warranty hereinabove made; (v) any matter which is plainly visible or easily
discernible by a diligent actual view of the Real Property; (vi) those facts
which might be disclosed by an accurate survey of the Real Property; (vii)
governmental building, zoning or other laws and regulations of the jurisdictions
in which the Real Property is located; or (viii) those title matters actually
discovered by Purchaser's attorneys investigating title to the Real Property on
behalf of Purchaser.

          (d) All existing surveys, title insurance policies, title insurance,
abstracts and other evidence of title (if any) in the possession of the
Companies have previously been made available to Purchaser or its agents or
consultants.

          (e) Notwithstanding the contents of Schedules 3.14(a) and (b), it is
the intent of the Shareholders that the Companies be vested with title to all
lands and interests in land held by the Companies at the time of the execution
of this Agreement except for any such lands or interests in land that are an
Excluded Asset and any omission of any item from said Schedules 3.14(a) and (b)
shall not act as an exclusion of such item from the terms and conditions of this
Agreement.

          (f) Except as set forth on Schedule 3.14(f), as of the Closing Date:
(i) there will be no past due payment, obligation or other material default
under any of the Leases; (ii) no Shareholder or Company has received any oral or
written notice of, or knows of, any act, omission or condition which constitutes
a material default, or, with the passage of time and/or the giving of notice,
would constitute a material default under any of the Leases; (iii) there will be
no Charges against the Leases or the rights of the Companies thereunder; (iv) no
Company has mined any coal that did not belong to it, or mined any coal in such
a reckless or imprudent fashion as to give rise to any material claims for loss
or waste by any of its lessors; (v) each of the Leases will be in good standing,
valid and enforceable against the lessor or other parties thereto in accordance
with its terms; and (vi) the lessee under each Lease has exercised within the
time prescribed in such Lease any option provided therein to extend or renew the
term thereof if the Lease has been deemed necessary by the Companies for their
future business operations.  To the best of Principal

 
Shareholder's knowledge, the Leased Real Property is not subject to any
mortgage, deed of trust or other material lien which has priority over any
Lease, or, if it is, the holder of any such mortgage, deed of trust or other
material lien cannot be the basis for any foreclosure or other acquisition of
title by such holder which would have a material adverse effect upon the use of
Leased Real Property in the normal course of the business operations of the
Companies as such use has been made or planned by the Companies prior to the
date of this Agreement.

          (g) Subject to all of the lessors listed on Schedule 3.14(g) giving
their consent to the transactions contemplated herein, the acquisition of the
Shares by Purchaser will not constitute a default under the terms of any of the
Leases.

          (h) Except as set forth on Schedule 3.14(h), or as otherwise
specifically disclosed to Purchaser, the Companies are in actual and peaceful
possession of that portion of the Leased Real Property with respect to which the
Companies have obtained Permits and are actively conducting coal mining
operations.

          (i) Purchaser accepts the Companies' mineral reserves in or under the
lands comprising the Real Property, as is, where is, together with all the
Mining Data, free of any warranty (express or implied) with regard to the
mineability, washability, merchantability, volume, location, quantity or quality
of any mineral reserve (including, without limitation, coal, oil and gas or any
other mineral reserve).

      3.15 Condemnation.  Except as set forth on Schedule 3.15, no condemnation
           ------------                                                        
proceeding has been instituted or, to the best of Principal Shareholder's
knowledge, is threatened that would have a material adverse effect on any of the
Real Property.

      3.16 Inventory.  The Companies' coal inventory consists solely of coal
           ---------                                                        
which has been produced in the ordinary course of business for use or sale in
the ordinary course of the Companies' respective businesses at arm's length
market prices for its quantity and quality.

      3.17 Notes and Accounts Receivable.  Except as set forth on Schedule 3.17,
           -----------------------------                                        
to the best of Principal Shareholder's knowledge, all notes and accounts
receivable of each Company included in the Current Assets or thereafter acquired
by any Company have been collected or are collectible in the ordinary course of
business (in the case of any such note substantially in accordance with its
terms), at the recorded amounts thereof on such Company's books. No note or
account receivable of any Company is subject to counterclaim or set off as of
the Closing.

      3.18 Banks, Directors and Officers, and Life Insurance.  Schedule 3.18
           ------------------------------------------------- 
sets forth: (a) a list of all banks with which any Company has an account,
deposit, certificate of deposit, or safe deposit box along with identifying
numbers and the names of all persons authorized to draw thereon or have access
thereto; (b) the names of all incumbent directors and officers of each Company;
and (c) a description and identification of any insurance policies held or paid
for by any Company on the lives of any of its key employees, officers, directors
or shareholders.

 
      3.19 Permits and Bonds.
           ----------------- 

          (a) Except as set forth on Schedule 3.19(a)(1), each Company has all
material permits, licenses, franchises, approvals, certificates or
authorizations (collectively, the "Permits") of any federal, state or local
governmental or regulatory body required in order to permit it to carry on its
business as presently conducted, all of which are in full force and effect.  All
material Permits held by any Company are listed on Schedule 3.19(a)(2) (the
"Mid-Vol Permits").  Except as set forth on Schedule 3.19(a)(3) or otherwise
specifically disclosed to Purchaser, no misrepresentations or willful,
intentional or negligent omissions were made of any material fact in obtaining
any Mid-Vol Permits or any Permits that are Contributed Assets ("Contributed
Permit").  No action or claim is pending, or, to the best of Principal
Shareholder's knowledge, threatened or contemplated, to revoke, suspend, modify,
alter, amend or terminate any Mid-Vol Permit or Contributed Permit, or to
declare any Mid-Vol Permit or Contributed Permit invalid in any respect, and the
Principal Shareholder knows of no reason that would justify such action.  Except
as set forth on Schedule 3.19(a)(4), no Company has received any notice of
noncompliance since January 1, 1997.

          (b) The Companies have posted all reclamation and performance bonds
required to be posted in connection with their operations.  All reclamation and
performance bonds posted by each Company in connection with its operations are
listed on Schedule 3.19(b)(1) (collectively, the "Bonds").  Except as disclosed
on Schedule 3.19(b)(2) or otherwise specifically disclosed to Purchaser:  (i)
the Companies or the Permitted Party, as the case may be, are in compliance in
all material respects with all reclamation requirements of the Mid-Vol Permits
and Contributed Permits required to date by law; and (ii) the operation of the
Companies' coal mining and processing operations and the state of reclamation
with respect to the Mid-Vol Permits and the Contributed Permits are "current" or
in "deferred status" regarding reclamation obligations and otherwise are in
compliance in all material respects with all applicable mining, reclamation,
health and safety and all other applicable laws and regulations (including,
without limitation, all aspects of the Federal Coal Mine Health and Safety Act
of 1969, as amended, and the Federal Mine Safety and Health Act of 1977, as
amended, and similar state laws and regulations) and in accordance with
reclamation plans submitted with respect to the Mid-Vol Permits and the
Contributed Permits.

      3.20 Intellectual Property.  Schedule 3.20 sets forth a list and
           ---------------------                                      
description of all Intellectual Property either owned or utilized by any Company
in its business (the "Companies' Intellectual Property"), including a
description of the nature of each Company's interest therein.  Except as set
forth on Schedule 3.20:  (i) all of the Companies' Intellectual Property is
owned by the Companies, is valid and enforceable, and is free and clear of all
Charges and other adverse claims; (ii) no Company is a party to any licenses,
consents, settlements or other agreements involving the Companies' Intellectual
Property; (iii) there are, and have been, no claims, actions or judicial or
adversarial proceedings involving the Companies' Intellectual Property that
would have an adverse effect of Fifty Thousand Dollars ($50,000.00) or more on
the Companies, and no such actions or proceedings are threatened or anticipated;
(iv) the Companies have the right and authority to use the Companies'
Intellectual Property in connection with the conduct of their business and such
use has not and will not infringe upon, constitute a misappropriation of, or
otherwise violate the rights of any other person in, any Intellectual Property;
(v) the Principal Shareholder knows of no past or present occurrences of any
probable infringement or misappropriation of, or violation of any Company's

 
rights in, any of the Companies' Intellectual Property; and (vi) no Company is
subject to any restriction on the transfer or use of the Companies' Intellectual
Property or any royalty payment or obligation with respect thereto.

      3.21 Proprietary Information.  Prior to or in conjunction with the
           -----------------------
Closing, the Shareholders shall have fully disclosed to Purchaser all customer
lists, trade secrets, processes, formulas, methods, inventions (if any) and
other proprietary information used by each Company in the ordinary course of its
business. To the best of Principal Shareholder's knowledge, the use by the
Companies of such proprietary information does not violate any other Person's
proprietary rights.

      3.22 Insurance.  The tangible real and personal property and assets,
           ---------                                                      
whether owned or leased, of the Company are insured against the hazards and in
the amounts stated in the policies of insurance listed on Schedule 3.22(a).
Each Company carries insurance against personal injury and property damage to
third persons and in respect of its services and operations and such other
insurance as is stated in the policies of insurance listed on Schedule 3.22(a).
Except as set forth on Schedule 3.22(b):  (i) all such insurance is legal,
valid, binding, enforceable and in full force and effect, and is carried with
reputable insurers; (ii) no party to any insurance policy of any Company is in
material breach or default; and (iii) no event has occurred which would
constitute a material breach or default or permit termination, modification or
acceleration of any policy.  Schedule 3.22(c) sets forth a true and complete
list of all claims in excess of Twenty-Five Thousand Dollars ($25,000.00) made
by the Company during the past three (3) years under any such policy.  Each
Company has been covered by insurance in an amount customary and reasonable to
its respective business during the time periods such business has been
conducted.

      3.23 Labor Relations.
           --------------- 

          (a) Except as set forth on Schedule 3.23(a):  (i) no Company is a
party to, or negotiating, or has any obligations under, any collective
bargaining agreement or other agreement with any labor union organization
relating to the compensation or working conditions of any of any Company's
employees; (ii) no Company is obligated under any agreement to recognize or
bargain with any labor organization or union on behalf of its employees; (iii)
the Principal Shareholder does not know, or have any reasonable grounds to know,
of any union organizational or representational activities underway among any of
any Company's employees; (iv) no Company has been charged or threatened with a
charge of any unfair labor practice, and (v) no Company has committed any
violation of the WARN Act.  There are no existing or, to the best of Principal
Shareholder's knowledge, threatened labor strikes, slowdowns, disputes,
grievances or disturbances affecting or which might affect operations at, or
deliveries from or into, any facility of any Company.  No work stoppage against
any Company or its business is pending or, to the best of Principal
Shareholder's knowledge, threatened, and no such work stoppage has ever
occurred, except for those that did not have a material adverse effect on the
Companies.

          (b) No Company has committed any act or failed to take any required
action with respect to any of its employees which:  (i) has resulted or which
may result in a material violation of ERISA (as that term is defined in Section
3.24 below), or similar legislation as it affects any employee benefit or
welfare plan of the Company, the Immigration Reform and Control Act of 1986,

 
the National Labor Relations Act, as amended, Title VII of the Civil Rights Act
of 1964, as amended, the Age Discrimination Employment Act, the Americans with
Disabilities Act, the Occupational Safety and Health Act, the Mine Safety and
Health Act, Executive Order 11246, the Fair Labor Standards Act, the
Rehabilitation Act of 1973, the West Virginia Wage Payment Collection Act and
all regulations under such Acts, and all other federal, state and local laws,
regulations and executive orders relating to the employment of labor, including
any provisions thereof relating to wages, hours, collective bargaining, the
payment of Social Security and similar taxes, unemployment and workers'
compensation laws, any labor relations laws, or any governmental regulations
promulgated thereunder, as the same affect relationships or obligations of any
Company with respect to any of any Company's employees; and (ii) will or
reasonably could result in any material liability, penalty, fine or the like
being imposed upon any Company. No Company is liable for any arrearage of wages
or taxes or penalties for failure to comply with any of the foregoing, and there
are no proceedings before any court, governmental agency, instrumentality or
arbitrator relating to such matters, including any unfair labor practice claims,
either pending or threatened.

          (c) To the best of Principal Shareholder's knowledge, no key
management employee has any plans to terminate employment with any Company.
Except as listed on Schedule 3.23(c)(1), subject to all applicable governmental
laws and regulations, no person is employed by any Company other than at the
will of such Company for an indefinite period of time, and at the option of
either the Company or such employee, the employment of such employee may be
terminated with or without cause and with or without notice at any time.  In
addition, to the best of Principal Shareholder's knowledge, none of the
Companies' employees are bound by or are subject to any non-compete,
confidentiality or similar Agreement other than for the benefit of the
Companies.  No person is employed by any Company other than PPI.  Schedule
3.23(c)(2) contains a true and complete list of all employees employed by PPI as
of the date hereof, and said list correctly reflects their salaries, wages,
other compensation, dates of employment, and positions and benefit plans in
which they participate or are eligible to participate and reflects any changes
in any of the foregoing since March 25, 1998.  There are no discrimination or
harassment charges (relating to sex, age, religion, race, national origin,
ethnicity, disability, or veteran status) pending or, to the best of Principal
Shareholder's knowledge, threatened before any federal or state agency or
authority against any of the Companies and, to the best of Principal
Shareholder's knowledge, there is no basis therefor.

      3.24 Employee Benefit Plans.
           ---------------------- 

          (a) For purposes of this Section 3.24, the term "employee benefit
plan(s)" shall have the meaning ascribed to it in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the
regulations promulgated thereunder, and the term "employee pension benefit
plan(s)" shall have the meaning ascribed to it in Section 3(2) of ERISA.

          (b) Schedule 3.24 sets forth a complete list of all employee benefit
plans, policies and practices with regard to wages and benefits (whether or not
subject to ERISA) of each Company, including, without limitation, plans, funds
or programs providing medical, surgical or hospital care or benefits; benefits
in the event of sickness, accident, disability, death or unemployment; vacation
benefits; apprenticeship or other training programs; day care centers;
scholarship funds; prepaid legal

 
services; benefits described in Section 302(c) of the Labor Management Relations
Act; retirement income; income deferral for periods extending to the termination
of covered employment or beyond; severance pay arrangements; and supplemental
retirement income payments which take into account increases in the cost of
living, ( the "Companies' Benefit Plans"). Each of the Companies' Benefit Plans
which is funded through a policy of insurance is indicated by the word "insured"
placed by the listing of the plan on Schedule 3.24.

          (c) To the extent applicable, true and complete copies of all (i)
employee benefit plans, (ii) policies and practices, (iii) summary plan
descriptions, (iv) insurance policies, and (v) communications to or from the
United States Department of Labor and other applicable governmental filings with
respect to the Companies' Benefit Plans, have been delivered by the Companies to
Purchaser.

          (d) Except as specifically provided in the documents described in this
Section 3.24 and delivered to Purchaser, or as otherwise described on Schedule
3.24, there are no material amendments, modifications, extensions, changes in
benefits or benefit structures, or other material alterations which are
currently in effect or which the Principal Shareholder or any Company has
undertaken to become effective in the future, or which the Principal Shareholder
has knowledge of, with regard to any of the Companies' Benefit Plans.

          (e) Each of the Companies' Benefit Plans has been executed, managed
and administered in compliance in all material respects with the applicable
provisions of ERISA, the Code, and the regulations promulgated thereunder, and
all other applicable laws.  The Principal Shareholder has no knowledge of any
threatened or pending claim against any of the Companies' Benefit Plans or their
fiduciaries by any participant, beneficiary or government agency.

          (f) The Companies have fully complied with the notice and coverage
requirements of Sections 601 through 609 of ERISA and Sections 701 through 784
of ERISA, if applicable, and the proposed regulations thereunder, if applicable.
All reports, statements, returns and other information required to be furnished
or filed with respect to the Companies'  Benefit Plans have been timely
furnished, filed or both in accordance with Sections 101 through 105 of ERISA
and Code Sections 6057 through 6059, if applicable, and they are true, correct
and complete in all material respects.  Records with respect to the employee
benefit plans have been maintained in material compliance with Section 107 of
ERISA, if applicable.  No Shareholder, Company or any other fiduciary (as that
term is defined in Section 3(21) of ERISA) with respect to any of the Companies'
Benefit Plans has any material liability for any breach of any fiduciary duties
under ERISA, if applicable.

          (g) The Companies have not, with respect to any of the Companies'
Benefit Plans, nor has any administrator of any of the Companies' Benefit Plans,
engaged in any prohibited transaction which would subject the Companies, any of
the Companies' Benefit Plans, or any administrator or other party involved with
any of the Companies' Benefit Plans to a tax or penalty on prohibited
transactions imposed by ERISA, Code Section 4975, or to any other liability
under ERISA, if applicable.

 
          (h) The Companies have no, and have never had any, employee pension
benefit plans maintained by or covering employees of any Company.

          (i) No Company has ever contributed to a "multi-employer plan," as
that term is defined in Section 3(37) of ERISA (as particularly amended by The
Multi-Employer Pension Plan Amendments Act of 1980).

          (j) All current insurance premiums, claims for benefits or other
payments due which are payable by the Companies for all periods ending on or
before the Closing Date have been paid with respect to each of the Companies'
Benefit Plans.

          (k) None of the Companies maintains or has ever maintained or
contributes to or ever has contributed to or ever has been required to
contribute to any employee benefit plan providing retirement, severance,
medical, health, disability or life insurance or other benefits for current or
future retired or terminated employees, their spouses or their dependents other
than in accordance with Code Section 4980(b), if applicable.

          (l) Except as set forth on Schedule 3.24(l), none of the Companies has
any liability with respect to any employee benefit plans other than the
Companies' Benefit Plans.

      3.25 Indebtedness.  On the Closing Date, all indebtedness of the
           ------------                                               
Shareholders of any Company to any Company reflected or which should have been
reflected in the Financial Statements or the Interim Financial Statements shall
have been paid in full or canceled, assigned, transferred or otherwise satisfied
with respect to the Companies such that such amounts are not due and owing to
the Companies after Closing.

      3.26 Environmental Matters.
           --------------------- 

           (a) As used in this Section 3.26, the term "Hazardous Material" shall
mean any substance, chemical or waste (including, without limitation, asbestos,
polychlorinated biphenyls ("PCBs") and petroleum) that is designated or defined
(either by inclusion in a list of materials or by reference to exhibited
characteristics) as hazardous, toxic or dangerous, or as a pollutant or
contaminant, in any federal, state or local law, code or ordinance, and all
rules and regulations promulgated thereunder, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
42 U.S.C. (S)(S) 9601, et seq.
                       -- --- 

          (b) Except as set forth on Schedule 3.26(b), each Company has complied
in all material respects with, and its business, operations, assets, equipment,
leaseholds and facilities, including, without limitation, the Real Property, are
in compliance in all material respects with, the provisions of all applicable
federal, state and local environmental, health and safety laws, codes and
ordinances, and all rules and regulations promulgated thereunder, including,
without limitation, all laws and regulations with respect to reporting releases
of Hazardous Materials and the registration, testing and maintenance of
underground storage tanks.

 
          (c) Except as set forth on Schedule 3.26(c)(1), each Company has been
issued, and will maintain, all material required federal, state and local
permits, licenses, certificates and approvals relating to:  (i) air emissions;
(ii) discharges to surface water or ground water; (iii) noise emissions; (iv)
solid or liquid waste disposal; (v) the use, generation, storage, transportation
or disposal of Hazardous Materials; and (vi) other environmental, health or
safety matters.  A list of all such material permits, licenses, certificates or
approvals is set forth on Schedule 3.26(c)(2).

          (d) Except as set forth on Schedule 3.26(d), no Company or Shareholder
has received notice of, or knows of or suspects, any fact(s) which might
constitute a material violation of any federal, state or local environmental,
health or safety laws, codes or ordinances, or any rules or regulations
promulgated thereunder, which relate to the use, ownership or occupancy of any
of the Real Property.

          (e) Except in accordance with a valid governmental permit, license,
certificate or approval listed on Schedule 3.26(c)(2) or as set forth on
Schedule 3.26(e), no Company has caused any, and, to the best of Principal
Shareholder's knowledge, there has been no material emission, spill, release,
discharge or threatened release into or upon:  (i) the air; (ii) the soils or
any improvements located thereon; (iii) the surface water or ground water; or
(iv) the sewer, septic system or waste treatment, storage or disposal system
servicing the Real Property, of any Hazardous Material at or from any of the
Real Property (any of which is hereafter referred to as a "Hazardous Discharge")
which by law has required or would require any notification thereof or a
response thereto.

          (f) Except as set forth on Schedule 3.26(f), to the best of Principal
Shareholder's knowledge, there has been no complaint, order, directive, claim,
citation or notice by any governmental authority or any other Person with
respect to:  (i) air emissions; (ii) spills, releases or discharges to soils or
any improvements located thereon, surface water, ground water or the sewer,
septic system or waste treatment, storage or disposal systems servicing the Real
Property; (iii) noise emissions; (iv) solid or liquid waste disposal; (v) the
use, generation, storage, transportation or disposal of Hazardous Materials; or
(vi) other environmental, health or safety matters, affecting any Company, any
of the Real Property, any improvements located thereon or the business conducted
thereon (any of which is hereafter referred to as an "Environmental Complaint").
Except as set forth on Schedule 3.26(f), there has been no Environmental
Complaint arising from any Company's actions or omissions.

          (g) Except as set forth on Schedule 3.26(g), all Hazardous Materials
disposed of, treated or stored on or off-site of any real property owned or
operated at any time by any Company have been disposed of, treated and stored in
compliance in all material respects with all applicable laws, codes and
ordinances and all applicable rules and regulations promulgated thereunder.  To
the best of Principal Shareholder's knowledge, there have not been and are now
no underground storage tanks "owned" or "operated" (as defined by applicable law
and regulation) by any Company.

          (h) Except as listed on Schedule 3.26(h), and except for supplies that
are to be used or sold in the ordinary course of any Companies' business and in
full compliance with all applicable laws, codes and ordinances, all of the Real
Property is free of:  (i) any material amount

 
of Hazardous Materials; (ii) underground storage tanks; and (iii) underground
pipelines.  Except as set forth on Schedule 3.26(h), no Company has disposed of
any material amount of Hazardous Materials on, in or under the Real Property, or
any part thereof, or has permitted the Real Property, or any part thereof, to be
used for the storage, treatment or disposal of Hazardous Materials.  To the best
of Principal Shareholder's knowledge, except as set forth on Schedule 3.26(h),
there has been no material disposal or release of Hazardous Materials on, in or
under the Real Property at any time by any Person.

          (i) Except in accordance with a valid governmental permit, license,
certificate or approval listed on Schedule 3.26(i) or other valid required
incidental governmental permit, no Company has transported or accepted for
transport any Hazardous Materials.  Schedule 3.26(i) identifies all of the
Persons for whom or which any Company has transported (or from whom or which any
Company has accepted for transport) any material amount of Hazardous Materials
(excluding motor fuels and lubricants used in the ordinary course of the
Companies' business) and identifies all locations to which any Company has
transported any material amount of Hazardous Materials.

          (j) The Principal Shareholder has made available to Purchaser all
information in his possession or the Companies' possession pertaining to the
environmental history of all of the Real Property.  The Principal Shareholder
shall also promptly cause the Companies to furnish to Purchaser true, accurate
and complete copies of all sampling and test results from all environmental
and/or health samples and tests taken at and around any of the Real Property by
or on behalf of any of the Companies between the date of this Agreement and
Closing.

      3.27 Immigration Matters.  Each Company has complied with all material
           -------------------                                              
applicable provisions of Section 274A of the Immigration and Nationality Act, as
amended (the "Act"). Without limiting the foregoing, except as set forth on
Schedule 3.27:  (a) each "employee" (as that term is defined in the Act) of each
Company is permitted to be so employed in the United States under the Act; (b)
each Company has examined (and made copies of, if applicable) the documents
presented by said employee to establish appropriate employment eligibility under
the Act; (c) each Company has completed and required each employee hired on or
since November 11, 1986, to complete a Form I-9 verifying employment eligibility
under the Act; (d) each Company has retained each such completed Form I-9 for
the length of time required under the Act; and (e) no monetary penalties have
been assessed against any Company for violation of Section 274A of the Act.

      3.28 Permit Blocking.  No Company, Shareholder or any Person "owned or
           ---------------                                                  
controlled" by any Shareholder, any Company, or any Person which "owns or
controls" any Company has been notified by the Federal Office of Surface Mining
or the agency of any state administering the Surface Mining Control and
Reclamation Act (30 U.S.C. (S)(S) 1201 et seq.), or any comparable state
                                       -- ---                           
statute, that it is:  (i) ineligible to receive additional surface mining
permits; or (ii) under investigation to determine whether their eligibility to
receive such permits should be revoked, i.e., "permit blocked." As used herein,
                                        ----                                   
the terms "owned or controlled" and "owns or controls" shall be defined as set
forth in 30 C.F.R. (S)773.5 (1991).

 
      3.29 Consents and Notices.  All consents, approvals and notices required
           --------------------                                                 
to be obtained or given in connection with the sale of the Shares (the
"Consents") are set forth on Schedule 3.29(a). The material Consents that are
required to be obtained prior to Closing by any party as a condition precedent
to the Shareholders' and the Purchaser's obligation to proceed with the Closing,
(the "Required Consents"), are set forth on Schedule 3.29(b). All Consents other
than the Required Consents shall be obtained as soon as reasonably possible
after the Closing.

      3.30 Transactions with Affiliates. Except as set forth in the notes to the
           ----------------------------                                         
Financial Statements, Closing Financial Statements or Interim Financial
Statements, or in the Schedules to this Agreement or the Other Documents, and,
except for arrangements contemplated by this Agreement, no Shareholder or
affiliate of any Shareholder has any outstanding contract, agreement or other
arrangement with any of the Companies that will be a binding obligation upon any
of the Companies after the Closing.

      3.31 Distributions.  Except as listed on Schedule 3.31, since January 1,
           -------------                                                      
1998, no Company has declared, set aside, or paid any dividends, whether in
cash, stock or other securities, or otherwise made any distributions to its
shareholder(s), directly or indirectly, of any of its property or assets other
than the Excluded Assets.

      3.32 Powers of Attorney.  Except as set forth on Schedule 3.32, there are
           ------------------                                                  
no outstanding powers of attorney executed on behalf of any of the Companies.

      3.33 Completeness of Statements.  No statement, Schedule, Annex,
           --------------------------                                 
certificate, representation or warranty of any Company or the Principal
Shareholder (or the Shareholders with respect to their Shares) contained in this
Agreement or the Other Documents, or furnished by or on behalf of any Company or
the Principal Shareholder to Purchaser or any of its agents pursuant hereto or
thereto, or in connection with the transactions contemplated hereby or thereby,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary in order to make a statement
contained herein or therein not misleading.  All representations and warranties
of the Shareholders contained in this Agreement and in the Other Documents are
true and complete in all material respects as of the date hereof, and will be
true and complete in all material respects as of the Closing Date.

                                   Article 4
                  Representations and Warranties of Purchaser
                  -------------------------------------------

     Purchaser represents and warrants to the Shareholders as follows:

      4.1 Organization.  Purchaser is a corporation duly organized and validly
          ------------                                                        
existing under the laws of the State of Delaware, and has full corporate power
and authority to own and lease its properties as such properties are now owned
and leased, and to conduct its business as and where its business is now
conducted.

      4.2 Authority.
          --------- 

 
          (a) Purchaser has full right, power, authority and capacity to execute
and deliver this Agreement and the Other Documents, and to perform its
obligations under this Agreement and the Other Documents.  This Agreement and
the Other Documents constitute valid and legally binding obligations of
Purchaser, enforceable in accordance with their terms.

          (b) The execution and delivery of this Agreement and the Other
Documents, the consummation of the transactions contemplated hereby and thereby,
and the performance and fulfillment of the obligations and undertakings
hereunder and thereunder by Purchaser will not: (i) violate any provision of, or
result in the breach of or accelerate or permit the acceleration of any
performance required by the terms of, its articles of incorporation or bylaws;
any contract, agreement, arrangement or undertaking to which Purchaser is a
party or by which it may be bound; any judgment, decree, writ, injunction, order
or award of any arbitration panel, court or governmental authority; or any
applicable law, ordinance, rule or regulation of any governmental body; or (ii)
terminate or cancel, or result in the termination or cancellation of, any
agreement or undertaking to which it is a party.

          (c) The execution and delivery of, and the performance and
consummation of the transactions contemplated by, this Agreement and the Other
Documents have been duly authorized by all requisite corporate action.  All
other consents, approvals, authorizations, releases or orders required of or for
Purchaser for the authorization, execution, and delivery of, and for the
performance and consummation of the transactions contemplated by, this Agreement
and the Other Documents will have been obtained by the Closing.

      4.3 Litigation and Claims.  There are no actions, suits, proceedings,
          ---------------------                                            
hearings, investigations, litigation, charges, complaints, claims or demands,
pending or threatened, to the best knowledge of Purchaser, which would delay,
prevent or set aside the transactions contemplated by this Agreement or which
would be reasonably likely to have a material adverse effect upon or restrict
Purchaser's ability to perform its obligations under this Agreement.

      4.4 Investment Intent.  Purchaser is acquiring the Shares solely for its
          -----------------                                                   
own account and not with a view to a sale or distribution thereof in violation
of any securities laws. Purchaser acknowledges that it has received, or has had
access to, all information which it considers necessary or advisable to enable
it to make a decision concerning its purchase of the Shares, provided that the
foregoing shall not limit or otherwise affect the rights or remedies of
Purchaser hereunder with respect to the breach of any representations,
warranties, covenants or agreements of the Shareholders or the Companies
contained in this Agreement except as expressly set forth in this Agreement.

      4.5 Financing.  Purchaser has, and will have at the Closing, all funds
          ---------                                                         
necessary to pay the Purchase Price and to perform the obligations of Purchaser
and Purchaser's Affiliates under this Agreement and the Other Documents.

      4.6 Permit Blocking.  Neither Purchaser, any Affiliate of Purchaser, any
          ---------------                                                     
Person "owned or controlled" by Purchaser nor any of its Affiliates, or any
Person which "owns or controls" Purchaser or any of its Affiliates has been
notified by the Federal Office of Surface Mining or the agency of any state
administering the Surface Mining Control and Reclamation Act (30 U.S.C.

 
(S)(S) 1201 et seq.), or any comparable state statute, that it is: (i)
            -- ---
ineligible to receive additional surface mining permits; or (ii) under
investigation to determine whether their eligibility to receive such permits
should be revoked, i.e., "permit blocked." As used herein, the terms "owned or
                   ----
controlled" and "owns or controls" shall be defined as set forth in 30 C.F.R.
(S)773.5 (1991

                                   Article 5
                     Covenants of the Principal Shareholder
                     --------------------------------------

     The Principal Shareholder covenants and agrees with Purchaser that:
 
      5.1 Record Retention.  With respect to the books and records of the
          ----------------                                               
Companies which are not transferred to Purchaser, the Principal Shareholder
shall maintain for a period of at least five (5) years after the Closing all
such books and records.  The Principal Shareholder shall, upon reasonable
notice, give Purchaser and their representatives cooperation, access (including
copies) and staff assistance, if available and as needed, during normal business
hours, and upon reasonable notice with respect to such records; provided,
however, Purchaser shall reimburse Principal Shareholder for all costs and
expenses incurred by Principal Shareholder in providing such services and
assistance to Purchaser after the Closing.  The Principal Shareholder shall not
destroy or otherwise dispose of any such records during the five-year period
beginning on the Closing Date or before any applicable tax matter statute of
limitations for which such records may be necessary, whichever is later, without
the prior written consent of Purchaser.

      5.2 Resignations.  At the Closing, the Principal Shareholder shall cause
          ------------                                                        
the individuals identified on Schedule 3.18(b) to resign as officers and/or
directors of the Companies, which resignations shall be effective immediately
after the Closing.

      5.3 Permits.  In the event that not all of the Mid-Vol Permits, the
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Contributed Permits or the railroad siding agreements which are Contributed
Assets are available for use by the Companies immediately following the
transactions contemplated by this Agreement, the Shareholders, Purchaser and the
Companies shall cooperate in any reasonable arrangement designed to provide
Purchaser and the Companies the benefits under any such Mid-Vol Permits,
Contributed Permits or railroad siding agreements until such Mid-Vol Permits,
Contributed Permits or railroad siding agreements are available for use by and
transferred to the Companies.

      5.4 Benefit Plans.  Effective as of the Closing Date, Principal
          -------------                                              
Shareholder shall cause all participation by the Companies in the Companies'
Benefit Plans to cease.

                                   Article 6
                             Covenants of Purchaser
                             ----------------------

     Purchaser covenants and agrees with the Shareholders that:

      6.1 Shareholder Guarantees.  As soon as reasonably possible after the
          ----------------------                                           
Closing, and in any event within one hundred eighty (180) days after the
Closing, Purchaser shall:  (i) replace all bonds, letters of credit, guarantees
and other similar instruments of obligation or surety executed by the

 
Shareholders or their Affiliates for the benefit of the Companies (the
"Shareholder Guarantees") listed on Schedule 6.1 with bonds, letters of credit,
guarantees or other similar instruments of obligation or surety executed by
Purchaser or an Affiliate of Purchaser; or (ii) satisfy all obligations required
for the Shareholders and their Affiliates to be released from the Shareholder
Guarantees. Irrespective of any limitations set forth in Article 10 of this
Agreement, Purchaser shall indemnify the Shareholders and their Affiliates for
the full amount of any and all Losses attributable to the Shareholder Guarantees
arising from or related to the ownership, operation or management of the
Companies by Purchaser after the Closing.

      6.2 Ownership and Control.  As soon as reasonably possible after the
          ---------------------                                           
Closing, and in any event within thirty (30) Business Days after the Closing
Date, Purchaser shall take all necessary and appropriate action, pursuant to all
applicable statutes or regulations, to give notice to the West Virginia Bureau
of the Environment, Division of Environmental Protection, Office of Mining and
Reclamation, and any other appropriate federal, state and local governmental
agencies, of the change in ownership and control of the Companies resulting from
the transfer of the Shares from the Shareholders to Purchaser pursuant to this
Agreement, and the fact that the Shareholders no longer own or are affiliated
with any of the Companies.  In the event that any Shareholder suffers Losses due
to Purchaser's failure to comply with the provisions of this Section 6.2,
Purchaser shall indemnify such Shareholder for the full amount of any and all
such Losses irrespective of any limitations set forth in Article 10 of this
Agreement.

                                   Article 7
                     Conditions to Obligations of Purchaser
                     --------------------------------------

     The obligations of Purchaser to consummate the transactions contemplated
herein shall be subject to the satisfaction of the following conditions at or
before the Closing:

      7.1 Representations, Warranties and Covenants.  The representations and
          -----------------------------------------                          
warranties of the Principal Shareholder contained herein and, with respect to
Sections 3.3 and 3.5(a), the representations and warranties of the Shareholders
contained herein, shall be true on the Closing Date, with the same effect as
though made at such time, except to the extent of changes permitted by the terms
of this Agreement.  The Shareholders shall have performed all obligations and
complied with all covenants required by this Agreement to be performed or
complied with by them prior to the Closing.  In addition, the Principal
Shareholder and the President of each Company shall have delivered to Purchaser
a certificate dated the Closing Date and signed by each of them to the effect
that, except as disclosed in the certificate, they do not know, and have no
reasonable grounds to know, of any failure or  breach of any representation,
warranty or covenant made by the Principal Shareholder.

      7.2 No Material Adverse Change.  There shall not have occurred any
          --------------------------                                    
material adverse change since the date of this Agreement in the financial
condition, business, assets or results of operations of the Companies, except
for the transfer of the Excluded Assets or the termination of the Related Party
Agreements.

 
      7.3 Statutory Requirements.  All statutory requirements for the valid
          ----------------------                                           
consummation by Purchaser of the transactions contemplated in this Agreement
shall have been fulfilled, and all authorizations, consents and approvals of all
federal, state, local and foreign governmental agencies and authorities required
to be obtained in order to permit the consummation by Purchaser of the
transactions contemplated by this Agreement except as otherwise expressly and
specifically provided in this Agreement, and to permit the business presently
carried on by each Company to continue unimpaired in all material respects
immediately following the Closing, shall have been obtained except as expressly
provided in this Agreement.

      7.4 Ancillary Agreements.  Each party to the Future Relationship
          --------------------                                        
Agreement, the Regal Rock Agreement and all Other Documents contemplated by this
Agreement, including, without limitation, the Principal Shareholder, each
Company and all of their respective Affiliates, as applicable, shall have
executed such agreements, and all such executed agreements shall have been
delivered to Purchaser.

      7.5 Deliveries.  At or before the Closing, the Shareholders shall (i)
          ----------                                                       
deliver to Purchaser all instruments necessary or otherwise reasonably requested
by Purchaser to duly and properly transfer and convey title to the Shares as
contemplated by this Agreement, and (ii) make all other deliveries designated by
this Agreement to be made at Closing.

      7.6 Financing.  Purchaser shall have arranged financing with such lenders,
          ---------                                                             
in such amounts, at such rates, and upon such terms as Purchaser deems, in
Purchaser's sole discretion, necessary and sufficient to consummate the
transactions contemplated in this Agreement.

      7.7 Closing.  The Closing shall occur on or before July 10, 1998.
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      7.8 Third-Party Consents and Approvals.  The parties shall have obtained
          ----------------------------------                                  
all Required Consents on terms and conditions reasonably acceptable to Purchaser
(including, without limitation, the mining methods that Purchaser may use on
properties governed by such consent) that are necessary for:  (a) the
consummation of the transactions contemplated by this Agreement that are
required to be performed prior to or at Closing; and (b) the assignment and
transfer of the Shares to Purchaser; provided, however, that, notwithstanding
the foregoing, neither Purchaser nor any Shareholder shall be required to pay
any remuneration to third parties in exchange for such party's consent or
approval, or to file any lawsuit or other action to obtain any such consent or
approval.

      7.9 No Injunction.  No injunction or order of any court or administrative
          -------------                                                        
agency or instrumentality shall be in effect, and no statute, rule or regulation
of any governmental authority or competent jurisdiction shall have been
promulgated or enacted, as of the Closing which restrains or prohibits the
transactions contemplated by this Agreement and the Other Documents.

      7.10 No Pending Action.  No action, suit or other proceeding by any Person
           -----------------                                                    
to restrain or prohibit the transactions contemplated by this Agreement and the
Other Documents shall be pending.

      7.11 Due Diligence.  Purchaser shall be satisfied, in its sole discretion,
           -------------                                                        
with the results of its due diligence of the Companies and their respective
assets and liabilities, including, without

 
limitation: (i) all rights, title, interests and Liabilities of the Companies;
(ii) the terms and conditions of all agreements to which each Company is a party
(including but not limited to the terms and conditions of all lease agreements
under which each Company has any interest, especially terms authorizing
Purchaser to conduct highwall mining under such lease agreements); (iii) the
mineability, quantity and quality of the coal reserves of each Company; (iv) the
condition of all of the Owned Tangible Assets and the Leased Tangible Assets;
(v) the leasehold and fee titles to the Leased Real Property and Owned Real
Property, respectively; and (vi) the magnitude of the reclamation obligations
(regardless of whether such obligations are "current" or in "deferred status").

      7.12 Board Approval.  Purchaser's board of directors shall have approved
           --------------                                                     
this Agreement, the Other Documents, and the transactions contemplated hereunder
and thereunder.

                                   Article 8
                 Conditions to Obligations of the Shareholders
                 ---------------------------------------------

     The obligations of the Shareholders to consummate the transactions
contemplated herein shall be subject to the satisfaction of the following
conditions at or before the Closing:

      8.1 Representations, Warranties and Covenants.  The representations and
          -----------------------------------------                          
warranties of Purchaser contained herein shall be true on the Closing Date, with
the same effect as though made at such time, except to the extent of changes
permitted by the terms of this Agreement.  Purchaser shall have performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by it prior to the Closing.  In addition, Purchaser
shall have delivered to the Shareholders a certificate dated the Closing Date
and signed by its President and Chief Financial Officer to the effect that,
except as disclosed in the certificate, they do not know, and have no reasonable
grounds to know, of any material failure or breach of any representation,
warranty or covenant made by Purchaser.

      8.2 Statutory Requirements.  All statutory requirements for the valid
          ----------------------                                           
consummation by the Shareholders of the transactions contemplated in this
Agreement shall have been fulfilled, and all authorizations, consents and
approvals of all federal, state, local and foreign governmental agencies and
authorities required to be obtained in order to permit the consummation by the
Shareholders of the transactions contemplated in this Agreement shall have been
obtained.

      8.3 Ancillary Agreements.  The Purchaser shall have executed the Future
          --------------------                                               
Relationship Agreement, any required Amendments to the Contract Mining
Agreement, the Regal Rock Agreement and all of the other Documents contemplated
by this Agreement, and all such executed agreements shall have been delivered to
Principal Shareholder.

      8.4 Deliveries.  At or before the Closing, Purchaser shall make all of its
          ----------                                                            
deliveries designated by this Agreement to be made at Closing.

      8.5 Third-Party Consents and Approvals.  The parties shall have obtained
          ----------------------------------                                  
all third-party consents and approvals that are necessary for:  (a) the
consummation of the transactions contemplated by this Agreement; and (b) the
assignment and transfer of the Shares to Purchaser;

 
provided, however, that, notwithstanding the foregoing, neither Purchaser nor
the Shareholders shall be required to pay any remuneration to third parties in
exchange for such party's consent or approval, or to file any lawsuit or other
action to obtain any such consent or approval.

      8.6 No Injunction.  No injunction or order of any court or administrative
          -------------                                                        
agency or instrumentality shall be in effect, and no statute, rule or regulation
of any governmental authority or competent jurisdiction shall have been
promulgated or enacted, as of the Closing which restrains or prohibits the
transactions contemplated by this Agreement and the Other Documents.

      8.7 No Pending Action.  No action, suit or other proceeding by any Person
          -----------------                                                    
to restrain or prohibit the transactions contemplated by this Agreement and the
Other Documents shall be pending.

      8.8 Closing.  The Closing shall occur on or before July 10, 1998.
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                                   Article 9
                            The Closing/Termination
                            -----------------------

      9.1 Date and Place.  The Closing shall be held concurrently with the
          --------------                                                  
execution of this Agreement on the Closing Date at 10:00 a.m. in the offices of
Brown, Todd & Heyburn PLLC, 2700 Lexington Financial Center, Lexington,
Kentucky, or at such other place or time on the Closing Date as the parties may
mutually agree.

      9.2 Deliveries.  At or before the Closing, the parties shall make all of
          ----------                                                          
the deliveries contemplated in this Agreement.

                                   Article 10
         Survival of Representations and Warranties -- Indemnification
         -------------------------------------------------------------

      10.1 Survival.  Each of the parties' representations, warranties,
           --------  
covenants and agreements (including undisclosed liabilities) set forth in this
Agreement shall survive the Closing for a period of three (3) years; provided,
however, that the representations and warranties contained in Sections 3.9 and
3.24 shall in any event survive until the expiration of the applicable statute
of limitations.

      10.2 Indemnity by the Principal Shareholder.  The Principal Shareholder
           --------------------------------------                            
shall indemnify and hold the Companies and Purchaser harmless from and against,
and shall pay to the Companies and Purchaser the full amount of, any loss,
claim, damage, liability or expense (including reasonable attorneys' fees but
excluding all special, exemplary, punitive and consequential damages) (each, a
"Loss") resulting to any Company or Purchaser, either directly or indirectly,
from:  (a) any Assumed Liabilities or Excluded Assets; (b) any inaccuracy in any
representation or warranty, or any breach of any covenant or agreement, by any
Company or any of the Shareholders contained in this Agreement or in any of the
Other Documents; (c) the failure to contribute the Contributed Assets; and (d)
any liability for any fee or commission owed to a broker or finder pursuant to
an agreement signed by the Companies or the Shareholders with respect to the
transactions contemplated by this Agreement.

 
    10.3  Indemnity by Purchaser.  Purchaser shall indemnify and hold the
          ----------------------                                         
Shareholders harmless from and against, and shall pay to the Shareholders the
full amount of, any Loss resulting to the Shareholders, either directly or
indirectly, from: (a) any liability of any Company retained by Purchaser under
this Agreement or the Other Documents; (b) any inaccuracy in any representation
or warranty, or any breach of any covenant or agreement, by Purchaser contained
in this Agreement or in any of the Other Documents; (c) any liability for any
fee or commission owed to a broker or finder pursuant to an agreement signed by
Purchaser with respect to the transactions contemplated by this Agreement; (d)
any liability of or damages to the Shareholders or their Affiliates arising from
the Shareholders or their Affiliates maintaining any rights or obligations under
the Permits or the Shareholder Guarantees until the approvals for which
Purchaser must file under Section 6.2 have been obtained and all of the
Shareholder Guarantees have been released; any liability arising from or related
to the ownership, operation or management of the Companies by Purchaser after
the Closing.

    10.4  Remedies; Right of Offset.  Upon the occurrence of any event for which
          -------------------------                                             
Purchaser or any Shareholder is entitled to indemnification under this
Agreement, they shall have all the rights and remedies at law and in equity
available to them.  Without limiting the foregoing, the Principal Shareholder
and Purchaser each hereby agree to pay promptly upon receipt of notice from any
Company, Shareholder or Purchaser the amounts which the Principal Shareholder
may owe to any of the Companies or Purchaser or which Purchaser may owe to any
Shareholder from time to time by reason of the provisions of this Agreement or
otherwise.  If the Principal Shareholder fails or refuses to pay any such
amounts promptly after the request of any Company or Purchaser, then the
Companies and Purchaser, at their election, may offset any such amounts against
the Deferred Payments pursuant to Section 2.2(f)(ii).

    10.5  Limitations on Indemnity Obligations.
          ------------------------------------ 

          (a) The Principal Shareholder's liability under this Article 10 shall
be limited to the following Losses incurred by Purchaser:

               (i)       No claim may be made for indemnification of any Loss by
Purchaser from Principal Shareholder unless such Loss exceeds Two Thousand Five
Hundred Dollars ($2,500.00); provided, however, that in the case of any Loss
attributable to Tax to the Companies for periods prior to the Closing or for
Assumed Liabilities there shall be no minimum Loss amount.

               (ii)      The Principal Shareholder shall, in the aggregate, be
liable for Losses pursuant to this Section 10 only to the extent that the
cumulative aggregate amount of all such Losses exceeds Two Hundred Fifty
Thousand Dollars ($250,000.00) (the "Deductible").

               (iii)     The aggregate amount of Losses for which the Principal
Shareholder shall be liable pursuant to this Section 10 shall not exceed the
Purchase Price; provided, however, this limitation of the maximum amount of
indemnification by Principal Shareholder shall not apply to any Loss to
Purchaser arising from the Assumed Liabilities or Excluded Assets.

 
            (iv)      The Principal Shareholder's liability for Losses shall be
net of any insurance proceeds which Purchaser is entitled to receive under any
insurance coverage applicable to the Loss.

        (b) Purchaser's liability under this Article 10 shall be limited to
the following Losses incurred by the Shareholders except as provided in Sections
5.3, 6.1 and 6.2.

            (i)     No claim may be made for indemnification of any Loss by the
Shareholders from Purchaser unless such Loss exceeds Two Thousand Five Hundred
Dollars ($2,500.00); provided, however, that in the case of any Loss
attributable to Tax to the Companies for periods after the Closing there shall
be no minimum Loss amount, or, in the case of any Loss attributable to the
ownership, operation or management of the Companies after the Closing Date there
shall be no minimum Loss amount.

            (ii)    Purchaser shall be liable for Losses pursuant to this
Section 10 only to the extent that the cumulative aggregate amount of all such
Losses exceeds the Deductible; provided, however, that in the case of any Loss
attributable to the ownership, operation or management of the Companies after
the Closing Date, there shall be no minimum Deductible.

            (iii)   The aggregate amount of Losses for which Purchaser shall be
liable pursuant to this Section 10 shall not exceed the Purchase Price;
provided, however, this limitation of the maximum amount of indemnification by
Purchaser shall not apply to any Loss to the Shareholders arising from or
related to the ownership, operation or management of the Companies by Purchaser
after the Closing.

            (iv)    The Purchaser's liability for Losses shall be net of any
insurance proceeds which the Principal Shareholder or the Shareholders are
entitled to receive under any insurance coverage applicable to the Loss.

    10.6  Control of Indemnified Matters.  If a third-party claim is made
          ------------------------------                                 
against an indemnified party that may result in a loss to the indemnified party,
the indemnifying party will be entitled to participate in the defense thereof,
and if it so chooses, to assume the defense thereof with counsel selected by the
indemnifying party and reasonably satisfactory to the indemnified party.  If the
indemnifying party elects to assume the defense of such third-party claim, the
indemnifying party will not be liable to the indemnified party for legal
expenses subsequently incurred by the indemnified party in connection with the
defense thereof.  If the indemnifying party assumes such defense, the
indemnified party shall have the right to participate in the defense thereof and
to employ counsel, at its own expense, separate from the counsel employed by the
indemnifying party, it being understood that the indemnifying party shall
control such defense.  The indemnifying party shall be liable for the fees and
expenses of counsel employed by the indemnified party for any period during
which the indemnifying party has not assumed the defense thereof.  If the
indemnifying party chooses to defend or prosecute any third-party claim, all of
the parties hereto shall cooperate in the defense or prosecution thereof.  Such
cooperation shall include the retention and (upon the indemnifying party's
request) the provision to the indemnifying party of records and information
which are reasonably relevant to such third-party claim, and making employees
available on a

 
mutually convenient and reasonable basis to provide additional information and
explanation of any material provided hereunder. Whether or not the indemnifying
party shall have assumed the defense of a third-party claim, the indemnified
party shall not admit any liability with respect to, or settle, compromise or
discharge, such third-party claim without the indemnifying party's prior written
consent (which consent shall not be unreasonably withheld). Notwithstanding any
provision in this Section 10.6, an indemnifying party shall have no right to
participate in or in any way assume the defense of a third-party claim if such
third-party claim seeks an order, injunction, non-monetary claim or other
equitable relief against the indemnified party.

    10.7    Sole and Exclusive Remedy.  The indemnification provided under this
            -------------------------                                          
Article 10 and the right to seek injunctive relief and specific performance
(subject to Article 11) shall constitute the sole and exclusive remedies of the
parties to this Agreement subsequent to the Closing for any Loss sustained by
Shareholders and their Affiliates and Purchaser as a result of any breach of
this Agreement other than Losses based upon fraud or fraudulent
misrepresentation.

    10.8    No Other Representations, Rescission.  Except as set forth in this
            ------------------------------------                              
Agreement, no party makes any representation, warranty, covenant or agreement
with respect to the matters contained herein. In particular, Principal
Shareholder and the other Shareholders make no representation or warranty with
respect to any financial projection or forecast relating to the Companies or to
the amount, mineability and merchantability of coal on the Real Property.
Notwithstanding anything herein to the contrary, no breach of any
representation, warranty, covenant or agreement contained herein or in the Other
Documents shall give rise to any right on the part of any other party, after the
consummation of the purchase and sale of the Shares contemplated hereby, to
rescind this Agreement, the Other Documents or any transactions contemplated
thereby.

                                   Article 11
                                  Arbitration
                                  -----------

    11.1  Dispute Resolution.  All controversies, disputes or claims arising
          ------------------                                                
among the parties in connection with, or with respect to, any provision of this
Agreement or any of the Other Documents, which has not been resolved within
twenty (20) days after either Purchaser or the Shareholders 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 at
a location that is mutually agreeable to the parties.

    11.2  Selection of Arbitrators.  Purchaser and the Shareholders each shall
          ------------------------                                            
select one (1) arbitrator (who shall not be counsel for such party), and the two
(2) so designated shall select a third arbitrator.  If either party shall fail
to designate an arbitrator within seven (7) calendar days after arbitration is
requested, or if the two (2) arbitrators shall fail to select a third arbitrator
within fourteen (14) calendar days after arbitration is requested, then such
arbitrator shall be selected by the American Arbitration Association or any
successor thereto upon application of either party. 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 provisions of this Agreement, including
but not limited to Section 12.14, the award of the arbitrators may grant any
relief that a court of general

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

    11.3  Temporary Injunctive 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.

    11.4  Arbitration Rules.  All disputes and claims shall be determined by
          -----------------                                                 
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "Rules") in effect on the date hereof, except as
such Rules shall be modified by this Agreement.

    11.5  Arbitration Proceedings.  All arbitration proceedings arising under,
          -----------------------                                             
or in connection with, this Agreement shall be governed by the Federal Rules of
Civil Procedure.  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 arbitration proceedings under the
Rules or the Federal Rules of Civil Procedure to permit the award to be made
within the time limitation set forth in the previous sentence.

                                   Article 12
                                 Miscellaneous
                                 -------------

    12.1  Notices.  All notices under this Agreement ("Notices") shall be given:
          -------
(i) by personal delivery; (ii) by facsimile transmission; (iii) by registered or
certified mail, postage prepaid, return receipt requested; or (iv) by nationally
recognized overnight or other express courier services, as follows:

          (a)  If to Purchaser:

               Coal Ventures, Inc.
               1500 North Big Run Road
               Ashland, Kentucky  41102
               Attention:  Donald P. Brown, President
               Telephone No.:  (606) 928-3433
               Telecopy No.:  (606) 928-0450

 
               With a copy to:

               Paul E. Sullivan, Esq.
               Brown, Todd & Heyburn PLLC
               2700 Lexington Financial Center
               Lexington, Kentucky  40507
               Telephone No.:  (606) 231-0000
               Telecopy No.:  (606) 231-0011

          (b)  If to the Shareholders:

               Mr. Richard G. Preservati
               P.O. Box 1112
               Princeton, West Virginia  24740
               Telephone No.:  (304) 425-8373
               Telecopy No.:  (304) 487-3313

               With a copy to:

               E. Forrest Jones, Jr., Esq.
               Albertson & Jones
               P.O. Box 1989
               Charleston, West Virginia  25327
               Telephone No.:  (304) 343-9466
               Telecopy No.:  (304) 345-2456

All Notices shall be effective and shall be deemed delivered:  (i) if by
personal delivery, on the date of delivery if delivered during normal business
hours of the recipient, and if not delivered during such normal business hours,
on the next Business Day following delivery; (ii) if by facsimile transmission
or overnight courier service, on the next Business Day following dispatch of
such facsimile or overnight courier package; and (iii) if by mail, on the third
(3rd) Business Day after dispatch thereof.  Either party may change its address
by Notice to the other party.

    12.2  Waivers.  No waiver or failure to insist upon strict compliance with
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any obligation, covenant, agreement or condition of this Agreement shall operate
as a waiver of, or an estoppel with respect to, any subsequent or other failure.

    12.3  Expenses.  Each party shall assume its respective expenses incurred in
          --------                                                              
connection with the transactions contemplated by this Agreement except as
expressly provided in Section 5.6 and Article 11 of this Agreement. The
Shareholders agree that after the Closing none of the Companies will bear any
costs or expenses related to this Agreement.

    12.4  Headings; Interpretation.  The headings in this Agreement have been
          ------------------------                                           
included solely for ease of reference and shall not be considered in the
interpretation or construction of this

 
Agreement.  All references herein to the masculine, neuter or singular shall be
construed to include the masculine, feminine, neuter or plural, as applicable.

    12.5  Annexes and Schedules.  The Annexes and Schedules to this Agreement
          ---------------------                                              
are incorporated herein by reference and expressly made a part hereof.
Shareholders shall have the right to and shall amend the Schedules hereto at the
time of Closing such that all disclosures, covenants, representations and
warranties are true and complete at the time of the Closing. Such amendments may
be the basis for the termination of this Agreement if such amendments which have
not been otherwise disclosed to Purchaser are, in the aggregate, material unless
the Purchase Price or the other terms and conditions of this Agreement are
amended in response to such changed schedule or annex if requested by Purchaser.
Except with respect to the Financial Statements and the Interim Financial
Statements, the specification of any dollar amount for any item in any Schedule
or Annex hereto is intended only as an estimate at the time of the preparation
of such Schedule or Annex, and no party shall use the fact of the setting forth
of any such amount as proof of or determinitive of the amount of any scheduled
or annexed item.  Unless this Agreement specifically provides otherwise, neither
the specification of any item or matter in any representation or warranty
contained in this Agreement nor the inclusion of any specific item in any
Schedule hereto is intended to imply that such item or matter, or other items or
matters, are or are not in the ordinary course of business, and no party shall
use the fact of the setting forth or the inclusion of any such item or matter in
any dispute or controversy between the parties as to whether any obligation,
item or matter not described herein or included in any schedule is or is not in
the ordinary course of business for purposes of this Agreement.  Disclosure of
any fact or item in any Schedule hereto shall, should the existence of the fact
or item or its contents be relevant to any other Schedule, be deemed to be
disclosed with respect to that other Schedule whether or not an explicit
reference appears, provided that such disclosure would give a diligent purchaser
reasonable notice of the relevance of such fact or item or its contents to such
other Schedule.  No representation or warranty hereunder shall be deemed to be
inaccurate if the actual situation is disclosed (or deemed disclosed pursuant to
this Section 12.5) in any Schedule.

    12.6  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 and the Other Documents, and there are no representations,
warranties, understandings or agreements with respect to the subject matter
hereof other than those expressly set forth herein or in an Annex or Schedule
delivered in connection herewith or therewith.  No change shall be enforceable
unless in writing and signed by the party against whom enforcement is sought.

    12.7  Representations and Warranties, Etc.  The representations and
          -----------------------------------                          
warranties of each party contained herein shall not be deemed to be waived or
otherwise affected by any investigation made by any other party hereto.  As used
in this Agreement, the term "Principal Shareholder's knowledge," and all other
references to material matters which are known by or to the Principal
Shareholder, shall refer to material matters which are known, or which with the
exercise of reasonable care should have been known, by the Principal Shareholder
after consultation with the Companies' current corporate officers, directors and
general manager, and after his due investigation of corporate records (except
that if the Principal Shareholder is required to make "due inquiry" with

 
respect to any matter, he shall make such additional inquiry as a reasonable
person would make under the circumstances).

    12.8  Governing Law.  This Agreement shall be governed by, and construed and
          -------------                                                         
interpreted in accordance with, the laws of the State of West Virginia.  Each
party agrees that any action brought in connection with this Agreement (as
permitted under Article 11) against another shall be filed and heard in a court
of competent jurisdiction in West Virginia.

    12.9  Brokers.  The parties covenant and agree with one another that they
          -------                                                            
have not dealt with any broker or finder in connection with any of the
transactions contemplated in this Agreement and, insofar as they know, no broker
or other Person is entitled to a commission or finders' fee in connection with
these transactions.  Each party shall indemnify and hold the other parties
harmless from and against any claim by any agent or broker claiming by or
through it for any fee or other compensation due or allegedly due that broker or
agent.

    12.10 Counterparts.  This Agreement may be executed in any number of
          ------------                                                  
counterparts, including by means of facsimile, each of which shall be an
original, but all of which together shall constitute one and the same
instrument.

    12.11 Benefit and Binding Effect.  This Agreement shall be binding upon, and
          --------------------------                                            
shall inure to the benefit of, the Shareholders and their heirs, personal
representatives, successors and assigns, and Purchaser and each of its
successors and assigns; provided, however, that no party to this Agreement shall
assign his or its rights or obligations hereunder without the express written
consent of the other parties, which consent shall not be unreasonably withheld,
and no party shall be released of its obligations under this Agreement as a
result of such assignment.  However, notwithstanding anything to the contrary in
this Section 12.11, Purchaser may (i) assign its rights under this Agreement to
an Affiliate of Purchaser, or (ii) collaterally assign its rights under this
Agreement to any lender of Purchaser.

    12.12 Specific Performance.  Subject to Article 11, the parties shall be
          --------------------                                              
entitled to specific performance, injunctive relief and other equitable relief
for breaches of the other parties' covenants and agreements, and such relief may
be awarded by the arbitrators pursuant to Article 11.  Therefore, it is agreed
the parties will not, in any action to enforce this Agreement, assert that there
is an adequate remedy at law for the default under which such action or
proceeding is based.

    12.13 Severability.  If any provision of this Agreement or its application
          ------------                                                        
will be 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.

    12.14 No Consequential Damages.  Except as prohibited by law, each party
          ------------------------                                          
waives any right it may have to claim or recover any special, exemplary,
punitive or consequential damages, or any damages other than, or in addition to,
actual damages.

 
    12.15 Post-Closing Assistance.  In case at any time after the Closing any
          -----------------------                                            
further action is reasonably necessary or desirable to consummate the
transactions contemplated by this Agreement and the Other Documents, the
Principal Shareholder and Purchaser will promptly take or cause to be taken such
further action (including the execution and delivery of such further instruments
and documents) as Principal Shareholder or Purchaser may reasonably request.

    12.16 Cooperation.  The Principal Shareholder and Purchaser shall cooperate
          -----------                                                          
fully, completely and promptly with each other as much as reasonably possible in
connection with satisfying all conditions to, and effecting the transactions
contemplated by, this Agreement as soon as reasonably possible.

    12.17 Representations and Warranties.  The Principal Shareholder and
          ------------------------------                                
Purchaser shall not cause or permit any of their respective representations and
warranties made in this Agreement to be intentionally or materially untrue or
incomplete on the Closing Date or at any time prior thereto.

    12.18 Publicity.  Except as required by applicable law or in contemplation
          ---------                                                           
or the performance of this Agreement, without the prior written consent of the
other, Principal  Shareholder and Purchaser shall not disclose or publish, or
permit the disclosure or publication of, any information concerning the
execution and delivery of this Agreement, or the transactions contemplated by
this Agreement, to any Person.

    12.19 Hart-Scott-Rodino.  The parties agree that the transactions
          -----------------                                          
contemplated hereby do not require any filings or notifications with respect to
the HSR Act.

    12.20 Surety Bond.
          ----------- 

          (a) At the Closing, Purchaser shall deliver or cause to be delivered
to the Principal Shareholder a surety bond, actionable by Principal Shareholder
upon terms and conditions acceptable to the Principal Shareholder, substantially
in the form of Annex 12.20  hereto and from a surety or financial institution
reasonably acceptable to Principal Shareholder, as collateral security for
Purchaser's obligations for the Deferred Payments and Production Payments owed
under this Agreement and the Other Documents (the "Surety Bond").  The Surety
Bond shall be issued in the face amount of Fifteen Million Dollars ($15,000,000)
and, beginning on the second (2nd) anniversary of the Closing Date, and on each
of the following four (4) anniversaries of the Closing Date, Purchaser or its
Affiliates may decrease the face amount of the Surety Bond by Three Million
Dollars ($3,000,000.00) provided that Purchaser and its Affiliates are not in
default of their respective obligations to pay the Deferred Payments and the
Production Payments at such time.  The Surety Bond shall terminate on the sixth
(6th) anniversary of the Closing Date.

          (b)  If Principal Shareholder believes that Purchaser or its
Affiliates have failed to pay any Deferred Payment or Production Payment when
due, Principal Shareholder may notify Purchaser of such alleged failure.  If
Purchaser shall fail to cure such default or if Purchaser disputes such default
but Purchaser and Principal Shareholder shall fail to resolve such dispute
within thirty (30) days after Principal Shareholder has provided notice of the
alleged default, Principal Shareholder may file all required documentation and
collect the amount at issue plus interest thereon as provided

 
in Section 2.2 (d) under the Surety Bond.  If the parties subsequently agree
that Purchaser or its Affiliate was not in default as set forth in Principal
Shareholder's notice or if a court or arbitration panel determines that
Purchaser or its Affiliate was not in default as set forth in Principal
Shareholder's notice, Principal Shareholder shall immediately reimburse such
amount to Purchaser and shall pay Purchaser interest at the rate set forth in
Section 2.2(d) for the period of time from the date that Principal Shareholder
collected such amount under the Surety Bond until the date that such amount has
been repaid to Purchaser.

     12.21     Releases.  At the Closing, Principal Shareholder shall provide
               --------                                                      
written evidence that all  indebtedness for borrowed money of the Companies
which constitutes an Assumed Liability has been paid.

     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date set forth in the preamble hereto.


PURCHASER:                    COAL VENTURES, INC.


                              By: /s/ MARC MURRETT
                                 ---------------------------------------
                              Title: SENIOR VICE PRESIDENT
                                    ------------------------------------


SHAREHOLDERS:                 /s/ RICHARD G. PRESERVATI
                              ------------------------------------------
                              RICHARD G. PRESERVATI


                              /s/ NANCY KAREN PRESERVATI
                              ------------------------------------------
                              NANCY KAREN PRESERVATI


                              /s/ RICHARD G. PRESERVATI, II
                              ------------------------------------------
                              RICHARD G. PRESERVATI, II


                              /s/ NICHOLAS SHEA PRESERVATI
                              ------------------------------------------
                              NICHOLAS SHEA PRESERVATI

 
                              /s/ TIMOTHY BOGGESS
                              ------------------------------------------
                              TIMOTHY BOGGESS


                              /s/ GINA DENISE BOGGESS
                              ------------------------------------------
                              GINA DENISE BOGGESS

 
                             SCHEDULES AND ANNEXES

ANNEXES

   1.1(q)          Form of Contract Mining Agreement
   1.1(cc)         Financial Statements
   1.1(dd)         Form of Future Relationship Agreement
   1.1(kk)         Interim Financial Statements
   2.2(f)          Form of Note
   12.20           Form of Surety Bond

 
SCHEDULES

   1.1(m)          Accounting Principles
   2.1(b)(i)       Excluded Assets
   2.1(b)(ii)      Contributed Assets
   2.1(b)(iii)     Contributed Permits
   2.2(c)          Current Assets and Liabilities
   2.5             Assumed Liabilities
   3.1(a)          Organization
   3.5(b)          Authority
   3.5(c)          Regulatory Notices
   3.7(a)          Tangible Assets
   3.8(a)          Material Change
   3.8(b)          Adverse Change
   3.8(c)          Commitments, Obligations
   3.9(b)          Tax Returns
   3.9(c)          Tax Payments
   3.9(d)(i)       Tax Disputes
   3.9(d)(ii)      List of Tax Returns
   3.9(e)          Statute of Limitations
   3.9(f)          Tax Liability
   3.9(h)          Tax Adjustment
   3.10(a)         Undisclosed Liabilities
   3.11            Compliance with Law
   3.12(a)         Contracts
   3.12(b)         Non-Continuing Contracts
   3.13            Litigation and Proceedings
   3.14(a)         Leased Real Property
   3.14(b)         Owned Real Property
   3.14(c)         Title

 
   3.14(f)      Material Default
   3.14(g)      Lessors
   3.14(h)      Possession
   3.15         Condemnation
   3.17         Collectibles
   3.18         Banks, Directors and Officers, Insurance
   3.19(a)(1)   Permits and Approvals
   3.19(a)(2)   Mid-Vol Permits
   3.19(a)(3)   Misrepresentations
   3.19(a)(4)   Notices of Noncompliance
   3.19(b)(1)   Bonds
   3.19(b)(2)   Permit Compliance
   3.20         Intellectual Property
   3.22(a)      List of Insurance Policies
   3.22(b)      Breach of Coverage
   3.22(c)      Claims
   3.23(a)      Collective Bargaining
   3.23(c)(1)   Key Employees
   3.23(c)(2)   Employees
   3.24         Benefit Plans
   3.24(l)      Employer Liability
   3.26(b)      Compliance with Law
   3.26(c)(1)   Permit Maintenance
   3.26(c)(2)   Permit List
   3.26(d)      Legal Notice
   3.26(e)      Environmental Spill
   3.26(f)      Environmental Orders and Complaints
   3.26(g)      Disposal
   3.26(h)      Hazardous Material
   3.26(i)      Hazardous Material Transport
   3.27         Immigration Matters
   3.29(a)      Consents and Notices
   3.29(b)      Required Consents
   3.31         Distributions
   3.32         Powers of Attorney
   6.1          Shareholder Guarantees

EX-2.5

 
                           STOCK PURCHASE AGREEMENT
                           ------------------------



     This is a Stock Purchase Agreement (this "Agreement"), dated as of
September 2, 1998, among (i) AEI Resources, Inc., a Delaware corporation
("Buyer"); (ii) AEI Holding Company, Inc., a Delaware corporation ("Holdco");
(iii) Mitsui Matsushima Co., Ltd., a Japanese corporation ("Mitsui");(iv) Mitsui
Matsushima America, Inc., a Colorado corporation ("Seller"), which is a wholly-
owned subsidiary of Mitsui; and (v) Bowie Resources, Limited, a Colorado
corporation (the "Company").

                                    RECITALS
                                    --------

     A.   The Company owns and operates a coal mine in Paonia, Colorado.

     B.   Seller holds in the aggregate twenty-two and one-half percent (22.5%)
of the issued and outstanding shares of the capital stock of the Company (the
"Shares").

     C.   Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, the Shares, pursuant to the terms and conditions set forth in this
Agreement.

     NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged by each of the parties to this Agreement, the parties
agree as follows:

                                   ARTICLE 1
                    Definitions and Rules of Interpretation
                    ---------------------------------------

     1.1  Definitions.  As used in this Agreement, the following terms shall
          -----------                                                       
have the following meanings:

          (a) "Acquisition Documents" shall mean this Agreement, the New
Marketing Agreement, and all other agreements, certificates, opinions,
instruments or documents contemplated by, required by or referred to in, this
Agreement related to the consummation of the transactions contemplated by this
Agreement;

          (b) "Affiliate" shall mean (i) a Person that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is
controlled by a Person that controls, a party to this Agreement; and (ii) any
trust or estate in which a party to this Agreement has a beneficial interest or
as to which a party to this Agreement serves as a trustee or in another
fiduciary capacity;

 
          (c)   "Closing" shall mean the delivery of the certificate
representing the Shares from Seller to Buyer's representative in Tokyo, as
described in Section 9.1 and the dispatch by Buyer to Seller of a fax attaching
written evidence showing that Buyer has completed the wire transfer of the
Purchase Price in accordance with Section 2.2;

          (d)   "Closing Date" shall have the meaning given in Section 7.5;

          (e) "Marketing Agreement" shall mean the Marketing Agreement, dated as
of January 30, 1997, between the Company and Mitsui;

          (f) "New Marketing Agreement" shall mean the Marketing Agreement,
dated as of September 4, 1998, between the Company and Mitsui;

          (g) "Person" shall mean any individual, firm, trust, corporation or
business organization;

          (h) "Purchase Price" shall have the meaning given in Section 2.2;

          (i)   "Shareholders Agreement" shall mean the Shareholders Agreement,
dated January 30, 1997, among Larry Addington, Harold E. Sergent, the Company
and Seller;

          (j)   "Shares" shall mean twenty-two and one-half percent (22.5%) of
the issued and outstanding shares of the capital stock of the Company held by
Seller; and

          (k) "Tax" shall mean any federal, state, local or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.

     1.2  Additional Terms.  Other capitalized terms used in this Agreement but
          ----------------                                                     
not defined in Section 1.1 shall have the meanings ascribed to them wherever
such terms first appear in this Agreement, or, if no meanings are so ascribed,
the meanings customarily associated with such terms in the coal mining industry.

     1.3  Rules of Interpretation.
          ----------------------- 

          (a) The singular includes the plural and the plural includes the
singular.

          (b)  The word "or" is not exclusive.

                                       2

 
          (c) A reference to a Person includes its permitted successors and
permitted assigns.

          (d) Accounting terms have the meanings assigned to them by U.S. GAAP,
as applied by the accounting entity to which they refer.

          (e) The words "include," "includes" and "including" are not limiting.

          (f) A reference in a document to an Article, Section, Exhibit,
Schedule, Annex or Appendix is to the Article, Section, Exhibit, Schedule, Annex
or Appendix of such document unless otherwise indicated.  Exhibits, Schedules,
Annexes or Appendices to any document shall be deemed incorporated by reference
in such document.

          (g) References to any document, instrument or agreement (a) shall
include all exhibits, schedules and other attachments thereto, (b) shall include
all documents, instruments or agreements issued or executed in replacement
thereof, and (c) shall mean such document, instrument or agreement, or
replacement or predecessor thereto, as amended, modified and supplemented from
time to time and in effect at any given time.

          (h) The words "hereof," "herein" and "hereunder" and words of similar
import when used in any document shall refer to such document as a whole and not
to any particular provision of such document.

          (i) References to "days" shall mean calendar days, unless the term
"Business Days" shall be used.  "Business Days" shall mean all days other than
any Saturday, Sunday or legal holiday in Ashland, Kentucky, Denver, Colorado, or
Tokyo, Japan.  References to a time of day shall mean such time in New York
City, New York, unless otherwise specified.

          (j) The Acquisition Documents are the result of negotiations among,
and have been reviewed by, the Company, Buyer and Seller.  Accordingly, the
Acquisition Documents shall be deemed to be the product of all parties thereto,
and no ambiguity shall be construed in favor of or against any party.

                                   ARTICLE 2
                                 Purchase and Sale
                                 -----------------

     2.1  Purchase of the Shares.  Subject to the terms and conditions of this
          ----------------------                                              
Agreement, Seller hereby agrees to sell, transfer and deliver to Buyer, and
Buyer hereby agrees to purchase, the Shares; provided that Seller does not make
any representation or warranty with respect to the Shares, except as set forth
in this Agreement.

     2.2  Purchase Price.  The total purchase price (the "Purchase Price") for
          --------------                                                      
the Shares shall be Eleven Million Five Hundred Thousand United States Dollars
(US$11,500,000.00) and, on or prior to 3:00 p.m., New York time, on the Closing
Date, shall be paid by wire transfer of 

                                       3

 
immediately available funds to Seller's account at Norwest Bank Colorado, Denver
Main Branch, pursuant to the following wire transfer instructions, provided that
Seller has delivered the certificate representing the Shares pursuant to 
Section 7.3:

          Norwest Bank Colorado
          Denver Main Branch
          1740 Broadway
          Denver, Colorado  80274
          Account Name:  Mitsui Matsushima America, Inc.
          Account No.:  1018177631
          Routing No.:  102000076

Immediately after Buyer has completed such wire transfer, Buyer shall send to
Seller (or its agent or counsel) a fax attaching written evidence showing that
Buyer has completed the wire transfer of the Purchase Price in accordance with
this Section 2.2.

                                   ARTICLE 3
                    Representations and Warranties of Seller
                    ----------------------------------------
                                        
     Seller represents and warrants to Buyer as of the Closing Date as follows:

     3.1  Organization, Standing and Powers.  Seller is a corporation duly
          ---------------------------------                               
organized, validly existing and in good standing under the laws of the State of
Colorado.

     3.2  Compliance with Laws.  All consents, approvals, authorizations and all
          --------------------                                                  
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by Seller and which are necessary for the execution and
delivery by Seller of this Agreement, the other Acquisition Documents (other
than the New Marketing Agreement) and any other documents to be executed and
delivered by Seller in connection herewith and in order to permit the
consummation of the transactions contemplated by this Agreement, have been
obtained and satisfied or shall be obtained and satisfied by Closing.
 
     3.3  Title to Stock.  Seller owns in the aggregate twenty-two and one-half
          --------------                                                       
percent (22.5%) of the outstanding shares of the Company.  The number of
outstanding shares owned by Seller is two hundred and twenty five (225) shares.
Seller has, and at the Closing will have, good and marketable (legal and
beneficial) title to the Shares, free and clear of all liens, pledges, proxies,
voting trusts, encumbrances, security interests, claims, charges, and
restrictions whatsoever, except those restrictions contained in the Shareholders
Agreement, and there are no outstanding purchase agreements, options, warrants,
or other rights of any kind whatsoever, except for the rights and restrictions
contained in the Shareholders Agreement, entitling any Person to purchase or
acquire an interest in any of such Shares or restricting their transfer in
accordance with this Agreement.

     3.4  Authorization.
          ------------- 

                                       4

 
          (a) Seller has full right, power, authority and capacity to execute
and deliver this Agreement and the other Acquisition Documents (other than the
New Marketing Agreement), and to perform its obligations under this Agreement
and the other Acquisition Documents (other than the New Marketing Agreement).
This Agreement and the other Acquisition Documents (other than the New Marketing
Agreement) constitute valid and legally binding obligations of Seller,
enforceable in accordance with their terms.

          (b) The execution and delivery of this Agreement and the other
Acquisition Documents (other than the New Marketing Agreement), the consummation
of the transactions contemplated hereby and thereby, and the fulfillment of its
obligations and undertakings hereunder and thereunder by Seller shall not
violate any provision of (i) any applicable law, ordinance, rule or regulation
of any governmental body, (ii) the Articles of Incorporation (as amended) or
Bylaws (as amended) of Seller, or (iii) any agreement or undertaking to which
Seller is a party or by which Seller may be bound, or of any judgment, decree,
writ, injunction, order or award of any arbitration panel, court or governmental
authority applicable to Seller.

          (c) The execution and delivery of, and the performance and
consummation of the transactions contemplated by, this Agreement and the other
Acquisition Documents (other than the New Marketing Agreement) have been duly
authorized by all requisite corporate action of Seller.

     3.5  Completeness of Statements.  No statement, schedule, attachment,
          --------------------------                                      
certificate, representation or warranty of Seller contained in this Agreement or
furnished by or on behalf of Seller to Buyer or its agents pursuant thereto or
in connection with the transactions contemplated thereby contains or shall
contain any untrue statement of a material fact or omits to state a material
fact necessary in order to make a statement contained therein not misleading.

                                   ARTICLE 4
                    Representations and Warranties of Buyer
                    ---------------------------------------

     Buyer represents and warrants to Seller, as of the Closing Date, as
follows:

     4.1  Organization.  Buyer  is a corporation duly organized, validly
          ------------                                                  
existing, and in good standing under the laws of the State of Delaware.

     4.2  Authority.
          --------- 

          (a) Buyer has full right, power, authority and capacity to execute and
deliver this Agreement and the other Acquisition Documents, and to perform its
obligations under this Agreement and the other Acquisition Documents.  This
Agreement and the other Acquisition Documents constitute valid and legally
binding obligations of Buyer, enforceable in accordance with their terms.

                                       5

 
          (b) The execution and delivery of this Agreement and the other
Acquisition Documents, the consummation of the transactions contemplated hereby
and thereby and the fulfillment of its obligations and undertakings hereunder
and thereunder by Buyer will not violate any provision of any applicable law,
ordinance, rule or regulation of any governmental body, the articles of
incorporation or bylaws of Buyer, or any agreement or undertaking to which Buyer
is a party or by which it may be bound, or any judgment, decree, writ,
injunction, order or award of any arbitration panel, court or governmental
authority applicable to Buyer.  The execution and delivery of this Agreement and
the other Acquisition Documents, and the performance and consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
requisite corporate action of Buyer.

     4.3  Compliance with Laws.  All consents, approvals, authorizations and all
          --------------------                                                  
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by Buyer and which are necessary for the execution and
delivery by Buyer of this Agreement, the other Acquisition Documents and any
other documents to be executed and delivered by Buyer in connection herewith and
in order to permit the consummation of the transactions contemplated by this
Agreement, have been obtained and satisfied or shall be obtained and satisfied
by Closing.

                                   ARTICLE 5
                              Covenants of Seller
                              -------------------

     Seller covenants and agrees with Buyer that from the date hereof through
the Closing Date:

     5.1  Consents. Seller shall use its best efforts to procure, upon
          --------                                                    
reasonable terms and conditions, all consents and approvals, shall complete all
filings, registrations and certificates, and shall satisfy all other
requirements prescribed by law, including obtaining any approval necessary under
antitrust laws, which are necessary to consummate the transactions contemplated
in this Agreement and the other Acquisition Documents.

     5.2  Cooperation.  Seller shall cooperate fully, completely and promptly
          -----------                                                        
with Buyer in connection with satisfying all conditions to, and effecting the
transactions contemplated by, this Agreement and the other Acquisition
Documents.

     5.3  Discussions with Other Buyers.  Neither Seller nor any of Seller's
          -----------------------------                                     
directors, officers, agents or employees shall, solicit, authorize the
solicitation of, or enter into any discussions with any third party to:  (a)
purchase any of the capital stock of the Company, any option or warrant to
purchase any capital stock of the Company, any securities convertible into
capital stock of the Company, or any other equity security of the Company; (b)
make a tender or exchange offer for any capital stock of the Company, or any
other equity security of the Company; (c) purchase, lease or otherwise acquire
all or a substantial portion of the assets of the Company; or (d) merge,
consolidate or otherwise combine with the Company.

     5.4  Representations and Warranties.  Seller shall not cause or permit any
          ------------------------------                                       
of its representations and warranties made in this Agreement, including, without
limitation, its

                                       6

 
representations and warranties contained in Article 3 of this Agreement, to
be untrue or incomplete on the Closing Date.


                                   ARTICLE 6
                               Covenants of Buyer
                               ------------------

     Buyer covenants and agrees with Seller that from the date hereof through
the Closing Date:

     6.1  Consents. Buyer shall use its best efforts to procure, upon reasonable
          --------                                                              
terms and conditions, all consents and approvals, shall complete all filings,
registrations and certificates, and shall satisfy all other requirements
prescribed by law, including obtaining any approval necessary under antitrust
laws, which are necessary to consummate the transactions contemplated in this
Agreement and the other Acquisition Documents.

     6.2  Cooperation.  Buyer shall cooperate fully, completely and promptly
          -----------                                                       
with Seller in connection with satisfying all conditions to, and effecting the
transactions contemplated by, this Agreement and the other Acquisition
Documents.

     6.3  Representations and Warranties.  Buyer will not cause or permit any of
          ------------------------------                                        
its representations and warranties made in this Agreement, including, without
limitations, its representations and warranties contained in Article 4 of this
Agreement, to be untrue or incomplete on the Closing Date.

                                   ARTICLE 7
                       Conditions to Obligations of Buyer
                       ----------------------------------

     The obligations of Buyer to consummate the transactions contemplated to be
completed by the Closing Date under this Agreement shall be subject to the
satisfaction of each of the following conditions at or before the Closing Date:

     7.1  Representations, Warranties and Covenants.  The representations and
          -----------------------------------------                          
warranties of Seller contained herein shall be true on the Closing Date, with
the same effect as though made at such time, except to the extent of changes
permitted by the terms of this Agreement.  Seller shall have performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by them prior to the Closing Date.  In addition,
Seller shall have delivered to Buyer a certificate dated the Closing Date and
signed by its President and Secretary to the effect that, except as disclosed in
the certificate, they do not know, and have no reasonable grounds to know, of
any failure or breach of any representation, warranty or covenant made by
Seller.

     7.2    Statutory Requirements.  All statutory requirements for the valid
            ----------------------                                           
consummation by Buyer of the transactions contemplated in this Agreement shall
have been fulfilled, and all authorizations, consents and approvals of all
federal, state, local and foreign governmental agencies and authorities required
to be obtained in order to permit the consummation by Buyer of 

                                       7

 
the transactions contemplated by this Agreement, and to permit the business
presently carried on by the Company to continue unimpaired in all material
respects immediately following the Closing Date, shall have been obtained.

     7.3  Deliveries.  On or before the Closing Date (but no later than 5:00
          ----------                                                        
p.m. Tokyo time on the Closing Date), Buyer shall have received confirmation
from its representative that Seller has delivered to Buyer's representative the
certificate representing the Shares in accordance with Section 9.1.

     7.4  Other Acquisition Documents.  Seller shall have executed and delivered
          ---------------------------                                           
all other Acquisition Documents.

     7.5  Closing.  The Closing shall occur on or before September 4, 1998 (the
          -------                                                              
"Closing Date"), as such date may be mutually extended in writing by Buyer and
Seller.

                                   ARTICLE 8
                      Conditions to Obligations of Seller
                      -----------------------------------

     The obligations of Seller to consummate the transactions contemplated to be
completed by the Closing Date under this Agreement shall be subject to the
satisfaction of each of the following conditions at or before the Closing Date:

     8.1  Representations, Warranties and Covenants.  The representations and
          -----------------------------------------                          
warranties of Buyer contained herein shall be true on the Closing Date, with the
same effect as though made at such time, except to the extent of changes
permitted by the terms of this Agreement. Buyer shall have performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by it prior to the Closing Date.  In addition, Buyer
shall have delivered to Seller a certificate dated the Closing Date and signed
by its President and Secretary to the effect that, except as disclosed in the
certificate, they do not know, and have no reasonable grounds to know, of any
failure or breach of any representation, warranty or covenant made by Buyer.

     8.2    Statutory Requirements.  All statutory requirements for the valid
            ----------------------                                           
consummation by Seller of the transactions contemplated in this Agreement shall
have been fulfilled, and all authorizations, consents and approvals of all
federal, state, local and foreign governmental agencies and authorities required
to be obtained in order to permit the consummation by Seller of the transactions
contemplated in this Agreement and to permit the business presently carried on
by the Company to continue unimpaired in all material respects immediately
following the Closing Date shall have been obtained.

     8.3  Payment.  At or before the Closing Date, Buyer shall pay to Seller the
          -------                                                               
Purchase Price in accordance with Section 2.2.

                                       8

 
     8.4  Other Acquisition Documents.  Buyer shall have executed and delivered
          ---------------------------                                          
all other Acquisition Documents.

     8.5  Closing.  The Closing shall occur on or before the Closing Date, as
          -------                                                            
such date may be mutually extended in writing by Buyer and Seller.

                                   ARTICLE 9
                            Closing and Termination
                            -----------------------

     9.1  Delivery of Certificate.   The certificate evidencing the Shares shall
          -----------------------                                               
be tendered by Seller to Buyer's representative in Tokyo, Japan, on or before
12:00 p.m., Tokyo time on the Closing Date; provided that Buyer shall ensure
that (a) such representative, at the same time as and in exchange for its
receipt of such certificate, delivers to Seller (or its agent or counsel) a
written receipt confirming that (i) it has duly received such certificate from
Seller, (ii) it holds such certificate unless and until Seller (or its agent or
counsel) can confirm the receipt of the Purchase Price in due course, and (iii)
it shall not deliver or release such certificate to Buyer or any third party
until Seller (or its agent or counsel) can confirm the receipt of the Purchase
Price, and (b) such representative immediately notifies Buyer by fax and/or
telephone of its receipt of the certificate representing the Shares, and upon
receipt of such notice Buyer shall wire transfer the Purchase Price pursuant to
Section 2.2.  On or before 12:00 p.m. New York time on September 2, 1998, Buyer
shall provide Seller with written notice of its designation of its
representative in Tokyo.

     9.2  Other Deliveries.  At or before the Closing, the parties shall make
          ----------------                                                   
all of the deliveries contemplated by Sections 7.3, 7.4, 8.3 and 8.4.

     9.3  The Closing Date.  For tax and accounting purposes, the Closing shall
          ----------------                                                     
be deemed to have occurred at one minute before midnight on the Closing Date.

     9.4  Termination of Agreement.  This Agreement shall terminate, and the
          ------------------------                                          
parties' obligations to consummate the Closing shall terminate, at 12:00
midnight New York time on September 4, 1998, if the Closing has not occurred
before such time; provided, however, that the parties may agree to extend this
Agreement by executing a written agreement to do so.  If this Agreement
terminates pursuant to this Section 9.4, Buyer and Seller shall be released from
all further obligations under this Agreement and the New Marketing Agreement;
provided, however, that the existing agreements between the parties, including,
without limitation, the Marketing Agreement and the Shareholders Agreement,
shall remain in full force and effect.

     9.5  Prior Agreements.  Upon the Closing, all other agreements between the
          ----------------                                                     
parties, including, without limitation, the Marketing Agreement and the
Shareholders Agreement, but specifically excluding the New Marketing Agreement,
shall be terminated, and such agreements shall have no further legal
significance between the parties and any rights any party may have enjoyed under
such agreements shall be released.

                                       9

 
                                   ARTICLE 10
    Survival of Representation, Warranties and Covenants -- Indemnification
    -----------------------------------------------------------------------

     10.1  Survival.  Each of the parties' representations, warranties,
           --------                                                             
covenants and agreements set forth in this Agreement shall survive the Closing
for a period of one (1) year except as otherwise explicitly stated in this
Agreement or as to any matter (a) for which a claim has been submitted in
writing to Seller or Buyer prior to such date and identified as a claim for
indemnification pursuant to Section 10.2 or Section 10.3, as the case may be;
(b) which is based upon fraud; (c) which is related to any Tax of any nature; or
(d) which is related to Seller's title to their shares of capital stock of the
Company, for which any cause of action in favor of any party shall expire only
upon the expiration of the applicable statute of limitations.

     10.2  Indemnity by Seller.  Seller shall indemnify and hold Buyer harmless
           -------------------                                                 
from and against, and shall pay to Buyer the full amount of, any actual loss,
claim, damage, liability or expense (including reasonable attorneys' fees, but
excluding any special, exemplary, punitive or consequential damages, or any
damages other than, or in addition to, actual damages) (hereafter referred to as
a "Claim") resulting to Buyer, either directly or indirectly, from: (a) any
material inaccuracy in any representation or warranty, or any breach of any
covenant or agreement, by Seller contained in this Agreement or in any of the
other Acquisition Documents; and (b) any liability for any fee or commission
owed to a broker or finder pursuant to an agreement signed by Seller with
respect to the transactions contemplated by this Agreement.

     10.3  Indemnity by Buyer.  Buyer shall indemnify and hold Seller harmless
           ------------------                                                 
from and against, and shall pay to Seller the full amount of, any Claim
resulting to Seller, either directly or indirectly, from:  (a) any material
inaccuracy in any representation or warranty, or any breach of any covenant or
agreement, by Buyer contained in this Agreement or in any of the other
Acquisition Documents; and (b) any liability for any fee or commission owed to a
broker or finder pursuant to an agreement signed by Buyer with respect to the
transactions contemplated by this Agreement.

     10.4  Remedies.  Upon the occurrence of any event for which Seller or Buyer
           --------                                                             
is entitled to indemnification under this Agreement, such party shall have all
the rights and remedies in law and in equity available to it.  Without limiting
the foregoing, each party hereby agrees to pay promptly upon receipt of notice
from Buyer or Seller, as the case may be, the amounts which either party may owe
to any other party from time to time by reason of the provisions of this
Agreement or otherwise.

     10.5  Limitations.  Seller's liability under this Article 10 and Buyer's
           -----------                                                       
liability under this Article 10 shall be limited to Claims incurred by the
indemnified party which exceed Fifty Thousand United States Dollars
(US$50,000.00) in amount for any single event giving rise to such Claim (the
"Single Event Basket"), or which when aggregated with other Claims exceed One
Hundred Thousand United States Dollars (US$100,000.00) (the "Aggregate Basket").
Upon an indemnified party's successful assertion of a Claim against the
indemnifying party for an amount exceeding the Single Event Basket or the
Aggregate Basket, as the case may be, the indemnified 

                                       10

 
party shall be entitled to recover only the amount exceeding the Single Event
Basket or the Aggregate Basket, as the case may be. The aggregate amount of
Claims for which Seller or Buyer shall be liable pursuant to this Article 10
shall not exceed (i) with respect to Claims arising out of or relating to
Section 3.3, the Purchase Price, and (ii) with respect to all other Claims, Five
Million United States Dollars (US$5,000,000.00).

                                   ARTICLE 11
                                  Arbitration
                                  -----------

     11.1  Dispute Resolution.  All controversies, disputes or claims arising
           ------------------                                                
among the parties in connection with, or with respect to, any provision of this
Agreement or any of the other Acquisition Documents, which has not been resolved
within sixty (60) calendar days after either Buyer or Seller 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 Denver, Colorado.

     11.2  Selection of Arbitrators.  Buyer and Seller each shall select one (1)
           ------------------------                                             
arbitrator (who shall not be counsel for such party), and the two (2) so
designated shall select a third arbitrator. If either Buyer or Seller shall fail
to designate an arbitrator within seven (7) calendar days after arbitration is
requested, or if the two (2) arbitrators shall fail to select a third arbitrator
within fourteen (14) calendar days after arbitration is requested, then such
arbitrator shall be selected by the American Arbitration Association or any
successor thereto upon application of either party.  Judgment upon any award of
the majority of arbitrators shall be binding and shall be entered in a court of
competent jurisdiction.  The award of the arbitrators may grant any relief which
might be granted by a court of general 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.

     11.3  Temporary Injunctive 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.

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

     11.5  Arbitration Proceedings.  All arbitral proceedings arising under, or
           -----------------------                                             
in connection with, this Agreement shall be governed by the Federal Rules of
Civil Procedure. Notwithstanding the previous sentence, the arbitrators' award
shall be made no later than ninety (90) days after 

                                       11

 
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 12
                                 Miscellaneous
                                 -------------

     12.1  Entire Agreement.  This Agreement, including all amendments,
           ----------------                                            
schedules, annexes and attachments hereto, constitutes the entire agreement of
the parties with respect to the subject matter hereof, and supersedes all prior
understanding with respect to the subject matter hereof.  No extension, change,
modification, addition or termination of this Agreement shall be enforceable
unless in writing and signed by the party against whom enforcement is sought.

     12.2  Benefit and Assignment.  This Agreement shall bind and benefit Buyer
           ----------------------                                              
and its successors and assigns and Seller and its successors and assigns;
provided, however, that no party to this Agreement shall assign its rights or
obligations hereunder to any Person other than an Affiliate or a lender without
the express written consent of the other parties, which consent shall not be
unreasonably withheld and that Seller and Buyer shall not be released from their
obligations hereunder as a result of any such assignment by such party, and the
assignee shall be bound to comply with all covenants (excluding all indemnity
obligations) of the assignor under this Agreement.

     12.3  Notices.  All notices under this Agreement ("Notices") shall be given
           -------                                                              
(i) by personal delivery; (ii) by facsimile transmission; (iii) by registered or
certified air mail, postage prepaid, return receipt requested; or (iv) by
internationally recognized overnight or other express courier services.  All
Notices shall be effective and shall be deemed delivered (i) if by personal
delivery, on the date of delivery if delivered during normal business hours of
the recipient, and if not delivered during such normal business hours, on the
next Business Day following delivery; (ii) if by facsimile transmission, on the
next Business Day following dispatch of such facsimile; and (iii) if by mail or
courier service, on the seventh Business Day after dispatch thereof.  Either
Seller or Buyer may change its address by Notice to the other party.

          (a)  If to Seller:

               Mitsui Matsushima Co., Ltd.
               Mitsui Building, No. 6 2-3-16 Nihonbashi
               Muromachi Chuo-Ku
               Tokyo, Japan
               Attention:  General Manager, Fuel Department
               Telephone:  81-3-3241-6528
               Fax:  81-3-3246-1253

                                       12

 
               With a copy to:

               Nishimura & Partners
               Ark Mori Bldg. 29F
               12-32, Akasaka 1-chome
               Minato-ku, Tokyo 107
               Japan
               Attention:  Masakazu Iwakura, Esq.
               Telephone:  81-3-5562-8500
               Fax:  81-3-5561-9711

          (b)  If to Buyer:

               AEI Resources, Inc.
               1500 North Big Run
               Ashland, Kentucky 41102
               Telephone:  (606) 928-3433
               Fax:  (606) 928-0450

               With a copy to:

               Paul E. Sullivan, Esq.
               Brown, Todd & Heyburn PLLC
               2700 Lexington Financial Center
               Lexington, Kentucky 40507
               Telephone:  (606) 231-0000
               Fax:  (606) 231-0011

     12.4  Headings.  The headings used in this Agreement have been included
           --------                                                         
solely for ease of reference and shall not be considered in the interpretation
or construction of this Agreement.

     12.5  Multiple Counterparts.  This Agreement may be executed in two or more
           ---------------------                                                
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.

     12.6  Governing Law.  This Agreement shall be governed by and construed in
           -------------                                                       
accordance with the internal laws of the State of Colorado without referring to
choice of law principles.

     12.7  Severability.  If any provision of this Agreement or its application
           ------------                                                        
shall be 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 shall 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.

                                       13

 
     12.8  Attachments and Schedules.  All Annexes and Schedules to this
           -------------------------                                    
Agreement are incorporated into this Agreement as if set out in full at the
first place in this Agreement that reference is made thereto.

     12.9  Expenses.  Except as otherwise expressly provided in this Agreement,
           --------                                                            
each party to this Agreement shall pay its own costs and expenses (including,
without limitation, the fees and expenses of its agents, representatives,
counsel, accountants, brokers and finders) necessary to its performance of and
compliance with this Agreement.

     12.10  Specific Performance.  Subject to Article 11 and Section 12.11, 
            --------------------                                           
Buyer and Seller shall be entitled to specific performance, injunctive relief
and other equitable relief for breaches of the other party's covenants and
agreements, and such relief may be awarded by the arbitrators pursuant to
Article 11. Therefore, it is agreed that Seller and Buyer will not, in any
action to enforce this Agreement, assert that there is an adequate remedy at law
for the default under which such action or proceeding is based.

     12.11  No Consequential Damages.  Except as prohibited by law, each party
            ------------------------                                          
waives any right it may have to claim or recover any special, exemplary,
punitive or consequential damages, or any damages other than, or in addition to,
actual damages.

     12.12  Waiver.  No waiver or failure to insist upon strict compliance with
            ------                                                             
any obligation, condition, representation, warranty, undertaking, covenant or
agreement set forth herein shall operate as a waiver of, or an estoppel with
respect to, any subsequent or other failure to strictly comply, unless such
waiver is set forth in writing.  If any party expressly waives in writing an
unsatisfied obligation, condition, representation, warranty, undertaking,
covenant or agreement (or portion thereof) set forth herein, the waiving party
shall thereafter be barred from recovering, and thereafter shall not seek to
recover, any damages, claims, losses, liabilities or expenses, including,
without limitation, legal and other expenses, from the other parties with
respect to the matter or matters so waived.

     12.13  No Third-Party Beneficiary.  This Agreement is for the benefit of,
            --------------------------                                          
and may be enforced only by, Seller and Buyer and their respective successors
and permitted transferees and assignees, and is not for the benefit of, and may
not be enforced by, any third party.

     12.14  Representations and Warranties, Etc.  The representations and
            ------------------------------------                         
warranties of each party contained herein shall not be deemed to be waived or
otherwise affected by any investigation made by any other party hereto.

                                       14

 
     IN WITNESS WHEREOF, the parties have signed several originals of this
Agreement as of the date set forth above.



BUYER:                        AEI RESOURCES, INC.


                              By:
                                    --------------------------
 
                              Name:
                                    --------------------------

                              Title:
                                    --------------------------



SELLER:                       MITSUI MATSUSHIMA AMERICA, INC.


                              By:   /s/ Shoji Nakano, President
                                    ---------------------------
                                      Shoji Nakano, President


HOLDCO:                       AEI HOLDING COMPANY, INC.


                              By:
                                    --------------------------
 
                              Name:
                                    --------------------------

                              Title:
                                    --------------------------



MITSUI:                       MITSUI MATSUSHIMA CO., LTD.


                              By:
                                    --------------------------
 
                              Name:
                                    --------------------------

                              Title:
                                    --------------------------

                                       15

 
                              BOWIE RESOURCES, LIMITED,
                              a Colorado corporation


                              By:
                                    --------------------------

                              Name:
                                    --------------------------

                              Title:
                                    --------------------------

                                       16

EX-3.2(A)

 
                                                                  Exhibit 3.2(a)

                         CERTIFICATE OF INCORPORATION
                                      OF
                          AEI RESOURCES HOLDING, INC.

                                   * * * * *

     1. The name of the corporation is AEI RESOURCES HOLDING, INC.

     2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.

     3. The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.

     4. The total number of shares of stock which the corporation shall have
authority to issue is One Thousand (1,000) and the par value of each of such
shares is Zero Dollars and One Cent ($0.01) amounting in the aggregate to Ten
Dollars and No Cents ($10.00).

     5. The board of directors is authorized to make, alter or repeal the 
by-laws of the corporation. Election of directors need not be by written ballot.

     6. The name and mailing address of the sole incorporator is:

                              L. J. Vitalo
                              Corporation Trust Center
                              1209 Orange Street
                              Wilmington, Delaware 19801

     7. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit.

     8. The corporation shall indemnify its officers, directors, employees and
agents to the extent permitted by the General Corporation Law of Delaware.

     I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 27th day of July, 1998.


                             /s/ L. J. Vitalo
                             -------------------------
                                Sole Incorporator




                                    Page 1

EX-3.2(B)

 
                                    BYLAWS



                                      OF



                          AEI RESOURCES HOLDING, INC.



     I certify that the following Bylaws, consisting of fifteen (15) pages, each
of which I have initialed for identification, are the Bylaws adopted by the
Board of Directors of AEI Resources Holding, Inc. (the "Corporation") by a
Written Action by Directors in Lieu of Organizational Meeting, dated July 27,
1998.



                              /s/ John Lynch
                              ------------------------------------------------
                              John Lynch, Secretary

 
                                    BYLAWS
                                      OF
                          AEI RESOURCES HOLDING, INC.

                                   ARTICLE I
                                   ---------
                                    Offices
                                    -------

     1.   Business Offices.  The Corporation may have one or more offices at
          ----------------                                                  
such place or places as the Board of Directors may from time to time determine
or as the business of the Corporation may require.

     2.   Principal Office.  The initial principal office of the Corporation
          ----------------                                                  
shall be as set forth in the Articles of Incorporation.  The Board of Directors,
from time to time, may change the principal office of the Corporation.

     3.   Registered Office.  The registered office of the Corporation shall be
          -----------------                                                    
as set forth in the Articles of Incorporation, unless changed as provided by the
provisions of the Delaware General Corporation Law, as it may be amended from
time to time (the "DGCL").

                                  ARTICLE II
                                  ----------
                            Shareholders' Meetings
                            ----------------------

     1.   Annual Meetings.  The annual meeting of shareholders for the election
          ---------------                                                      
of directors to succeed those whose terms expire and for the transaction of such
other business as may come before the meeting shall be held each year on March
15, at 10:00 a.m., local time at the place of the meeting fixed by the Board of
Directors, or, if not so fixed, at the principal office designated in the
Articles of Incorporation.  If the day so fixed for such annual meeting shall
not be a business day or shall be a legal holiday at the place of the meeting,
then such meeting shall be held on the next succeeding business day at the same
hour.

     2.   Special Meetings.  Special meetings of shareholders for any purpose or
          ----------------                                                      
purposes, unless otherwise prescribed by statute or by the Articles of
Incorporation, may be called at any time by the President or by the Board of
Directors and shall be called by the President or the Secretary upon the request
(which shall state the purpose or purposes therefor) of a majority of the Board
of Directors or of the holders of shares representing not less than twenty
percent (20%) of all votes entitled to be cast on any issue proposed to be
considered at the meeting.  The record date for determining the shareholders
entitled to demand a special meeting is the date of the earliest of any of the
demands pursuant to which the meeting is called, or the date that is 60 days
before the date the first of which demands is received, whichever is later.
Business transacted at any special meeting of shareholders shall be limited to
the purpose or purposes stated in the notice.

     3.   Place of Special Meetings.  Special meetings of shareholders shall be
          -------------------------                                            
held at such place or places, as may be determined by the Board of Directors and
designated in the notice of the meeting, or, if no place is so determined and
designated in the notice, the place of the shareholders' meetings shall be the
principal office of the Corporation.

                                       1

 
     4.   Notice of Meetings.  Not less than 14 nor more than 60 days prior to
          ------------------                                                  
each annual or special meeting of shareholders, written notice of the meeting
shall be delivered to each shareholder entitled to vote at such meeting;
provided, however, that if the authorized shares of the Corporation are proposed
to be increased, at least 30 days' notice in like manner shall be given; and
provided, further, that if other or different notice is required by the DGCL,
the provisions of the DGCL shall govern.  Notices shall be delivered by i)
personal delivery, ii) facsimile transmission, iii) registered or certified
mail, postage prepaid, return receipt requested; or (iv) nationally recognized
overnight or other express courier services.  All notices shall be effective and
shall be deemed delivered (i) if by personal delivery, on the date of delivery
if delivered during normal business hours of the recipient, and if not delivered
during such normal business hours, on the next Business Day following delivery;
(ii) if by facsimile transmission, on the next Business Day following dispatch
of such facsimile; (iii) if by courier service, on the third Business Day after
dispatch of a notice addressed to the shareholder at the address of such
shareholder appearing in the stock transfer books of the Corporation and (iv) if
by mail, on the date of receipt.  If three (3) successive letters mailed to the
last known address of any shareholder of record are returned as undeliverable,
no further notices to such shareholder shall be necessary until another address
for such shareholder is made known to the Corporation.  The notice of any
meeting shall state the place, day and hour of the meeting.  The notice of a
special meeting shall, in addition, state the meeting's purposes.

     5.   Shareholders List.  A complete record of the shareholders entitled to
          -----------------                                                    
vote at such meeting (or an adjourned meeting described in Section 9 of this
Article II) arranged by voting groups and, within each voting group, in
alphabetical order, showing the address of each shareholder and the number of
shares registered in the name of each, shall be prepared by the officer or agent
of the Corporation who has charge of the stock transfer books of the
Corporation.  The shareholders list shall be available for inspection by any
shareholder beginning on the earlier of ten (10) days before the meeting or two
(2) days after notice is given and continuing through the meeting and any
adjournment thereof, subject to the requirements of the DGCL.  Such record shall
also be produced and kept at the time and place of the meeting during the whole
time thereof and subject to inspection for any purpose germane to the meeting by
any shareholder who may be present.

     6.   Organization.  The President or, in the President's absence, any Vice
          ------------                                                         
President shall call meetings of shareholders to order and act as chairperson of
such meetings.  In the absence of said officers, any shareholder entitled to
vote at the meeting, or any proxy of any such shareholder, may call the meeting
to order and a chairperson shall be elected by a majority of the shareholders
present and entitled to vote at the meeting.  The Secretary or any Assistant
Secretary of the Corporation or any person appointed by the chairperson may act
as secretary of such meetings.

     7.   Agenda and Procedure.  The Board of Directors shall have the
          --------------------                                        
responsibility of establishing an agenda for each meeting of shareholders,
subject to the rights of shareholders to raise matters for consideration which
may otherwise properly be brought before the meeting although not included
within the agenda.  The chairperson shall be charged with the orderly conduct of
all meetings of shareholders.

     8.   Quorum.  Shares entitled to vote as a separate voting group may take
          ------                                                              
action on a matter at a meeting only if a quorum of those shares exists with
respect to that matter.  A majority 

                                       2

 
of the votes entitled to be cast on the matter by the voting group constitutes a
quorum of that voting group for action on that matter. In the absence of a
quorum at any shareholder's meeting, a majority of the shareholders present in
person or represented by proxy and entitled to vote at the meeting may adjourn
the meeting from time to time for a period not to exceed 120 days from the
original date of the meeting without further notice (except as provided in
Section 9 of this Article II) until a quorum shall be present or represented.

     9.   Adjournment.  When a meeting is for any reason adjourned to another
          -----------                                                        
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.  If  the adjournment is for more than 120
days from the date of the original meeting, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each shareholder of record entitled to vote at the
meeting.

     10.  Voting.
          ------ 

          a.   Except as provided in the Articles of Incorporation or the DGCL,
at every meeting of shareholders, or with respect to corporate action which may
be taken without a meeting, every shareholder shall be entitled to one vote for
each share of stock having voting power held of record by such shareholder on
the record date designated therefor pursuant to Section 3 of Article X of these
Bylaws (or for the record date established pursuant to statute in the absence of
such designation); provided, however, that the cumulative system of voting for
the election of directors shall not be allowed.

          b.   A shareholder may vote the shareholder's shares in person or by
proxy.  A person may appoint a proxy in person or through an attorney-in-fact
and such appointment may be transmitted by telegram, teletype, or other written
statement of appointment permitted by the DGCL. The appointment is effective for
eleven months unless a different period is expressly provided in the appointment
form.  An appointment shall be revocable unless coupled with an interest
including the appointment of any of the following:  (1) a pledgee; (2) a person
who purchased or agreed to purchase the shares; (3) a creditor of the
Corporation who extended credit to the Corporation under terms requiring the
appointment; (4) an employee of the Corporation whose employment contract
requires the appointment; or (5) a party to a voting trust agreement.

          c.   The voting rights of fiduciaries, beneficiaries, pledgors,
pledgees and joint, common and other multiple owners of shares of stock shall be
as provided from time to time by the DGCL and any other applicable law.

          d.   Shares of the Corporation held of record by another corporation
that are entitled to vote may be voted by such officer, agent or proxy as the
bylaws of such other corporation may prescribe, or, in the absence of such
provision, as the Board of Directors of such corporation may determine.

          e.   When a quorum is present at any meeting of shareholders, action
on a matter by a voting group shall be approved if the shares entitled to vote
are cast so that the votes cast within 

                                       3

 
the voting group favoring the action exceed the votes cast opposing the action,
unless the question is one upon which by express provision of a statute, or the
Articles of Incorporation, or these Bylaws, a different vote is required, in
which case such express provision shall govern and control the decision on such
question.

     11.  Inspectors.  The chairperson of the meeting may at any time appoint
          ----------                                                         
two or more inspectors to serve at a meeting of the shareholders.  Such
inspectors shall decide upon the qualifications of voters, including the
validity of proxies, accept and count the votes for and against the questions
presented, report the results of such votes, and subscribe and deliver to the
secretary of the meeting a certificate stating the number of shares of stock
issued and outstanding and entitled to vote thereon and the number of shares
voted for and against the questions presented.  The voting inspectors need not
be shareholders of the Corporation, and any director or officer of the
Corporation may be an inspector on any question other than a vote for or against
such director's or officer's election to any position with the Corporation or on
any other question in which such officer or director may be directly interested.

     12.  Meeting by Telecommunication.  Any or all of the shareholders may
          ----------------------------                                     
participate in any annual or special shareholders' meeting by, or the meeting
may be conducted through the use of, any means of communication by which all
persons participating in the meeting may hear each other during the meeting.
Any shareholder participating in a meeting by any such means of communication is
deemed to be present in person at the meeting.

                                  ARTICLE III
                                  -----------
                              Board of Directors
                              ------------------

     1.   Election and Tenure.  The business and affairs of the Corporation
          -------------------                                              
shall be managed by a Board of Directors who shall be elected at the annual
meetings of shareholders or special meetings called for that purpose.  In an
election of directors, the number of candidates equaling the number of directors
to be elected having the highest number of votes cast in favor of their election
shall be elected to the Board of Directors.  Each director shall be elected to
serve and to hold office until the next succeeding annual meeting and until such
director's successor shall be elected and shall qualify, or until such
director's earlier death, resignation or removal.

     2.   Number and Qualification.  The exact number of Directors may be fixed,
          ------------------------                                              
increased or decreased from time to time by a resolution adopted by the majority
vote of a quorum of shareholders who are present in person or by proxy at a
meeting held to elect Directors.  Directors must be natural persons at least
eighteen years of age but need not be shareholders.

      3.  Ex-officio Members.  The Board of Directors may, from time to time,
          -------------------                                                
appoint additional persons to serve as ex-officio directors of the Corporation.
Such ex-officio directors may be present at, and participate in, meetings of the
Board of Directors, but shall have no voting rights, shall not be entitled to
serve on any executive or other committee of the Board of Directors, and shall
not be considered in the calculation of a quorum pursuant to Section 9 of this
Article III. Failure to give notice to any ex-officio director pursuant to
Section 8 of this Article III shall not affect the validity of any action taken
by the Board of Directors.

                                       4

 
     4.   Annual Meetings.  On the same day each year as, and immediately
          ---------------                                                
following, the annual shareholders' meeting, the Board of Directors shall meet
for the purpose of organization, election of officers and the transaction of any
other business.

     5.   Regular Meetings.  Regular meetings of the Board of Directors shall be
          ----------------                                                      
held on the 15th day of February, May, August and November, or the first
business day following each such date, at such time or times as may be
determined by the Board of Directors and specified in the notice of such
meetings.

     6.   Special Meetings.  Special meetings may be called by the President or
          ----------------                                                     
any shareholder owning greater than twenty-five percent (25%) of the total
outstanding shares of the Corporation, and shall be called by the President or
the Secretary on the written request of any two directors.

     7.   Place of Meetings.  Except as specifically set forth otherwise herein,
          -----------------                                                     
any meeting of the Board of Directors may be held at such place or places either
as shall from time to time be determined by the Board of Directors and as shall
be designated in the notice of the meeting.

     8.   Notice of Meetings.  Notice of each meeting of directors, whether
          ------------------                                               
annual, regular or special, shall be given to each director.  If such notice is
given either (a) by personally delivering written notice to a director or (b) by
personally telephoning such director, it shall be so given at least ten (10)
days prior to the meeting.  If such notice is given either (1) by depositing a
written notice by overnight courier service, postage prepaid, or (2) by
facsimile transmission, in all cases directed to such director at that person's
residence or place of business, it shall be so given at least fourteen (14) days
prior to the meeting.  The notice shall state the place, date and hour thereof,
but need not, unless otherwise required by the DGCL, state the purposes of the
meeting.

     9.   Quorum.  A majority of the number of directors fixed by or in
          ------                                                       
accordance with Section 2 of this Article III that are entitled to vote shall
constitute a quorum at all meetings of the Board of Directors.  The vote of a
majority of the directors present and entitled to vote at a meeting at which a
quorum is present shall be the act of the Board of Directors, unless the express
provision of a statute, the Articles of Incorporation, or these Bylaws requires
a different vote, in which case such express provision shall govern and control.
In the absence of a quorum at any such meeting, a majority of the directors
present and entitled to vote may adjourn the meeting from time to time without
further notice, other than announcement at the meeting, until a quorum shall be
present.

     10.  Organization, Agenda and Procedure.  The directors shall choose a
          ----------------------------------                               
Chairman of the Board to preside over the meetings of the Board of Directors.
The Secretary, any Assistant Secretary, or any other person appointed by the
Chairman of the Board shall act as secretary of each meeting of the Board of
Directors.  The agenda of and procedure for such meetings shall be as determined
by the Board of Directors.  All proposed agenda topics and documents to be
reviewed at the annual meetings and the regular meetings shall be delivered to
each director at least fourteen (14) days prior to any such meeting.

                                       5

 
     11.  Resignation.  Any director of the Corporation may resign at any time
          -----------                                                         
by giving written notice of such director's resignation to the Board of
Directors, the President, any Vice President or the Secretary of the
Corporation.  Such resignation shall take effect at the date of receipt of such
notice or at any later time specified therein and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective, unless it so provides.  A director who resigns may deliver to the
Secretary of State for filing a statement to that effect.

     12.  Removal.  Except as otherwise provided in the Articles of
          -------                                                  
Incorporation or in these Bylaws, any director may be removed, either with or
without cause, at any time, by the affirmative vote of the holders of a majority
of the issued and outstanding shares of stock entitled to vote for the election
of directors of the Corporation at a special meeting of the shareholders called
and held for such purpose; provided, however, that if less than the entire Board
of Directors is to be removed, and if cumulative voting of shares in the
election of directors is allowed, a director may not be removed if the votes
entitled to be cast against such director's removal would be sufficient to elect
such director if such votes were cumulatively voted for such director at an
election of the entire Board of Directors.  A vacancy in the Board of Directors
caused by any such removal may be filled by the Corporation's shareholders at
such meeting or, if the shareholders at such meeting shall fail to fill such
vacancy, by the Board of Directors as provided in Section 12 of this Article
III.

     13.  Vacancies.  Except as provided in Section 11 of this Article III, any
          ---------                                                            
vacancy occurring for any reason in the Board of Directors may be filled by the
affirmative vote of a majority of the directors then in office, though less than
a quorum of the Board of Directors, or by an election by the shareholders.  Any
directorship to be filled by reason of an increase in the number of directors
shall be filled by the affirmative vote of a majority of the directors then in
office or by an election by the shareholders.  A director elected to fill a
vacancy shall be elected for the unexpired term of such director's predecessor
in office and shall hold office until the expiration of such term and until a
successor shall be elected and shall qualify or until such director's earlier
death, resignation or removal.  A director chosen to fill a position resulting
from an increase in the number of directors shall hold office until the next
annual meeting of shareholders and until a successor shall be elected and shall
qualify, or until such director's earlier death, resignation or removal.  If the
vacant directorship was held by a director elected by a voting group of
shareholders, the vacancy shall be filled by either the vote of the holders of
shares of that voting group entitled to fill such vacancy or the majority vote
of any remaining Directors elected by that voting group.

     14.  Executive and Other Committees.   The Board of Directors, by
          ------------------------------                              
resolution adopted by a majority of the number of directors fixed by or in
accordance with Section 2 of this Article III, may designate from among its
members an executive committee and one or more other committees each of which,
to the extent provided in the resolution and except as otherwise prescribed by
statute, shall have and may exercise all of the authority of the Board of
Directors in the management of the Corporation.  Rules governing the procedures
for meetings of executive or other committees shall be as established by the
Board of Directors or by such committee.  Notwithstanding the foregoing, no
committee shall:  (a) authorize distributions; (b) approve or propose to
shareholders action that the DGCL requires to be approved by shareholders; (c)
fill vacancies on the Board of Directors or on any of its committees; (d) amend
the Articles of Incorporation; (e) adopt, amend, or repeal these Bylaws; (f)
approve a plan of merger not requiring shareholder approval; (g) authorize or
approve 

                                       6

 
reacquisition of shares, except according to a formula or method prescribed by
the Board of Directors; or (h) authorize or approve the issuance or sale of
shares, or a contract for the sale of shares, or determine the designation and
relative rights, preferences, and limitations of a class or series of shares;
except that the Board of Directors may authorize a committee or an officer to do
so within limits specifically prescribed by the Board of Directors.

     15.  Compensation of Directors.  Each director shall be allowed such amount
          -------------------------                                             
per annum or such fixed sum for attendance at meetings of the Board of
Directors, executive or other committees, as may be from time to time fixed by
resolution of the Board of Directors, together with reimbursement for the
reasonable and necessary expenses incurred by such director in connection with
the performance of such director's duties (including, but not limited to,
expenses incurred in attending meetings of the Board of Directors).  Nothing
herein contained shall be construed to preclude any director from serving the
Corporation in any other capacity or any of its subsidiaries in any other
capacity and receiving proper compensation therefor.

                                  ARTICLE IV
                                  ----------
           Waiver of Notice by Shareholders and Directors and Action
                   of Shareholders and Directors by Consent
                   ---------------------------------------

     1.   Waiver of Notice.  A shareholder may waive any notice required by the
          ----------------                                                     
DGCL or by the Articles of Incorporation or these Bylaws, and a director may
waive any notice of a directors meeting, whether before or after the date or
time stated in the notice as the date or time when any action will occur or has
occurred.  The waiver shall be in writing, be signed by the shareholder or
director entitled to the notice, and be delivered to the Corporation for
inclusion in the minutes or filing with the corporate records, but such delivery
and filing shall not be conditions of the effectiveness of the waiver.
Attendance of a shareholder or the attendance or participation by a director at
a meeting (a) waives objection to lack of required notice or defective notice of
the meeting, unless the shareholder at the beginning of the meeting, or the
director, at the beginning of the meeting or promptly upon his or her later
arrival, objects to holding the meeting or transacting business at the meeting
because of lack of notice or defective notice, and, in the case of a director,
does not thereafter vote for or assent to action taken at the meeting, and (b)
waives objection to consideration of a particular matter at the meeting that is
not within the purpose or purposes described in the meeting notice, or of a
matter without special notice required by the DGCL, the Articles of
Incorporation, or these Bylaws, unless the shareholder or director objects to
considering the matter when it is presented and, in the case of a director, does
not thereafter vote for or assent to action taken at the meeting with respect to
such purpose.

     2.   Action Without a Meeting.
          ------------------------ 

          a.   Unless the Corporation's Certificate of Incorporation requires
that such action be taken at a shareholders' meeting, any action required or
allowed to be taken at an annual or special meeting of the shareholders of the
Corporation may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which at which all shares entitled to vote thereon were present
and voted and shall be delivered to the Corporation by delivery to its

                                       7

 
registered office in Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of shareholders are recorded.  Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.  Such action shall be effective as of the time the last
writing necessary to effect the action is received by the Corporation, unless
all writings necessary to effect the action specify a later time, in which case
the later time shall be the time of the action.  The record date for determining
shareholders entitled to take action without a meeting is the date upon which a
writing upon which the action is to be taken is first received by the
Corporation.  Prompt notice of the taking of corporate action without a meeting
by less than unanimous written consent shall be given to those shareholders who
have not consented in writing.

          b.   Unless otherwise restricted by the Corporation's Certificate of
Incorporation, any action required or permitted to be taken at any meeting of
the board of directors, or any committee thereof may be taken without a meeting
if all members of the board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the board or committee.  Such action shall be effective as of the time the
last director signs a writing describing the action taken unless before such
time the Secretary has received a written revocation of the consent of any other
director, and any action so taken shall be effective at the time taken unless
the directors specify a different effective time.


     3.   Meetings by Telecommunication.  One or more members of the Board of
          -----------------------------                                      
Directors or any committee designated by the Board of Directors may hold or
participate in a meeting of the Board of Directors or such committee through the
use of any means of communication by which all persons participating can hear
each other at the same time.  Any director participating in a meeting by any
such means of communication is deemed to be present in person at the meeting.

                                   ARTICLE V
                                   ---------
                                   Officers
                                   --------

     1.   Election and Tenure.  The officers of the Corporation shall consist of
          -------------------                                                   
a President, a Secretary and Treasurer, each of whom shall be appointed annually
by the Board of Directors.  The Board of Directors may also designate and
appoint such other officers and assistant officers as may be deemed necessary.
The Board of Directors may delegate to any such officer the power to appoint or
remove subordinate officers, agents or employees.  Any two or more offices may
be held by the same person.  Each officer so appointed shall continue in office
until a successor shall be appointed and shall qualify, or until the officer's
earlier death, resignation or removal.  Each officer shall be a natural person
who is eighteen years of age or older.

     2.   Resignation, Removal and Vacancies.  Any officer may resign at any
          ----------------------------------                                
time by giving written notice of resignation to the Board of Directors or the
President.  Such resignation shall take effect when the notice is received by
the Corporation unless the notice specifies a later date, and acceptance of the
resignation shall not be necessary to render such resignation effective.  Any
officer may at any time be removed by the affirmative vote of a majority of the
number of directors fixed by or in accordance with Section 2 of Article III of
these Bylaws, or by an executive committee of 

                                       8

 
the Board of Directors. If any office becomes vacant for any reason, the vacancy
may be filled by the Board of Directors. An officer appointed to fill a vacancy
shall be appointed for the unexpired term of such officer's predecessor in
office and shall continue in office until a successor shall be elected or
appointed and shall qualify, or until such officer's earlier death, resignation
or removal. The appointment of an officer shall not itself create contract
rights in favor of the officer, and the removal of an officer does not affect
the officer's contract rights, if any, with the Corporation and the resignation
of an officer does not affect the Corporation's contract rights, if any, with
the officer.

     3.   Chairman of the Board.  The Chairman of the Board shall preside over
          ---------------------                                               
the meetings of the Board of Directors and have such powers and responsibilities
as are incident thereto. However, the Chairman of the Board shall not have
responsibility for the day-to-day business operations of the Corporation.
 
     4.   President.  The President shall be the chief executive officer of the
          ---------                                                            
Corporation.  The President shall (i) preside at meetings of the shareholders;
(ii) have general and active management of the business of the Corporation, and
preside over the day-to-day business operations of the Corporation; (iii) see
that all orders and resolutions of the Board of Directors are carried into
effect; and (iv) perform all duties as may from time to time be assigned by the
Board of Directors.

     5.   Chief Financial Officer.  The Chief Financial Officer shall perform
          -----------------------                                            
such duties and shall have such powers as may from time to time be assigned by
the Board of Directors or the President, and shall perform such duties and have
such powers and responsibilities as are incident to the office of Chief
Financial Officer.  In addition, the Chief Financial Officer shall have, along
with the President, responsibility for the day-to-day business operations of the
Corporation.

     6.   Vice Presidents.  The Vice Presidents, if any, shall perform such
          ---------------                                                  
duties and possess such powers as from time to time may be assigned to them by
the Board of Directors or the President.  In the absence of the President or in
the event of the inability or refusal of the President to act, the Vice
President (or in the event there be more than one Vice President, the Vice
Presidents in the order designated by the Board of Directors, or in the absence
of any designation, then in the order of the election or appointment of the Vice
Presidents) shall perform the duties of the President and when so performing
shall have all the powers of and be subject to all the restrictions upon the
President.

     7.   Secretary.  The Secretary shall perform such duties and shall have
          ---------                                                         
such powers as may from time to time be assigned by the Board of Directors or
the President.  In addition, the Secretary shall perform such duties and have
such powers as are incident to the office of Secretary including, without
limitation, the duty and power to give notice of all meetings of shareholders
and the Board of Directors, the preparation and maintenance of minutes of the
directors' and shareholders' meetings and other records and information required
to be kept by the Corporation under Article XI and for authenticating records of
the Corporation, and to be custodian of the corporate seal and to affix and
attest to the same on documents, the execution of which on behalf of the
Corporation is authorized by these Bylaws or by the action of the Board of
Directors.

                                       9

 
     8.   Treasurer.  The Treasurer shall perform such duties and shall have
          ---------                                                         
such powers as may from time to time be assigned by the Board of Directors or
the President.  In addition, the Treasurer shall perform such duties and have
such powers as are incident to the office of Treasurer including, without
limitation, the duty and power to keep and be responsible for all funds and
securities of the Corporation, to deposit funds of the Corporation in
depositories selected in accordance with these Bylaws, to disburse such funds as
ordered by the Board of Directors, making proper accounts thereof, and to render
as required by the Board of Directors statements of all such transactions as
Treasurer and of the financial condition of the Corporation.

     9.   Assistant Secretaries and Assistant Treasurers.  The Assistant
          ----------------------------------------------                
Secretaries and Assistant Treasurers, if any, shall perform such duties as shall
be assigned to them by the Secretary or the Treasurer, respectively, or by the
President or the Board of Directors.  In the absence, inability or refusal to
act of the Secretary or the Treasurer, the Assistant Secretaries or Assistant
Treasurers, respectively, in the order designated by the Board of Directors, or
in the absence of any designation, then in the order of their election or
appointment, shall perform the duties and exercise the powers of the Secretary
or Treasurer, as the case may be.

     10.  Bond of Officers.  The Board of Directors may require any officer to
          ----------------                                                    
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for such terms and conditions as
the Board of Directors may specify, including without limitation for the
faithful performance of such officer's duties and for the restoration to the
Corporation of any property belonging to the Corporation in such officer's
possession or under the control of such officer.

     11.  Salaries.  Officers of the Corporation shall be entitled to such
          --------                                                        
salaries, emoluments, compensation or reimbursement as shall be fixed or allowed
from time to time by the Board of Directors.

                                  ARTICLE VI
                                  ----------
                                Indemnification
                                ---------------

     1.   Indemnification.  To the extent permitted or required by the DGCL and
          ---------------                                                      
any other applicable law, if any director or officer of the Corporation is made
a party to or is involved in any proceeding because such person is or was a
director or officer of the Corporation, the Corporation shall (a) indemnify such
person from and against any liability, including but not limited to expenses of
investigation and preparation, expenses in connection with appearance as a
witness and fees and disbursements of counsel, accountants or other experts,
incurred by such person in such proceeding, and (b) advance to such person
expenses incurred in such proceeding.  The Corporation may in its discretion,
but is not obligated in any way to, indemnify and advance expenses to an
employee or agent of the Corporation to the same extent as to a director or
officer, and the Corporation may indemnify an employee, fiduciary, or agent of
the Corporation to a greater extent than expressly permitted herein for officers
and directors, provided such indemnification is not in violation of public
policy.

                                       10

 
     2.   Provisions Not Exclusive.  The foregoing provisions for
          ------------------------                               
indemnification and advancement of expenses are not exclusive, and the
Corporation may at its discretion provide for indemnification or advancement of
expenses in a resolution of its shareholders or directors, in a contract or in
its Articles of Incorporation.

     3.   Effect of Modification of DGCL.  Any repeal or modification of the
          ------------------------------                                    
foregoing provisions of this Article for indemnification or advancement of
expenses shall not affect adversely any right or protection stated in such
provisions with respect to any act or omission occurring prior to the time of
such repeal or modification.  If any provision of this Article or any part
thereof shall be held to be prohibited by or invalid under applicable law, such
provision or part thereof shall be deemed amended to accomplish the objectives
of the provision or part thereof as originally written to the fullest extent
permitted by law and all other provisions or parts shall remain in full force
and effect.

     4.   Definitions.  As used in this Article, the following terms have the
          -----------                                                        
following meanings:

          (a) DGCL.  When used with reference to an act or omission occurring
              ----                                                           
prior to the effectiveness of any amendment to the DGCL after the effectiveness
of the adoption of this Article, the  term "DGCL" shall include such amendment
only to the extent that the amendment permits a Corporation to provide broader
indemnification rights than the DGCL permitted prior to the amendment.

          (b) Corporation.  The term "Corporation" includes any domestic or
              -----------                                                  
foreign entity that is a predecessor of the Corporation by reason of a merger or
other transaction in which the predecessor's existence ceased upon consummation
of the transaction.

          (c) Director or Officer.  A "director" or "officer" is an individual
              -------------------                                             
who is or was a director or officer of the Corporation or an individual who,
while a director or officer of the Corporation, is or was serving at the
Corporation's request as a director, officer, partner, trustee, employee,
fiduciary, or agent of another domestic or foreign corporation or other person
or of an employee benefit plan.  A director or officer is considered to be
serving an employee benefit plan at the Corporation's request if his or her
duties to the Corporation also impose duties on, or otherwise involve services
by, the director or officer to the plan or to participants in or beneficiaries
of the plan.  The terms "director" and "officer" include, unless the context
requires otherwise, the estate or personal representative of a director, of
officer, as applicable.

          (d) Liability.  The term "liability" means the obligation incurred
              ---------                                                     
with respect to a proceeding to pay a judgment, settlement, penalty, fine
(including any excise tax assessed with respect to an employee benefit plan), or
reasonable expenses.

          (e) Proceeding.  The term "proceeding" means any threatened, pending
              ----------                                                      
or completed action, suit, or proceeding whether civil, criminal, administrative
or investigative, and whether formal or informal.

                                       11

 
     5.   Insurance.  The Corporation may purchase and maintain insurance on
          ---------                                                         
behalf of a person who is or was a director, officer, employee, fiduciary, or
agent of the Corporation, or who, while a director, officer, employee,
fiduciary, or agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, fiduciary, or
agent of another domestic or foreign corporation or other person or of an
employee benefit plan, against liability asserted against or incurred by the
person in that capacity or arising from his or her status as a director,
officer, employee, fiduciary, or agent, whether or not the Corporation would
have power to indemnify the person against the same liability under the DGCL.
Any such insurance may be procured from any insurance company designated by the
Board of Directors, whether such insurance company is formed under the laws of
the state of Delaware or any other jurisdiction of the United States or
elsewhere, including any insurance company in which the Corporation has an
equity or any other interest through stock ownership or otherwise.

     6.   Expenses as a Witness.  The Corporation may pay or reimburse expenses
          ---------------------                                                
incurred by a director, officer, employee, fiduciary, or agent in connection
with an appearance as a witness in a proceeding at a time when he or she has not
been made a named defendant or respondent in the proceeding.

     7.   Notice to Shareholders.  If the Corporation indemnifies or advances
          ----------------------                                             
expenses to a director under this Article in connection with a proceeding by or
in the right of the Corporation, the Corporation shall give written notice of
the indemnification or advance to the shareholders with or before the notice of
the next shareholders' meeting.  If the next shareholder action is taken without
a meeting at the instigation of the Board of Directors, such notice shall be
given to the shareholders at or before the time the first shareholder signs a
writing consenting to such action.

                                  ARTICLE VII
                                  -----------
                  Execution of Instruments; Loans; Checks and
                        Endorsements; Deposits; Proxies
                        -------------------------------

     1.   Execution of Instruments.  The President or any Vice President shall
          ------------------------                                            
have the power to execute and deliver on behalf of and in the name of the
Corporation any instrument requiring the signature of an officer of the
Corporation, except as otherwise provided in these Bylaws or when the execution
and delivery of the instrument shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.  Unless authorized
to do so by these Bylaws or by the Board of Directors, no officer, agent or
employee shall have any power or authority to bind the Corporation in any way,
to pledge its credit or to render it liable pecuniarily for any purpose or in
any amount.

     2.   Borrowing.  No loan shall be contracted on behalf of the Corporation,
          ---------                                                            
and no evidence of indebtedness shall be issued, endorsed or accepted in its
name, unless authorized by the Board of Directors or a committee designated by
the Board of Directors so to act.  Such authority may be general or confined to
specific instances.  When so authorized, an officer may (a) effect loans at any
time for the Corporation from any bank or other entity and for such loans may
execute and deliver promissory notes or other evidences of indebtedness of the
Corporation; and (b) mortgage, pledge or otherwise encumber any real or personal
property, or any interest therein, owned or held 

                                       12

 
by the Corporation as security for the payment of any loans or obligation of
this Corporation, and to that end may execute and deliver for the Corporation
such instruments as may be necessary or proper in connection with such
transaction.

     3.   Loans to Directors, Officers and Employees.  The Corporation may lend
          ------------------------------------------                           
money to, guarantee the obligations of and otherwise assist directors, officers
and employees of the Corporation, or directors of another corporation of which
the Corporation owns a majority of the voting stock, only upon compliance with
the requirements of the DGCL.

     4.   Checks and Endorsements.  All checks, drafts or other orders for the
          -----------------------                                             
payment of money, obligations, notes or other evidences of indebtedness, bills
of lading, warehouse receipts, trade acceptances and other such instruments
shall be signed or endorsed for the Corporation by such officers or agents of
the Corporation as shall from time to time be determined by resolution of the
Board of Directors, which resolution may provide for the use of facsimile
signatures.

     5.   Deposits.  All funds of the Corporation not otherwise employed shall
          --------                                                            
be deposited from time to time to the Corporation's credit in such banks or
other depositories as shall from time to time be determined by resolution of the
Board of Directors, which resolution may specify the officers or agents of the
Corporation who shall have the power, and the manner in which such power shall
be exercised, to make such deposits and to endorse, assign and deliver for
collection and deposit checks, drafts and other orders for the payment of money
payable to the Corporation or its order.

     6.   Proxies.  Unless otherwise provided by resolution adopted by the Board
          -------                                                               
of Directors, the President or any Vice President:  (a) may from time to time
appoint one or more agents of the Corporation, in the name and on behalf of the
Corporation, (i) to cast the votes which the Corporation may be entitled to cast
as the holder of stock or other securities in any other corporation, association
or other entity whose stock or other securities may be held by the Corporation,
at meetings of the holders of the stock or other securities of such other
corporation, association or other entity, or (ii) to consent in writing to any
action by such other corporation, association or other entity; (b) may instruct
the person so appointed as to the manner of casting such votes or giving such
consent; and (c) may execute or cause to be executed in the name and on behalf
of the Corporation and under its corporate seal, or otherwise, all such written
proxies or other instruments as may be deemed necessary or proper.

                                 ARTICLE VIII
                                 ------------
                                Shares of Stock
                                ---------------

     1.   Certificates of Stock.  The shares of the Corporation may, but need
          ---------------------                                              
not, be represented by certificates.  Unless the DGCL or another law expressly
provides otherwise, the fact that the shares are not represented by certificates
shall have no effect on the rights and obligations of shareholders.  If the
shares are represented by certificates, such certificates shall be signed by the
President and the Secretary or Treasurer or such other representatives of the
Corporation as are designated by the Board of Directors; provided, however, that
where such certificate is signed or countersigned by a transfer agent or
registrar (both of which may be the Corporation itself or any 

                                       13

 
employee of the Corporation) the signatures of such officers of the Corporation
may be in facsimile form. In case any officer of the Corporation who shall have
signed, or whose facsimile signature shall have been placed on, any certificate
shall cease for any reason to be such officer before such certificate shall have
been issued or delivered by the Corporation, such certificate may nevertheless
be issued and delivered by the Corporation as though the person who signed such
certificate, or whose facsimile signature shall have been placed thereon, had
not ceased to be such officer of the Corporation. Every certificate representing
shares issued by the Corporation shall state the number of shares owned by the
holder in the Corporation, shall designate the class of stock to which such
shares belong, and shall otherwise be in such form as is required by law and as
the Board of Directors shall prescribe.

     2.   Shares Without Certificates.  The Board of Directors may authorize the
          ---------------------------                                           
issuance of any class or series of shares of the Corporation without
certificates.  Such authorization shall not affect shares already represented by
certificates until they are surrendered to the Corporation. Within a reasonable
time following the issue or transfer of shares without certificates, the
Corporation shall send the shareholder a complete written statement of the
information required on certificates by the DGCL.

     3.   Record.  A record shall be kept of the name of each person or entity
          ------                                                              
holding the stock represented by each certificate for shares of the Corporation
issued, the number of shares represented by each such certificate, the date
thereof and, in the case of cancellation, the date of cancellation. The person
or other entity in whose name shares of stock stand on the books of the
Corporation shall be deemed the owner thereof, and thus a holder of record of
such shares of stock, for all purposes as regards the Corporation.

     4.   Transfer of Stock.  Transfers of shares of the stock of the
          -----------------                                          
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by such registered holder's attorney thereunto authorized,
and on the surrender of the certificate or certificates for such shares properly
endorsed.

     5.   Transfer Agents and Registrars; Regulations.  The Board of Directors
          -------------------------------------------                         
may appoint one or more transfer agents or registrars with respect to shares of
the stock of the Corporation.  The Board of Directors may make such rules and
regulations as it may deem expedient and as are not inconsistent with these
Bylaws, concerning the issue, transfer and registration of certificates for
shares of the stock of the Corporation.

     6.   Lost, Destroyed or Mutilated Certificates.  In case of the alleged
          -----------------------------------------                         
loss, destruction or mutilation of a certificate representing stock of the
Corporation, a new certificate may be issued in place thereof, in such manner
and upon such terms and conditions as the Board of Directors may prescribe, and
shall be issued in such situations as required by the DGCL.

                                  ARTICLE IX
                                  ----------
                                  Fiscal Year
                                  -----------

     The fiscal year of the Corporation shall be the year established by the
Board of Directors.

                                       14

 
                                   ARTICLE X
                                   ---------
                          Corporate Books and Records
                          ---------------------------

     1.   Corporate Books.  The books and records of the Corporation may be kept
          ---------------
at such place or places as may be from time to time designated by the Board of
Directors.

     2.   Addresses of Shareholders.  Each shareholder shall furnish to the
          -------------------------                                        
Secretary of the Corporation or the Corporation's transfer agent an address to
which notices from the Corporation, including notices of meetings, may be
directed and if any shareholder shall fail so to designate such an address, it
shall be sufficient for any such notice to be directed to such shareholder at
such shareholder's address last known to the Secretary or transfer agent.

     3.   Fixing Record Date.  The Board of Directors may fix in advance a date
          ------------------                                                   
as a record date for the determination of the shareholders entitled to a notice
of or to vote at any meeting of shareholders or any adjournment thereof, or to
express consent (or dissent) to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action.  Such record date shall not be
more than 50 nor less than 10 days before the date of such meeting, nor more
than 10 days prior to any other action to which the same relates. Only such
shareholders as shall be shareholders of record on the date so fixed shall be so
entitled with respect to the matter to which the same relates.  If the Board of
Directors shall not fix a record date as above provided, and if the Board of
Directors shall not for such purpose close the stock transfer books as provided
by statute, then the record date shall be established by statute in such cases
made and provided.

     4.   Inspection of Books and Records.  Any person who has been a holder of
          -------------------------------                                      
record of shares of the Corporation (or of voting trust certificates
representing such shares) for at least three months immediately preceding such
holder's demand or who is the holder of record of, or the holder of record of
voting trust certificates representing, at least five percent (5%) of all
outstanding shares of the Corporation, has the right, upon written demand
stating the purpose thereof, to examine, in person or by agent or attorney, at
any reasonable time and for any proper purpose, the Corporation's books and
records of account, minutes and record of holders of shares (and of voting trust
certificates therefor) and to make extracts therefrom.

     5.   Distribution of Financial Statements.  Upon the written request of any
          ------------------------------------                                  
shareholder of the Corporation, the Corporation shall mail to such shareholder
its last annual and most recently published financial statement.

     6.   Audits of Books and Accounts.  The Corporation's books and accounts
          ----------------------------                                       
shall be audited at such times and by such auditors as shall be specified and
designated by unanimous resolution of the Board of Directors.

                                  ARTICLE XI
                                  ----------
                         Emergency Bylaws and Actions
                         ----------------------------

                                       15

 
     Subject to repeal or change by action of the shareholders, the Board of
Directors may adopt emergency bylaws and exercise other powers in accordance
with and pursuant to the provisions of the DGCL.

                                  ARTICLE XII
                                  -----------
                                  Amendments
                                  ----------

     Unless the Articles of Incorporation or a particular Bylaw reserves the
right to amend the Bylaw to the shareholders, and subject to repeal or change by
action of the shareholders, either the Board of Directors or the Shareholders
shall have the power to alter, amend or repeal these Bylaws or adopt new bylaws.

                                  --ooOOoo--

                                       16

EX-3.3(A)

 
                                                                  Exhibit 3.3(a)

                           ARTICLES OF INCORPORATION
                                      OF
                            BOWIE RESOURCES LIMITED

                                                                941124461 $50.00
                                                              SOS 11-04-94 15:22

     The undersigned, acting as the incorporator of a corporation to be
incorporated under the laws of the State of Colorado, adopts these Articles of
Incorporation.


                                  Article I.
                                     Name
                                     ----

     The name of the Corporation is Bowie Resources Limited.


                                  Article II.
                              Authorized Capital
                              ------------------

     The Corporation shall have authority to issue 1,000 shares of common
stock with a par value of $.01 per share.

                                 Article III.
                               Agent -- Offices
                               ----------------

          A. Initial Registered Agent. The street address of the initial
             ------------------------
registered office of the Corporation is 1535 Grant Street, Suite 140, Denver, CO
80202, and the name of the initial registered agent at that address is Search
Company International. The written consent of the initial registered agent to
the appointment as such is stated below.

          B. Initial Principal Office. The address of the Corporation's initial
             ------------------------
principal office is 1535 Grant Street, Suite 140, Denver, CO 80202.


                                  Article IV.
                                 Incorporator
                                 ------------

     The name and address of the incorporator is Amy Waters an individual, 555
17th Street, Suite 2900, Denver, CO 80002.

     

 
                                  Article V.
                               Purpose -- Powers
                               -----------------

        A. Purpose. The purpose for which the Corporation is organized is to
           -------
transact any lawful business or businesses for which corporations may be
incorporated pursuant to the Colorado Business Corporation Act.

        B. Powers. The Corporation shall have and may exercise all powers and
           ------
rights granted or otherwise provided for by the Colorado Business Corporation
Act, including, but not limited to, all powers necessary or convenient to effect
the Corporation's purpose.


                                  Article VI.
                               Preemptive Rights
                               -----------------

     The Corporation elects to have preemptive rights.


                                 Article VII.
                              Board of Directors
                              ------------------

     The corporate powers shall be exercised by or under the authority of, and
the business and affairs of the Corporation shall be managed under the direction
of, a board of directors. The directors shall be elected at each annual meeting
of the shareholders, provided that vacancies may be filled by election by the
remaining directors, though less than a quorum, or by the shareholders at a
special meeting called for that purpose. Despite the expiration of his or her
term, a director continues to serve until his or her successor is elected and
qualifies.


                                 Article VIII.
                               Cumulative Voting
                               -----------------

     Cumulative voting shall not be permitted in the election of directors.


                                  Article IX.
                       Limitation on Director Liability
                       --------------------------------

     A director of the Corporation shall not be personally liable to the
Corporation or to its shareholders for monetary damages for breach of fiduciary
duty as a director; except that this provision shall not eliminate or limit the
liability of a director to the Corporation or to its shareholders for monetary
damages otherwise existing for (i) any breach of the director's


                                        2

 
duty of loyalty to the Corporation or to its shareholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) acts specified in Section 7-108-403 of the Colorado
Business Corporation Act; or (iv) any transaction from which the director
directly or indirectly derived any improper personal benefit. If the Colorado
Business Corporation Act is hereafter amended to eliminate or limit further the
liability of a director, then, in addition to the elimination and limitation of
liability provided by the preceding sentence, the liability of each director of
the Corporation shall be eliminated or limited to the fullest extent permitted
by the Colorado Business Corporation Act as so amended. Any repeal or
modification of this Article IX shall not adversely affect any right or
protection of a director of the Corporation under this Article IX, as in effect
immediately prior to such repeal or modification, with respect to any liability
that would have accrued, but for this Article IX, prior to such repeal or
modification.


                                  Article X.
                                Indemnification
                                ---------------

     The Corporation may indemnify, to the fullest extent permitted by
applicable law in effect from time to time, any person, and the estate and
personal representative of any such person, against all liability and expense
(including attorneys' fees) incurred by reason of the fact that such person is
or was a director, officer, fiduciary, or agent of the Corporation or, while
serving as a director, officer, fiduciary, or agent of the Corporation, is or
was serving at the request of the Corporation as a director, officer, partner,
trustee, employee, fiduciary, or agent of, or in any similar managerial or
fiduciary position of, another domestic or foreign corporation or other
individual or entity or of an employee benefit plan to the extent and in the
manner provided in any bylaw, resolution of the directors, resolution of the
shareholders, contract, or otherwise, so long as such indemnification is legally
permissible.


                                  Article XI.
        Quorum and Voting Requirements for Shareholders' Meetings
        ---------------------------------------------------------

     A. Quorum. A majority of the outstanding shares shall constitute a quorum
        ------ 
at any meeting of shareholders.

     B. Voting. Except as is otherwise provided by the Colorado Business
        ------
Corporation Act with respect to action on amendment to these articles of
incorporation, on a plan of merger or share exchange, on the disposition of
substantially all of the property of the Corporation, on the granting of consent
to the disposition of property by an entity controlled by the Corporation, and
on the dissolution of the Corporation, action on a matter other than the
election of directors is approved if a quorum exists and if the votes cast
favoring the action exceed the votes cast opposing the action.




                                        3

 
     IN WITNESS WHEREOF, the undersigned incorporator who is a natural person
over the age of eighteen years has executed these Articles of Incorporation on
November 4, 1994.


                                               Name: /s/ Amy Waters
                                                    --------------------------
                                                     Amy Waters, Incorporator




                                       4

 

                       Mail to: Secretary of State        For office use only 
                            Corporations Section   
                          1560 Broadway, Suite 200  
                            Denver, CO 80202      
FORM.002 (Rev. 1994)         (303) 894-2251               951006755   $25.00
MUST BE TYPED              Fax (303) 894-2242             SECRETARY OF STATE
FILING FEE: $25.00                                        01-18 95   15:09
MUST SUBMIT TWO COPIES                        
            ---

                             ARTICLES OF AMENDMENT
Please include a typed             TO THE
self-addressed envelope    ARTICLES OF INCORPORATION


Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:

FIRST: The name of the corporation is Bowie Resources Limited.

SECOND: The following amendment to the Articles of Incorporation was adopted on
January 13, 1995, as prescribed by the Colorado Business Corporation Act, in
the manner marked with an X below:

 X  Such amendment was adopted by the board of directors where shares have been
- --- issued.

If these amendments are to have a delayed effective date, please list that date:
  NA 
- ------
           (Not to exceed ninety (90) days from the date of filing)

THIRD: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows:

     Article II is hereby deleted in its entirety and replaced with the
following new Article II.

                        Article II. Authorized Capital.
                                    ------------------

     The Corporation shall have the authority to issue 100,000 shares of common
stock with a par value of $.01 per share.


                                         Bowie Resources Limited,
                                         a Colorado corporation



                                         By  /s/ Larry Addington
                                            ---------------------------------
                                             Larry Addington, President

 

                             ARTICLES OF AMENDMENT
                                      TO
                           ARTICLES OF INCORPORATION
                                      OF
                           BOWIE RESOURCES, LIMITED

     Pursuant to the provisions of the Colorado Business Corporation Act, BOWIE
RESOURCES, LIMITED hereby adopts the following Articles of Amendment to its
Articles of Incorporation as follows:

     1. The name of the corporation is Bowie Resources, Limited (the
"Corporation").

     2. Article vIII of the Corporation's Articles of Incorporation, as amended
or restated to date is deleted in its entirety and replaced with the following
new Article VIII:

                                "Article VIII.
                               Cumulative Voting
                               -----------------

        Cumulative voting shall be required in the election of directors of the
        Corporation."

     3. This amendment was authorized by the shareholders on January 30, 1997,
pursuant to the provisions of the Colorado Business Corporation Act.

     4. There were 1000 common shares of the Corporation issued, outstanding
and entitled to vote on the amendment. Of these shares, 1000 were indisputably
represented and cast in favor of the amendment. The number of votes cast in
favor of the amendment was sufficient for approval.

     IN WITNESS WHEREOF, the undersigned duly authorized officer of the
Corporation has executed these Articles of Amendment to Articles of
Incorporation of Bowie Resources, Limited.


                                    BOWIE RESOURCES, LIMITED



                                    By:  /s/ Don Brown
                                         -----------------------------
                                         Don Brown, President

EX-3.3(B)

 
                                                                  Exhibit 3.3(b)


                                    BYLAWS

                                      OF

                           BOWIE RESOURCES LIMITED 

                           (A Colorado Corporation)


                       Effective as of November 4, 1994

 
                                    BYLAWS
                                    ------
                                      OF
                                      --
                            BOWIE RESOURCES LIMITED
                            -----------------------
                               TABLE OF CONTENTS
                               -----------------

                                                                          Page
                                                                          ----
     ARTICLE I       Offices ..............................................  1
         1.          Business Offices .....................................  1
         2.          Principal Office .....................................  1
         3.          Registered Office ....................................  1

     ARTICLE II      Shareholders' Meetings ...............................  1
         1.          Annual Meetings ......................................  1
         2.          Special Meetings .....................................  2
         3.          Place of Special Meetings ............................  2
         4.          Notice of Meetings ...................................  3
         5.          Shareholders' List ...................................  3
         6.          Organization .........................................  4
         7.          Agenda and Procedure .................................  4
         8.          Quorum ...............................................  4
         9.          Adjournment ..........................................  5
        10.          Voting ...............................................  5
        11.          Inspectors ...........................................  6
        12.          Meeting by Telecommunication .........................  7

     ARTICLE III     Board of Directors ...................................  8
         1.          Election and Tenure ..................................  8
         2.          Number and Qualification .............................  8
         3.          Annual Meetings ......................................  8
         4.          Regular Meetings .....................................  8
         5.          Special Meetings .....................................  9
         6.          Place of Meetings ....................................  9
         7.          Notice of Meetings ...................................  9
         8.          Quorum ...............................................  9
         9.          Organization, Agenda and Procedure ................... 10
        10.          Resignation .......................................... 10
        11.          Removal .............................................. 10
        12.          Vacancies ............................................ 11
        13.          Executive and Other Committees ....................... 12
        14.          Compensation of Directors ............................ 12

     ARTICLE IV      Waiver of Notice by Shareholders and Directors
                       and Action of Shareholders and Directors by Consent. 13
        1.           Waiver of Notice ..................................... 13


                                       i

 
                                                                          Page
                                                                          ----
         2.          Action Without a Meeting ............................. 14
         3.          Meetings by Telephone ................................ 15

     ARTICLE V       Officers ............................................. 15
         1.          Election and Tenure .................................. 15
         2.          Resignation, Removal and Vacancies ................... 15
         3.          President ............................................ 16
         4.          Vice Presidents ...................................... 16
         5.          Secretary ............................................ 17
         6.          Treasurer ............................................ 17
         7.          Assistant Secretaries and Assistant Treasurers ....... 17
         8.          Bond of Officers ..................................... 18
         9.          Salaries ............................................. 18

     ARTICLE VI      Indemnification ...................................... 18
         1.          Indemnification ...................................... 18
         2.          Provisions Not Exclusive ............................. 19
         3.          Effect of Modification of Act ........................ 19
         4.          Definitions .......................................... 19
         5.          Insurance ............................................ 21
         6.          Expenses as a Witness ................................ 21
         7.          Notice to Shareholders ............................... 21

     ARTICLE VII     Execution of Instruments; Loans; Checks and 
                     Endorsements; Deposits; Proxies ...................... 22
         1.          Execution of Instruments ............................. 22
         2.          Borrowing ............................................ 22
         3.          Loans to Directors, Officers and Employees ........... 23
         4.          Checks and Endorsements .............................. 23
         5.          Deposits ............................................. 23
         6.          Proxies .............................................. 24

     ARTICLE VIII    Shares of Stock ...................................... 24
         1.          Certificates of Stock ................................ 24
         2.          Shares Without Certificates .......................... 25
         3.          Record ............................................... 25
         4.          Transfer of Stock .................................... 26
         5.          Transfer Agents and Registrars; Regulations .......... 26
         6.          Lost, Destroyed or Mutilated Certificates ............ 26

     ARTICLE IX      Corporate Seal ....................................... 26


                                      ii

 
                                                                          Page
                                                                          ----
     ARTICLE X       Fiscal Year .......................................... 27
     
     ARTICLE XI      Corporate Books and Records .......................... 27
         1.          Corporate Books ...................................... 27
         2.          Addresses of Shareholders ............................ 27
         3.          Fixing Record Date ................................... 27
         4.          Inspection of Books and Records ...................... 28
         5.          Distribution of Financial Statements ................. 28
         6.          Audits of Books and Accounts ......................... 29
     
     ARTICLE XII     Emergency Bylaws ..................................... 29
     
     ARTICLE XIII    Amendments ........................................... 29










                                       iii

 
                                    BYLAWS
                                    ------

                                      OF
                                      --

                            BOWIE RESOURCES LIMITED
                            -----------------------

                           (a Colorado Corporation)



                                   ARTICLE I
                                   ---------

                                    Offices
                                    -------

     1. Business Offices. The Corporation may have one or more offices at such
        ----------------
place or places within or without the State of Colorado as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.

     2. Principal Office. The initial principal office of the Corporation shall
        ----------------
be as set forth in the Articles of Incorporation. The Board of Directors, from
time to time, may change the principal office of the Corporation.

     3. Registered Office. The registered office of the Corporation shall be as
        -----------------
set forth in the Articles of Incorporation, unless changed as provided by the
provisions of the Colorado Business Corporation Act, as it may be amended from
time to time (the "Act").

                                  ARTICLE II
                                  ----------

                            Shareholders' Meetings
                            ----------------------

     1. Annual Meetings. The annual meetings of shareholders for the election of
        ---------------
directors to succeed those whose terms expire and for the transaction of such
other business as may come before the meeting shall be held each year on the
first Tuesday in November at 10:00 a.m., local time at the place of the meeting
fixed by the Board of Directors, or, if not


                                       1

 
so fixed, at the principal office designated in the Articles of Incorporation,
or at such other time to be fixed each year by the Board of Directors not less
than 20 days prior to such meeting. [If the day so fixed for such annual meeting
shall be a legal holiday at the place of the meeting, then such meeting shall be
held on the next succeeding business day at the same hour.

     2. Special Meetings. Special meetings of shareholders for any purpose or
        ----------------
purposes, unless otherwise prescribed by statute or by the Articles of
Incorporation, may be called at any time by the President or by the Board of
Directors and shall be called by the President or the Secretary upon the
request (which shall state the purpose or purposes therefor) of a majority of
the Board of Directors or of the holders of shares representing not less than
ten percent of all votes entitled to be cast on any issue proposed to be
considered at the meeting. The record date for determining the shareholders
entitled to demand a special meeting is the date of the earliest of any of the
demands pursuant to which the meeting is called, or the date that is 60 days
before the date the first of which demands is received, whichever is later.
Business transacted at any special meeting of shareholders shall be limited to
the purpose or purposes stated in the notice.

     3. Place of Special Meetings. Special meetings of shareholders shall be
        -------------------------   
held at such place or places, within or without the State of Colorado, as may be
determined by the Board of Directors and designated in the notice of the
meeting, or, if no place is so determined and designated in the notice, the
place of the shareholders' meetings shall be the principal office of the
Corporation.


                                       2

 
     4. Notice of Meetings. Not less than 10 nor more than 60 days prior to each
        ------------------
annual or special meeting of shareholders, written notice of the meeting shall
be personally delivered to, or deposited in the United States mail, postage
prepaid and directed to, each shareholder entitled to vote at such meeting;
provided, however, that if the authorized shares of the Corporation are proposed
to be increased, at least 30 days' notice in like manner shall be given; and
provided, further, that if other or different notice is required by the Act (as
in the case of the sale, lease or exchange of the Corporation's assets other
than in the usual and regular course of business, or the merger, consolidation
or dissolution of the Corporation) the provisions of the Act shall govern.
Notice to a shareholder of record, if mailed, shall be deemed delivered when
deposited in the United States mail, postage prepaid, addressed to the
shareholder at the address of such shareholder appearing in the stock transfer
books of the Corporation. If three successive letters mailed to the last known
address of any shareholder of record are returned as undeliverable, no further
notices to such shareholder shall be necessary until another address for such
shareholder is made known to the Corporation. The notice of any meeting shall
state the place, day and hour of the meeting. The notice of a special meeting
shall, in addition, state the meeting's purposes.

     5. Shareholders' List. A complete record of the shareholders entitled to
        ------------------
vote at such meeting (or an adjourned meeting described in Section 9 of this
Article II) arranged by voting groups and, within each voting group, in
alphabetical order, showing the address of each shareholder and the number of
shares registered in the name of each, shall be prepared by the officer or agent
of the Corporation who has charge of the stock transfer books of the
Corporation. The shareholders' list shall be available for inspection by any
shareholder


                                       3

 
beginning on the earlier of ten days before the meeting or two days after notice
is given and continuing through the meeting and any adjournment thereof, subject
to the requirements of Article 116 of the Act. Such record shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and subject to inspection for any purpose germane to the meeting by any
shareholder who may be present.

     6. Organization. The President or, in the President's absence, any Vice
        ------------
President shall call meetings of shareholders to order and act as chairperson of
such meetings. In the absence of said officers, any shareholder entitled to vote
at the meeting, or any proxy of any such shareholder, may call the meeting to
order and a chairperson shall be elected by a majority of the shareholders
present and entitled to vote at the meeting. The Secretary or any Assistant
Secretary of the Corporation or any person appointed by the chairperson may act
as secretary of such meetings.

     7. Agenda and Procedure. The Board of Directors shall have the
        --------------------
responsibility of establishing an agenda for each meeting of shareholders,
subject to the rights of shareholders to raise matters for consideration which
may otherwise properly be brought before the meeting although not included
within the agenda. The chairperson shall be charged with the orderly conduct of
all meetings of shareholders.

     8. Quorum. Shares entitled to vote as a separate voting group may take
        ------
action on a matter at a meeting only if a quorum of those shares exists with
respect to that matter. A majority of the votes entitled to be cast on the
matter by the voting group constitutes a quorum of that voting group for action
on that matter. In the absence of a quorum at any shareholder's meeting, a
majority of the shareholders present in person or represented by

                                       4

 
proxy and entitled to vote at the meeting may adjourn the meeting from time to
time for a period not to exceed 120 days from the original date of the meeting
without further notice (except as provided in Section 9 of this Article II)
until a quorum shall be present or represented.

     9.  Adjournment. When a meeting is for any reason adjourned to another time
         -----------
or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, any business may be transacted which might have been
transacted at the original meeting. If the adjournment is for more than 120 days
from the date of the original meeting, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each shareholder of record entitled to vote at the meeting.

     10. Voting.
         ------

         (a) Except as provided in the Articles of Incorporation, at every
meeting of shareholders, or with respect to corporate action which may be taken
without a meeting, every shareholder shall be entitled to one vote for each
share of stock having voting power held of record by such shareholder on the
record date designated therefor pursuant to Section 3 of Article XI of these
Bylaws (or the record date established pursuant to statute in the absence of
such designation); provided, however, that the cumulative system of voting for
the election of directors is not allowed.

         (b) A shareholder may vote the shareholder's shares in person or by
proxy. A person may appoint a proxy in person or through an attorney-in-fact and
such appointment may transmitted by telegram, teletype, or other written
statement of the appointment


                                       5

 
permitted by the Act. The appointment is effective for eleven months unless a
different period is expressly provided in the appointment form. An appointment
shall be revocable unless coupled with an interest including the appointment of
any of the following: (1) a pledgee; (2) a person who purchased or agreed to
purchase the shares; (3) a creditor of the Corporation who extended credit to
the Corporation under terms requiring the appointment; (4) an employee of the
Corporation whose employment contract requires the appointment; or (5) a party
to a voting trust agreement.

     (c) The voting rights of fiduciaries, beneficiaries, pledgors, pledgees and
joint, common and other multiple owners of shares of stock shall be as provided
from time to time by the Act and any other applicable law.

     (d) Shares of the Corporation held of record by another corporation may be
voted by such officer, agent or proxy as the bylaws of such other corporation
may prescribe, or, in the absence of such provision, as the Board of Directors
of such corporation may determine.

     (e) When a quorum is present at any meeting of shareholders, a majority of
the votes entitled to be cast on the matter by the voting group shall constitute
a quorum of that voting group for action on the matter, unless the question is
one upon which by express provision of a statute, or the Articles of
Incorporation, or these Bylaws, a different vote is required, in which case such
express provision shall govern and control the decision on such question.

     11. Inspectors. The chairperson of the meeting may at any time appoint two
         ----------
or more inspectors to serve at a meeting of the shareholders. Such inspectors
shall decide upon


                                       6

 
the qualifications of voters, including the validity of proxies, accept and
count the votes for and against the questions presented, report the results of
such votes, and subscribe and deliver to the secretary of the meeting a
certificate stating the number of shares of stock issued and outstanding and
entitled to vote thereon and the number of shares voted for and against the
questions presented. The voting inspectors need not be shareholders of the
Corporation, and any director or officer of the Corporation may be an inspector
on any question other than a vote for or against such director's or officer's
election to any position with the Corporation or on any other question in which
such officer or director may be directly interested.

     12. Meeting by Telecommunication. If and only if permitted by the Board of
         ---------------------------- 
Directors, any or all of the shareholders may participate in an annual or
special shareholders' meeting by, or the meeting may be conducted through the
use of, any means of communication by which all persons participating in the
meeting may hear each other during the meeting. If the Board of Directors
determines to allow shareholders to participate in a shareholders' meeting by
telecommunication, the Board shall establish the terms and conditions under
which shareholders may participate by such means and cause the notice of the
meeting to contain such terms and conditions. Only shareholders who comply with
the terms and conditions indicated in such notice shall be entitled to so
participate by telecommunications in the shareholders' meeting. A shareholder
participating in a meeting by telecommunications in compliance with the terms
and conditions established by the Board of Directors is deemed to be present in
person at the meeting.


                                       7

 
                                  ARTICLE III
                                  -----------

                              Board of Directors
                              ------------------

     1. Election and Tenure. The business and affairs of the Corporation shall
        -------------------
be managed by a Board of Directors who shall be elected at the annual meetings
of shareholders or special meetings called for that purpose. In an election of
directors, that number of candidates equaling the number of directors to be
elected having the highest number of votes cast in favor of their election shall
be elected to the Board of Directors. Each director shall be elected to serve
and to hold office until the next succeeding annual meeting and until such
director's successor shall be elected and shall qualify, or until such
director's earlier death, resignation or removal.

     2. Number and Qualification. The initial Board of Directors shall consist
        ------------------------
of one member. The number of directors may be increased or decreased from time
to time and may be increased or decreased by resolution adopted by the Board of
Directors, but no decrease shall have the effect of shortening the term of any
director. Directors must be natural persons at least eighteen years of age but
need not be shareholders or residents of the State of Colorado.

     3. Annual Meetings. As soon as practicable after each annual election of
        ---------------
directors, the Board of Directors shall meet for the purpose of organization,
election of officers and the transaction of any other business.

     4. Regular Meetings. Regular meetings of the Board of Directors shall be
        ----------------
held at such time or times as may be determined by the Board of Directors and
specified in the notice of such meetings.


                                       8

 
     5. Special Meetings. Special meetings of the Board of Directors may be
        ----------------
called by the President and shall be called by the President or the Secretary on
the written request of any two directors.

     6. Place of Meetings. Any meeting of the Board of Directors may be held at
        -----------------
such place or places either within or without the State of Colorado as shall
from time to time be determined by the Board of Directors and as shall be
designated in the notice of the meeting.

     7. Notice of Meetings. Notice of each meeting of directors, whether annual,
        ------------------
regular or special, shall be given to each director. If such notice is given
either (a) by personally delivering written notice to a director or (b) by
personally telephoning such director, it shall be so given at least two days
prior to the meeting. If such notice is given either (1) by depositing a written
notice in the United States mail, postage prepaid, or (2) by facsimile
transmission, in all cases directed to such director at that person's residence,
or place of business, it shall be so given at least four days prior to the
meeting. The notice shall state the place, date and hour thereof, but need not,
unless otherwise required by the Act, state the purposes of the meeting.

     8. Quorum. A majority of the number of directors fixed by or in accordance
        ------
with Section 2 of this Article III shall constitute a quorum at all meetings of
the Board of Directors, and the vote of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors.
In the absence of a quorum at any such meeting, a majority of the directors
present may adjourn the meeting from time to time


                                       9

 
without further notice, other than announcement at the meeting, until a quorum
shall be present.

     9. Organization, Agenda and Procedure. The President, or in the President's
        ----------------------------------
absence, any director chosen by a majority of the directors present, shall act
as chairperson of the meetings of the Board of Directors. The Secretary, any
Assistant Secretary, or any other person appointed by the chairperson shall act
as secretary of each meeting of the Board of Directors. The agenda of and
procedure for such meetings shall be as determined by the Board of Directors.

     10. Resignation. Any director of the Corporation may resign at any time by
         -----------
giving written resignation notice to the Board of Directors, the President, and
Vice President or the Secretary of the Corporation. Such resignation shall take
effect at the date of receipt of such notice or at any later time specified
therein and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective, unless it so provides.
A director who resigns may deliver to the Secretary of State for filing a
statement to that effect.

     11. Removal. Except as otherwise provided in the Articles of Incorporation
         -------
or in these Bylaws, any director may be removed, either with or without cause,
at any time, by the affirmative vote of the holders of a majority of the issued
and outstanding shares of stock entitled to vote for the election of directors
of the Corporation at a special meeting of the shareholders called and held for
such purpose; provided, however, that if less than the entire Board of Directors
is to be removed, and if cumulative voting of shares in the election of
directors is allowed, a director may not be removed if the votes cast against
such director's


                                      10

 
removal would be sufficient to elect such director if such votes were
cumulatively voted for such director at an election of the entire Board of
Directors. A vacancy in the Board of Directors caused by any such removal may be
filled by the Corporation's shareholders at such meeting or, if the shareholders
at such meeting shall fail to fill such vacancy, by the Board of Directors as
provided in Section 12 of this Article III.

     12. Vacancies. Except as provided in Section 11 of this Article III, any
         ---------
vacancy occurring for any reason in the Board of Directors may be filled by the
affirmative vote of a majority of the directors then in office, though less than
a quorum of the Board of Directors or by an election by the shareholders. Any
directorship to be filled by reason of an increase in the number of directors
shall be filled by the affirmative vote of a majority of the directors then in
office or by an election by the shareholders. A director elected to fill a
vacancy shall be elected for the unexpired term of such director's predecessor
in office and shall hold office until the expiration of such term and until a
successor shall be elected and shall qualify or until such director's earlier
death, resignation or removal. A director chosen to fill a position resulting
from an increase in the number of directors shall hold office until the next
annual meeting of shareholders and until a successor shall be elected and shall
qualify, or until such director's earlier death, resignation or removal. If the
vacant directorship was held by a director elected by a voting group of
shareholders and one or more of the remaining directors were elected by the same
voting group, only such directors are entitled to vote to fill the vacancy if it
is filled by directors, and they may do so by the affirmative vote of a majority
of such directors remaining in office; the vacancy shall be filled by the vote
of


                                      11

 
the holders of shares of that voting group that is entitled to fill such vacancy
if it is filled by the shareholders.

     13. Executive and Other Committees. The Board of Directors, by resolution
         ------------------------------
adopted by a majority of the number of directors fixed by or in accordance with
Section 2 of this Article III, may designate from among its members an executive
committee and one or more other committees each of which, to the extent provided
in the resolution and except as otherwise prescribed by statute, shall have and
may exercise all of the authority of the Board of Directors in the management of
the Corporation. Rules governing the procedures for meetings of executive or
other committees shall be as established by the Board of Directors or by such
committee. Notwithstanding the foregoing, no committee shall: (a) authorize
distributions; (b) approve or propose to shareholders action that the Act
requires to be approved by shareholders; (c) fill vacancies on the board of
directors or on any of its committees; (d) amend the Articles of Incorporation;
(e) adopt, amend, or repeal these Bylaws; (f) approve a plan of merger not
requiring shareholder approval; (g) authorize or approve reacquisition of
shares, except according to a formula or method prescribed by the Board of
Directors; or (h) authorize or approve the issuance or sale of shares, or a
contract for the sale of shares, or determine the designation and relative
rights, preferences, and limitations of a class or series of shares; except that
the Board of Directors may authorize a committee or an officer to do so within
limits specifically prescribed by the Board of Directors.

     14. Compensation of Directors. Each director may be allowed such amount per
         -------------------------
annum or such fixed sum for attendance at meetings of the Board of Directors,
executive or


                                      12

 
other committee, as may be from time to time fixed by resolution of the Board of
Directors, together with reimbursement for the reasonable and necessary expenses
incurred by such director in connection with the performance of such director's
duties. Nothing herein contained shall be construed to preclude any director
from serving the Corporation in any other capacity or any of its subsidiaries in
any other capacity and receiving proper compensation therefor.



                                  ARTICLE IV
                                  ----------

           Waiver of Notice by Shareholders and Directors and Action
           ---------------------------------------------------------

                   of Shareholders and Directors by Consent
                   ----------------------------------------

     1. Waiver of Notice. A shareholder may waive any notice required by the Act
        ---------------- 
or by the Articles of Incorporation or these Bylaws, and a director may waive
any notice of a directors meeting, whether before or after the date or time
stated in the notice as the date or time when any action will occur or has
occurred. The waiver shall be in writing, be signed by the shareholder or
director entitled to the notice, and be delivered to the Corporation for
inclusion in the minutes or filing with the corporate records, but such delivery
and filing shall not be conditions of the effectiveness of the waiver.
Attendance of a shareholder or the attendance or participation by a director at
a meeting waives objection to lack of required notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting, or the
director, at the beginning of the meeting or promptly upon his or her later
arrival, objects to holding the meeting or transacting business at the meeting
because of lack of notice or defective notice, and, in the case of a director,
does not thereafter vote for or


                                      13

 
assent to action taken at the meeting, and waives objection to consideration of
a particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice, or of a matter without special notice required
by the Act, the Articles of Incorporation, or these Bylaws, unless the
shareholder or director objects to considering the matter when it is presented
and, in the case of a director, does not thereafter vote for or assent to action
taken at the meeting with respect to such purpose.

     2. Action Without a Meeting. Unless the Articles of Incorporation require
        ------------------------
that such action be taken at a shareholders' meeting, any action required or
required to be taken at a meeting of the shareholders, directors or members of
an executive or other committee may be taken without a meeting if all
shareholders entitled to vote with respect to the subject matter, or all
directors or all members of an executive or other committee, as the case may be,
give written consent to the specific action taken. The record date for
determining shareholders entitled to take action without a meeting is the date
upon which a writing upon which the action is to be taken is first received by
the Corporation. Action taken without a meeting shall be effective: in the case
of an action of shareholders, as of the date the last writing necessary to
effect the action is received by the Corporation unless all writings necessary
to effect the action specify a later date, in which case the later date shall be
the date of the action; in the case of other actions, action is taken when the
last director signs a writing describing the action taken unless before such
time the Secretary has received a written revocation of the consent of any other
director, and any action so taken shall be effective at the time taken unless
the directors specify a different effective date.



                                      14

 
     3. Meetings by Telephone. One or more members of the Board of Directors or
        ---------------------
any committee designated by the Board of Directors may hold or participate in a
meeting of the Board of Directors or such committee through the use of any means
of communication by which all persons participating can hear each other at the
same time.


                                   ARTICLE V
                                   ---------

                                   Officers
                                   --------

     1. Election and Tenure. The officers of the Corporation shall consist of a
        -------------------
President, a Secretary and Treasurer, each of whom shall be appointed annually
by the Board of Directors. The Board of Directors may also designate and appoint
such other officers and assistant officers as may be deemed necessary. The Board
of Directors may delegate to any such officer the power to appoint or remove
subordinate officers, agents or employees. Any two or more offices may be held
by the same person. Each officer so appointed shall continue in office until a
successor shall be appointed and shall qualify, or until the officer's earlier
death, resignation or removal. Each officer shall be a natural person who is
eighteen years of age or older.

     2. Resignation, Removal and Vacancies. Any officer may resign at any time
        ----------------------------------
by giving written notice of resignation to the Board of Directors or the
President. Such resignation shall take effect when the notice is received by the
Corporation unless the notice specifies a later date, and acceptance of the
resignation shall not be necessary to render such resignation effective. Any
officer may at any time be removed by the affirmative vote of a majority of the
number of directors fixed by or in accordance with Section 2 of Article III of


                                      15

 
these Bylaws, or by an executive committee of the Board of Directors. If any
office becomes vacant for any reason, the vacancy may be filled by the Board of
Directors. An officer appointed to fill a vacancy shall be appointed for the
unexpired term of such officer's predecessor in office and shall continue in
office until a successor shall be elected or appointed and shall qualify, or
until such officer's earlier death, resignation or removal. The appointment of
an officer shall not itself create contract rights in favor of the officer, and
the removal of an officer does not affect the officer's contract rights, if any,
with the Corporation and the resignation of an officer does not affect the
Corporation's contract rights, if any, with the officer.

     3. President. The President shall be the chief executive officer of the
        ---------
Corporation. The President shall preside at meetings of the shareholders; shall
have general and active management of the business of the Corporation; shall see
that all orders and resolutions of the Board of Directors are carried into
effect; and shall perform all duties as may from time to time be assigned by the
Board of Directors.

     4. Vice Presidents. The Vice Presidents, if any, shall perform such duties
        ---------------
and possess such powers as from time to time may be assigned to them by the
Board of Directors or the President. In the absence of the President or in the
event of the inability or refusal of the President to act, the Vice President
(or in the event there be more than one Vice President, the Vice Presidents in
the order designated by the Board of Directors, or in the absence of any
designation, then in the order of the election or appointment of the Vice
Presidents) shall perform the duties of the President and when so performing
shall have all the powers of and be subject to all the restrictions upon the
President.

                                      16

 
     5. Secretary. The Secretary shall perform such duties and shall have such
        ---------
powers as may from time to time be assigned by the Board of Directors or the
President. In addition, the Secretary shall perform such duties and have such
powers as are incident to the office of Secretary including, without limitation,
the duty and power to give notice of all meetings of shareholders and the Board
of Directors, the preparation and maintenance of minutes of the directors' and
shareholders' meetings and other records and information required to be kept by
the Corporation under Article XI and for authenticating records of the
Corporation, and to be custodian of the corporate seal and to affix and attest
to the same on documents, the execution of which on behalf of the Corporation is
authorized by these Bylaws or by the action of the Board of Directors.

     6. Treasurer. The Treasurer shall perform such duties and shall have such
        ---------
powers as may from time to time be assigned by the Board of Directors or the
President. In addition, the Treasurer shall perform such duties and have such
powers as are incident to the office of Treasurer including, without limitation,
the duty and power to keep and be responsible for all funds and securities of
the Corporation, to deposit funds of the Corporation in depositories selected in
accordance with these Bylaws, to disburse such funds as ordered by the Board of
Directors, making proper accounts thereof, and to render as required by the
Board of Directors statements of all such transactions as Treasurer and of the
financial condition of the Corporation.

     7. Assistant Secretaries and Assistant Treasurers. The Assistant
        ----------------------------------------------
Secretaries and Assistant Treasurers, if any, shall perform such duties as shall
be assigned to them by the Secretary or the Treasurer, respectively, or by the
President or the Board of Directors. In

                                      17

 
the absence, inability or refusal to act of the Secretary or the Treasurer, the
Assistant Secretaries or Assistant Treasurers, respectively, in the order
designated by the Board of Directors, or in the absence of any designation, then
in the order of their election or appointment, shall perform the duties and
exercise the powers of the Secretary or Treasurer, as the case may be.

     8. Bond of Officers. The Board of Directors may require any officer to give
        ----------------
the Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for such terms and conditions as the
Board of Directors may specify, including without limitation for the faithful
performance of such officer's duties and for the restoration to the Corporation
of any property belonging to the Corporation in such officer's possession or
under the control of such officer.

     9. Salaries. Officers of the Corporation shall be entitled to such
        --------
salaries, emoluments, compensation or reimbursement as shall be fixed or allowed
from time to time by the Board of Directors.


                                  ARTICLE VI
                                  ----------

                                Indemnification
                                ---------------

     1. Indemnification. To the extent permitted or required by the Act and any
        ---------------
other applicable law, if any director or officer of the Corporation is made a
party to or is involved in any proceeding because such person is or was a
director or officer of the Corporation, the Corporation shall (a) indemnify such
person from and against any liability, including but not limited to expenses of
investigation and preparation, expenses in connection with appearance

                                      18

 
as a witness and fees and disbursements of counsel, accountants or other
experts, incurred by such person in such proceeding, and (b) advance to such
person expenses incurred in such proceeding. The Corporation may in its
discretion, but is not obligated in any way to, indemnify and advance expenses
to an employee or agent of the Corporation to the same extent as to a director
or officer, and the Corporation may indemnify an employee, fiduciary or agent of
the Corporation to a greater extent than expressly permitted herein for officers
and directors, provided such indemnification is not in violation of public
policy.

     2. Provisions Not Exclusive. The foregoing provisions for indemnification
        ------------------------
and advancement of expenses are not exclusive, and the Corporation may at its
discretion provide for indemnification or advancement of expenses in a
resolution of its shareholders or directors, in a contract or in its Articles of
Incorporation.

     3. Effect of Modification of Act. Any repeal or modification of the
        -----------------------------
foregoing provisions of this Article for indemnification or advancement of
expenses shall not affect adversely any right or protection stated in such
provisions with respect to any act or omission occurring prior to the time of
such repeal or modification. If any provision of this Article or any part
thereof shall be held to be prohibited by or invalid under applicable law, such
provision or part thereof shall be deemed amended to accomplish the objectives
of the provision or part thereof as originally written to the fullest extent
permitted by law and all other provisions or parts shall remain in full force
and effect.

     4. Definitions. As used in this Article, the following terms have the
        -----------
following meanings:

                                      19

 
     (a) Act. When used with reference to an act or omission occurring prior to
         ---
the effectiveness of any amendment to the Act after the effectiveness of the
adoption of this Article, the term "Act" shall include such amendment only to
the extent that the amendment permits a Corporation to provide broader
indemnification rights than the Act permitted prior to the amendment.

     (b) Corporation. The term "Corporation" includes any domestic or foreign
         -----------
entity that is a predecessor of the Corporation by reason of a merger or other
transaction in which the predecessor's existence ceased upon consummation of the
transaction.

     (c) Director or Officer. A "director" or "officer" is an individual who is
         -------------------
or was a director or officer of the Corporation or an individual who, while a
director or officer of the Corporation, is or was serving at the Corporation's
request as a director, officer, partner, trustee, employee, fiduciary, or agent
of another domestic or foreign corporation or other person or of an employee
benefit plan. A director or officer is considered to be serving an employee
benefit plan at the Corporation's request if his or her duties to the
Corporation also impose duties on, or otherwise involve services by, the
director or officer to the plan or to participants in or beneficiaries of the
plan. The terms "director" and "officer" include, unless the context requires
otherwise, the estate or personal representative of a director, or officer, as
applicable.

     (d) Liability. The term "liability" means the obligation incurred with
         ---------
respect to a proceeding to pay a judgment, settlement, penalty, fine (including
any excise tax assessed with respect to an employee benefit plan), or reasonable
expenses.

                                      20

 
        (e) Proceeding. The term "proceeding" means any threatened, pending or
            ----------
completed action, suit, or proceeding whether civil, criminal, administrative or
investigative and whether formal or informal.

     5. Insurance. The Corporation may purchase and maintain insurance on behalf
        ---------
of a person who is or was a director, officer, employee, fiduciary, or agent of
the Corporation, or who, while a director, officer, employee, fiduciary, or
agent of the Corporation, is or was serving at the request of the Corporation as
a director, officer, partner, trustee, employee, fiduciary, or agent of another
domestic or foreign corporation or other person or of an employee benefit plan,
against liability asserted against or incurred by the person in that capacity or
arising from his or her status as a director, officer, employee, fiduciary, or
agent, whether or not the Corporation would have power to indemnify the person
against the same liability under the Act. Any such insurance may be procured
from any insurance company designated by the Board of Directors, whether such
insurance company is formed under the laws of this state or any other
jurisdiction of the United States or elsewhere, including any insurance company
in which the Corporation has an equity or any other interest through stock
ownership or otherwise.

     6. Expenses as a Witness. The Corporation may pay or reimburse expenses
        ---------------------
incurred by a director, officer, employee, fiduciary, or agent in connection
with an appearance as a witness in a proceeding at a time when he or she has not
been made a named defendant or respondent in the proceeding.

     7. Notice to Shareholders. If the Corporation indemnifies or advances
        ----------------------
expenses to a director under this Article in connection with a proceeding by or
in the right of the

                                      21

 
Corporation, the Corporation shall give written notice of the indemnification or
advance to the shareholders with or before the notice of the next shareholders'
meeting. If the next shareholder action is taken without a meeting at the
instigation of the Board of Directors, such notice shall be given to the
shareholders at or before the time the first shareholder signs a writing
consenting to such action.

                                  ARTICLE VII
                                  -----------

           Execution of Instruments; Loans; Checks and Endorsements;
           ---------------------------------------------------------
                               Deposits; Proxies
                               -----------------

     1. Execution of Instruments. The President or any Vice President shall have
        ------------------------
the power to execute and deliver on behalf of and in the name of the Corporation
any instrument requiring the signature of an officer of the Corporation, except
as otherwise provided in these Bylaws or when the execution and delivery of the
instrument shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation. Unless authorized to do so by these Bylaws
or by the Board of Directors, no officer, agent or employee shall have any power
or authority to bind the Corporation in any way, to pledge its credit or to
render it liable pecuniarily for any purpose or in any amount.

     2. Borrowing. No loan shall be contracted on behalf of the Corporation, and
        ---------
no evidence of indebtedness shall be issued, endorsed or accepted in its name,
unless authorized by the Board of Directors or a committee designated by the
Board of Directors so to act. Such authority may be general or confined to
specific instances. When so authorized, an officer may (a) effect loans at any
time for the Corporation from any bank or other entity and for such loans may
execute and deliver promissory notes or other evidences of

                                      22

 
indebtedness of the Corporation; and (b) mortgage, pledge or otherwise encumber
any real or personal property, or any interest therein, owned or held by the
Corporation as security for the payment of any loans or obligation of this
Corporation, and to that end may execute and deliver for the Corporation such
instruments as may be necessary or proper in connection with such transaction.

     3. Loans to Directors, Officers and Employees. The Corporation may lend
        ------------------------------------------
money to, guarantee the obligations of and otherwise assist directors, officers
and employees of the Corporation, or directors of another corporation of which
the Corporation owns a majority of the voting stock, only upon compliance with
the requirements of the Act.

     4. Checks and Endorsements. All checks, drafts or other orders for the
        -----------------------
payment of money, obligations, notes or other evidences of indebtedness, bills
of lading, warehouse receipts, trade acceptances and other such instruments
shall be signed or endorsed for the Corporation by such officers or agents of
the Corporation as shall from time to time be determined by resolution of the
Board of Directors, which resolution may provide for the use of facsimile
signatures.

     5. Deposits. All funds of the Corporation not otherwise employed shall be
        --------
deposited, from time to time to the Corporation's credit in such banks or other
depositories as shall from time to time be determined by resolution of the Board
of Directors, which resolution may specify the officers or agents of the
Corporation who shall have the power, and the manner in which such power shall
be exercised, to make such deposits and to endorse, assign and deliver for
collection and deposit checks, drafts and other orders for the payment of money
payable to the Corporation or its order.

                                      23

 
     6. Proxies. Unless otherwise provided by resolution adopted by the Board of
        -------
Directors, the President or any Vice President: (a) may from time to time
appoint one or more agents of the Corporation, in the name and on behalf of the
Corporation, (i) to cast the votes which the Corporation may be entitled to cast
as the holder of stock or other securities in any other corporation, association
or other entity whose stock or other securities may be held by the Corporation,
at meetings of the holders of the stock or other securities of such other
corporation, association or other entity, or (ii) to consent in writing to any
action by such other corporation, association or other entity; (b) may instruct
the person so appointed as to the manner of casting such votes or giving such
consent; and (c) may execute or cause to be executed in the name and on behalf
of the Corporation and under its corporate seal, or otherwise, all such written
proxies or other instruments as may be deemed necessary or proper.



                                 ARTICLE VIII
                                 ------------

                                Shares of Stock
                                ---------------

     1. Certificates of Stock. The shares of the Corporation may but need not be
        ---------------------
represented by certificates. Unless the Act or another law expressly provides
otherwise, the fact that the shares are not represented by certificates shall
have no effect on the rights and obligations of shareholders. If the shares are
represented by certificates, such certificates shall be signed by the President
and the Secretary or such other representatives of the Corporation as are
designated by the Board of Directors; provided, however, that where such
certificate is signed or countersigned by a transfer agent or registrar (both of
which may be


                                      24

 
the Corporation itself or any employee of the Corporation) the signatures of
such officers of the Corporation may be in facsimile form. In case any officer
of the Corporation who shall have signed, or whose facsimile signature shall
have been placed on, any certificate shall cease for any reason to be such
officer before such certificate shall have been issued or delivered by the
Corporation, such certificate may nevertheless be issued and delivered by the
Corporation as though the person who signed such certificate, or whose facsimile
signature shall have been placed thereon, had not ceased to be such officer of
the Corporation. Every certificate representing shares issued by the Corporation
shall state the number of shares owned by the holder in the Corporation, shall
designate the class of stock to which such shares belong, and shall otherwise be
in such form as is required by law and as the Board of Directors shall
prescribe.

     2. Shares Without Certificates. The Board of Directors may authorize the
        ---------------------------
issuance of any class or series of shares of the Corporation without
certificates. Such authorization shall not affect shares already represented by
certificates until they are surrendered to the Corporation. Within a reasonable
time following the issue or transfer of shares without certificates, the
Corporation shall send the shareholder a complete written statement of the
information required on certificates by the Act.

     3. Record. A record shall be kept of the name of each person or entity
        ------
holding the stock represented by each certificate for shares of the Corporation
issued, the number of shares represented by each such certificate, the date
thereof and, in the case of cancellation, the date of cancellation. The person
or other entity in whose name shares of stock stand or.


                                      25

 
the books of the Corporation shall be deemed the owner thereof, and thus a
holder of record of such shares of stock, for all purposes as regards the
Corporation.

     4. Transfer of Stock. Transfers of shares of the stock of the Corporation
        -----------------
shall be made only on the books of the Corporation by the registered holder
thereof, or by such registered holder's attorney thereunto authorized, and on
the surrender of the certificate or certificates for such shares properly
endorsed.

     5. Transfer Agents and Registrars; Regulations. The Board of Directors may
        -------------------------------------------
appoint one or more transfer agents or registrars with respect to shares of the
stock of the Corporation. The Board of Directors may make such rules and
regulations as it may deem expedient and as are not inconsistent with these
Bylaws, concerning the issue, transfer and registration of certificates for
shares of the stock of the Corporation.

     6. Lost. Destroyed or Mutilated Certificates. In case of the alleged loss,
        -----------------------------------------
destruction or mutilation of a certificate representing stock of the
Corporation, a new certificate may be issued in place thereof, in such manner
and upon such terms and conditions as the Board of Directors may prescribe, and
shall be issued in such situations as required by the Act.



                                  ARTICLE IX
                                  ----------

                                Corporate Seal
                                --------------

     The corporate seal shall be in the form approved by resolution of the Board
of Directors. Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced. The impression of the
seal may be made and


                                      26

 
attested by either the Secretary or any Assistant Secretary for the
authentication of contracts or other papers requiring the seal.



                                   ARTICLE X
                                   ---------

                                  Fiscal Year
                                  -----------

     The fiscal year of the Corporation shall be the year established by
the Board of Directors.



                                  ARTICLE XI
                                  ----------

                          Corporate Books and Records
                          ---------------------------

     1. Corporate Books. The books and records of the Corporation may be kept
        ---------------
within or without the State of Colorado at such place or places as may be from
time to time designated by the Board of Directors.

     2. Addresses of Shareholders. Each shareholder shall furnish to the
        -------------------------
Secretary of the Corporation or the Corporation's transfer agent an address to
which notices from the Corporation, including notices of meetings, may be
directed and if any shareholder shall fail so to designate such an address, it
shall be sufficient for any such notice to be directed to such shareholder at
such shareholder's address last known to the Secretary or transfer agent.

     3. Fixing Record Date. The Board of Directors may fix in advance a date as
        ------------------
a record date for the determination of the shareholders entitled to a notice of
or to vote at any meeting of shareholders or any adjournment thereof, or to
express consent (or dissent) to corporate action in writing without a meeting,
or entitled to receive payment of any dividend


                                      27

 
or other distribution or allotment of rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action.
Such record date shall not be more than 50 nor less than 10 days before the date
of such meeting, nor more than 10 days prior to any other action to which the
same relates. Only such shareholders as shall be share-holders of record on the
date so fixed shall be so entitled with respect to the matter to which the same
relates. If the Board of Directors shall not fix a record date as above
provided, and if the Board of Directors shall not for such purpose close the
stock transfer books as provided by statute, then the record date shall be
established by statute in such cases made and provided.

     4. Inspection of Books and Records. Any person who has been a holder of
        -------------------------------
record of shares of the Corporation (or of voting trust certificates
representing such shares) for at least three months immediately preceding such
holder's demand or who is the holder of record of, or the holder of record of
voting trust certificates representing, at least five percent of all outstanding
shares of the Corporation, has the right, upon written demand stating the
purpose thereof, to examine, in person or by agent or attorney, at any
reasonable time and for any proper purpose, the Corporation's books and records
of account, minutes and record of holders of shares (and of voting trust
certificates therefor) and to make extracts therefrom.

     5. Distribution of Financial Statements. Upon the written request of any
        ------------------------------------
shareholder of the Corporation, the Corporation shall mall to such shareholder
its last annual and most recently published financial statement.


                                      28

 
     6. Audits of Books and Accounts. The Corporation's books and accounts shall
        ----------------------------
be audited at such times and by such auditors as shall be specified and
designated by resolution of the Board of Directors.



                                  ARTICLE XII
                                  -----------

                         Emergency Bylaws and Actions
                         ----------------------------

     Subject to repeal or change by action of the shareholders, the Board of
Directors may adopt emergency bylaws and exercise other powers in accordance
with and pursuant to the provisions of the Act.



                                 ARTICLE XIII
                                 ------------ 

                                  Amendments
                                  ----------

     Unless the Articles of Incorporation or a particular Bylaw reserves the
right to amend the Bylaw to the shareholder, and subject to repeal or change by
action of the shareholders, the power to alter, amend or repeal these Bylaws or
adopt new bylaws shall be vested in the Board of Directors. The shareholders may
also amend or repeal these Bylaws or adopt new Bylaws.


                                      29

EX-3.6(A)

 
                           ARTICLES OF INCORPORATION
                                      OF
                            ADDINGTON MINING, INC.



     1.   Corporate Name.  The Corporation's name shall be Addington Mining,
          --------------                                                    
Inc.

     2.   Authorized Shares.  The Corporation shall have authority to issue One
          -----------------                                                    
Thousand (1,000) shares of no par value common stock.

     3.   Registered Office and Agent.  The street address of the Corporation's
          ---------------------------                                          
initial registered office shall be 2700 Lexington Financial Center, Lexington,
Kentucky  40507.  The name of the Corporation's initial registered agent at that
office shall be BTH Inc., Lexington.

     4.   Principal  Office.  The mailing address of the Corporation's principal
          -----------------                                                     
office shall be 1500 North Big Run Road, Ashland, Kentucky  41102.

     5.   Incorporator.  The name and mailing address of the incorporator are:
          ------------                                                         
Paul E. Sullivan, 2700 Lexington Financial Center, Lexington, Kentucky  40507.

     6.   Action by Shareholders in Lieu of Meeting.  Any action required or
          -----------------------------------------                         
permitted to be taken at a shareholders' meeting may be taken without a meeting
and without prior notice if the action is taken by shareholders entitled to vote
on the action who represent not less than eighty percent (80%) of the votes
entitled to be cast on such action (or such higher percentage as may be required
by these Articles), except for the election of directors, which shall require
the written consent of all the shareholders entitled to vote in the election.
Notice of the taking of any action by shareholders without a meeting by less
than unanimous written consent shall be given promptly after the action becomes
effective to those shareholders entitled to vote on the action who have not
consented in writing.

     7.   Indemnification.  Each person who is or becomes an executive officer
          ---------------                                                     
or director of the Corporation shall be indemnified and advanced expenses by the
Corporation with respect to all threatened, pending or completed actions, suits
or proceedings in which that person was, is, or is threatened to be made a named
defendant or respondent because he is or was a director or executive officer of
the Corporation.  This Article obligates the Corporation to indemnify and
advance expenses to its executive officers or directors only in connection with
proceedings arising from that person's conduct in his official capacity with the
Corporation to the extent permitted by the Kentucky Business Corporation Act, as
amended from time to time.  The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which directors and executive officers may be entitled under any agreement, vote
of shareholders or disinterested directors, or otherwise.  The Corporation may
indemnify and advance expenses to any employee or agent to the fullest extent
permitted by law.

 
     8.   Limitation of Director Liability.
          -------------------------------- 

          (a) Except as otherwise provided by Subsection (b) below, no director
of the Corporation shall have any personal liability to the Corporation or its
shareholders for monetary damages for breach of his duties as a director.

          (b) Nothing in Article 9 (a) above shall be deemed or construed to
eliminate or limit the liability of a director for:

              (i)    Any transaction in which the director's personal financial
interest is in conflict with the financial interests of the Corporation or its
shareholders;

              (ii)   Acts or omissions not in good faith or which involve
intentional misconduct or are known to the director to be a violation of law;

              (iii)  Any vote for or assent to an unlawful distribution to
shareholders as prohibited under KRS 271B.8-330 (or under any corresponding
provision of the Kentucky Business Corporation Act, as amended from time to
time); or

              (iv)   Any transaction from which the director derived an improper
personal benefit.


                              /s/ PAUL E. SULLIVAN
                              _______________________________________________
                              Paul E. Sullivan, Incorporator

                              Date: October ___, 1997



 Prepared by:


________________________________
Jeff Jefferson
Brown, Todd & Heyburn PLLC
2700 Lexington Financial Center
Lexington, Kentucky  40507
(606) 231-0000

                                       2

EX-3.6(B)

 
 
                                    BYLAWS 

                                      OF

                            ADDINGTON MINING, INC.

     I certify that the following Bylaws, consisting of three pages, each of
which I have initialed for identification, are the Bylaws adopted by the Board
of Directors of Addington Mining, Inc. (the "Corporation") by a Written Action
by Director in Lieu of Organizational Meeting, dated October ____, 1997.



                                                /s/ JOHN LYNCH
                                                ________________________________
                                                John Lynch, Secretary

 
                                    BYLAWS

                                      OF

                            ADDINGTON MINING, INC.


                          1. Meetings of Shareholders
                             ------------------------

     1.1  Except as the Board of Directors may otherwise designate, the annual 
meeting of the shareholders of the Corporation shall be held at 10:00 a.m. on 
March 15 in each year if not a Saturday, Sunday or legal holiday, and if a 
Saturday, Sunday or legal holiday, then on the next day not a Saturday, Sunday 
or legal holiday.

     1.2  The annual meeting of the shareholders shall be held at a place 
designated by the Board of Directors or, if the Board of Directors does not 
designate a place, then at a place designated by the Secretary or, if the 
Secretary does not designate a place, at the Corporation's principal office.

     1.3  Special meetings of the shareholders shall be held at a place 
designated by the Board of Directors if the special meeting is called by the 
Board of Directors. If the special meeting is not called by the Board of 
Directors, the meeting shall be held at the Corporation's principal office.

                             2. Board of Directors
                                ------------------

     2.1  The exact number of directors may be fixed, increased or decreased 
from time to time by a resolution adopted by the majority vote of a quorum of 
shareholders who are present in person or by proxy at a meeting held to elect 
directors.

     2.2  Meetings of the Board of Directors may be called by the 
President/Chief Executive Officer or by any director.

     2.3  Unless waived as permitted by the Kentucky Business Corporation Act, 
notice of the time and place of each meeting of the directors shall be either 
(a) telephoned or personally delivered to each director at least forty-eight 
hours before the time of the meeting, or (b) mailed to each director at his last
known address at least ninety-six hours before the time of the meeting.

                                  3. Officers
                                     --------

     3.1  The Corporation shall have a President/Chief Executive Officer, a
Secretary and a Treasurer, and may have one or more Vice Presidents, all of whom
shall be appointed by the Board of Directors. The Corporation may also have such
assistant officers as the Board of Directors may deem necessary, all of whom 
shall be appointed by the Board of Directors or appointed by an officer or 
officers authorized by it.

     3.2  The President shall have:


 
          (a)  General charge and authority over the business of the 
Corporation, subject to the direction of the Board of Directors;

          (b)  Authority to preside at all meetings of the shareholders and of 
the Board of Directors;

          (c)  Authority acting alone, except as otherwise directed by the Board
of Directors, to sign and deliver any document on behalf of the Corporation, 
including, without limitation, any deed conveying title to any real estate owned
by the Corporation and any contract for the sale or other disposition of any 
such real estate, and;

          (d)  Such other powers and duties as the Board of Directors may 
assign.

     3.3  The Vice President, or if there be more than one Vice President, the 
Vice Presidents in the order of their seniority by designation (or, if not 
designated, in the order of their seniority of election), shall perform the 
duties of the President/Chief Executive Officer in his absence.  The Vice 
Presidents shall have such other powers and duties as the Board of Directors or 
the President/Chief Executive Officer may assign to them.

     3.4  The Secretary shall:

          (a)  Issue notices of all meetings for which notice is required to be 
given;

          (b)  Have responsibility for preparing minutes of the directors' and 
shareholders' meetings and for authenticating records of the Corporation;

          (c)  Have charge of the corporate record books; and

          (d)  Have such other duties and powers as the Board of Directors or 
the President/Chief Executive Officer may assign.

     3.5  The Treasurer shall:

          (a)  Keep adequate and correct accounts of the Corporation's affairs 
and transactions, and

          (b)  Have such other duties and powers as the Board of Directors or 
the President/Chief Executive Officer may assign.

     3.6  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of 
Directors or the President/Chief Executive Officer may assign.

                                       2
     

 
                         4. Certificates and Transfer
                            -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President/Chief Executive 
Officer.

     4.2  Certificates representing shares of the Corporation shall be signed 
(either manually or in facsimile) by the President/Chief Executive Officer and 
by the Secretary or Treasurer.

     4.3  Transfer of shares shall be made only on the stock transfer books of 
the Corporation.


                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                           Lexington, Kentucky 40507

                                       3

EX-3.7(A)

 
                           ARTICLES OF INCORPORATION
                                      OF
                           MINING TECHNOLOGIES, INC.



     1.   Corporate Name.  The Corporation's name shall be Mining Technologies,
          --------------                                                       
Inc.

     2.   Authorized Shares.  The Corporation shall have authority to issue One
          -----------------                                                    
Thousand (1,000) shares of no par value common stock.

     3.   Registered Office and Agent.  The street address of the Corporation's
          ---------------------------                                          
initial registered office shall be 2700 Lexington Financial Center, Lexington,
Kentucky  40507.  The name of the Corporation's initial registered agent at that
office shall be BTH Inc., Lexington.

     4.   Principal  Office.  The mailing address of the Corporation's principal
          -----------------                                                     
office shall be 1500 North Big Run Road, Ashland, Kentucky  41102.

     5.   Incorporator.  The name and mailing address of the incorporator are:
          ------------                                                         
Paul E. Sullivan, 2700 Lexington Financial Center, Lexington, Kentucky  40507.

     6.   Action by Shareholders in Lieu of Meeting.  Any action required or
          -----------------------------------------                         
permitted to be taken at a shareholders' meeting may be taken without a meeting
and without prior notice if the action is taken by shareholders entitled to vote
on the action who represent not less than eighty percent (80%) of the votes
entitled to be cast on such action (or such higher percentage as may be required
by these Articles), except for the election of directors, which shall require
the written consent of all the shareholders entitled to vote in the election.
Notice of the taking of any action by shareholders without a meeting by less
than unanimous written consent shall be given promptly after the action becomes
effective to those shareholders entitled to vote on the action who have not
consented in writing.

     7.   Indemnification.  Each person who is or becomes an executive officer
          ---------------                                                     
or director of the Corporation shall be indemnified and advanced expenses by the
Corporation with respect to all threatened, pending or completed actions, suits
or proceedings in which that person was, is, or is threatened to be made a named
defendant or respondent because he is or was a director or executive officer of
the Corporation.  This Article obligates the Corporation to indemnify and
advance expenses to its executive officers or directors only in connection with
proceedings arising from that person's conduct in his official capacity with the
Corporation to the extent permitted by the Kentucky Business Corporation Act, as
amended from time to time.  The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which directors and executive officers may be entitled under any agreement, vote
of shareholders or disinterested directors, or otherwise.  The Corporation may
indemnify and advance expenses to any employee or agent to the fullest extent
permitted by law.

 
     8.   Limitation of Director Liability.
          -------------------------------- 

          (a) Except as otherwise provided by Subsection (b) below, no director
of the Corporation shall have any personal liability to the Corporation or its
shareholders for monetary damages for breach of his duties as a director.

          (b) Nothing in Article 8 (a) above shall be deemed or construed to
eliminate or limit the liability of a director for:

              (i)    Any transaction in which the director's personal financial
interest is in conflict with the financial interests of the Corporation or its
shareholders;

              (ii)   Acts or omissions not in good faith or which involve
intentional misconduct or are known to the director to be a violation of law;

              (iii)  Any vote for or assent to an unlawful distribution to
shareholders as prohibited under KRS 271B.8-330 (or under any corresponding
provision of the Kentucky Business Corporation Act, as amended from time to
time); or

              (iv)   Any transaction from which the director derived an improper
personal benefit.


                              /s/ PAUL E. SULLIVAN
                              _______________________________________________
                              Paul E. Sullivan, Incorporator

                              Date: December ___, 1997



 Prepared by:


________________________________
Jeff Jefferson
Brown, Todd & Heyburn PLLC
2700 Lexington Financial Center
Lexington, Kentucky  40507
(606) 231-0000

                                       2

EX-3.7(B)

 
                                    BYLAWS



                                      OF



                           MINING TECHNOLOGIES, INC.



     I certify that the following Bylaws, consisting of three pages, each of
which I have initialed for identification, are the Bylaws adopted by the Board
of Directors of Mining Technologies, Inc. (the "Corporation") by a Written
Action by Director in Lieu of Organizational Meeting, dated December 18, 1997.




                                   /s/ JOHN LYNCH
                                   ___________________________________________
                                   John Lynch, Secretary

 
                                    BYLAWS

                                      OF

                           MINING TECHNOLOGIES, INC.


                         1.  Meetings of Shareholders
                             ------------------------

     1.1  Except as the Board of Directors may otherwise designate, the annual
meeting of the shareholders of the Corporation shall be held at 10:00 a.m. on
March 15 in each year if not a Saturday, Sunday or legal holiday, and if a
Saturday, Sunday or legal holiday, then on the next day not a Saturday, Sunday
or legal holiday.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal office.

                            2.  Board of Directors
                                ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the majority vote of a quorum of
shareholders who are present in person or by proxy at a meeting held to elect
directors.

     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time and place of each meeting of the directors shall be either
(a) telephoned or personally delivered to each director at least forty-eight
hours before the time of the meeting, or (b) mailed to each director at his last
known address at least ninety-six hours before the time of the meeting.

                                 3.  Officers
                                     --------

     3.1  The Corporation shall have a President, a Secretary and a Treasurer,
and may have one or more Vice Presidents, all of whom shall be appointed by the
Board of Directors. The Corporation may also have such assistant officers as the
Board of Directors may deem necessary, all of whom shall be appointed by the
Board of Directors or appointed by an officer or officers authorized by it.

 
     3.2  The President shall have:

          (a) General charge and authority over the business of the Corporation,
subject to the direction of the Board of Directors;

          (b) Authority to preside at all meetings of the shareholders;

          (c) Authority acting alone, except as otherwise directed by the Board
of Directors, to sign and deliver any document on behalf of the Corporation,
including, without limitation, any deed conveying title to any real estate owned
by the Corporation and any contract for the sale or other disposition of any
such real estate, and;

          (d) Such other powers and duties as the Board of Directors may assign.

     3.3  The Vice President, or if there be more than one Vice President, the
Vice Presidents in the order of their seniority by designation (or, if not
designated, in the order of their seniority of election), shall perform the
duties of the President in his absence.  The Vice Presidents shall have such
other powers and duties as the Board of Directors or the President may assign to
them.

     3.4  The Secretary shall:

          (a) Issue notices of all meetings for which notice is required to be
given;

          (b) Have responsibility for preparing minutes of the directors' and
shareholders' meetings and for authenticating records of the Corporation;

          (c) Have charge of the corporate record books; and

          (d) Have such other duties and powers as the Board of Directors or the
President may assign.

     3.5  The Treasurer shall:

          (a) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (b) Have such other duties and powers as the Board of Directors or the
President may assign.

     3.6  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign.

                                       2

 
                         4.  Certificates and Transfer
                             -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Certificates representing shares of the Corporation shall be signed
(either manually or in facsimile) by the President and by the Secretary or
Treasurer.

     4.3  Transfer of shares shall be made only on the stock transfer books of
the Corporation.



                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                       3

EX-3.15(A)

 
                         CERTIFICATE OF INCORPORATION

                                      OF

                           MARTIKI COAL CORPORATION


        We, the undersigned, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to provisions of the General Corporation
Law of the State of Delaware, do hereby certify as follows:

        FIRST: The name of the company is Martiki Coal Corporation.
        -----
 
        SECOND: Its registered office in the State of Delaware is located at 100
        ------
West Tenth Street, in the City of Wilmington, County of Newcastle. The name and
address of its registered agent is The Corporation Trust Company, 100 West Tenth
Street `Wilmington, Delaware 19801.

        THIRD: The nature of the business and objects or purposes to be
        -----
transacted, promoted or carried on are:

        To do any and all things to the same extent as natural persons might or
could do;

        To acquire, own, hold, possess, sell, lease, operate and develop real
estate in connection with the development, production, marketing and trading of
coal and other elements or hydrocarbons situated within such real estate; to
mine, process, market and deal in and with coal, its by-products and
hydrocarbons of all kinds; to acquire titles, deeds, grants, decrees, leases,
options, rights and privileges for lands, minerals, coal, water and timber and
all other minerals of whatsoever kind and nature or any of them, and to use,
develop, mine and turn the same to account; to acquire, hold, explore, work,
develop, produce, lease and otherwise obtain lands and rights and privileges
with respect to lands containing coal, water, timber, hydrocarbons and other
products and their by-products and to sell, rent, lease and otherwise use,
develop and deal in and with such lands, rights and privileges and the coal,
water, timber, hydrocarbons, or other products and by-products thereof and to
dispose of them or any of them commonly for money or for stocks or bonds or upon
execution or for royalties or for any one or more of the foregoing or for any
other interest or consideration;

        To purchase or otherwise acquire, own, hold, possess, trade, sell,
mortgage, convey, and demise interests in coal lands; to enter into contracts,
agreements, binding interest arrangements, sales contracts, or any other kind of
agreements or contracts dealing with the leasing, exploring, developing, mining,
producing, sale or otherwise obtaining lands and rights and privileges with
respect to lands containing coal or any other type of minerals susceptible to
mining, producing, capturing or otherwise acquiring possession thereof;

        To build, erect, construct, purchase, acquire, equip, lease, own, hold,
and operate plants, tipples, conveyors, washing plants and other manufactories
for the purpose of extracting, or other wise treating coal from whatever source,
said coal may be derived; to acquire by gift, demise, lease, license, purchase,
or in any other lawful manner, plants, tipples, conveyers and manufactories for
the purpose of extracting coal hydrocarbons and any other substances from coal;
to purchase, acquire, buy, sell, distribute

 
        Notwithstanding any other provision contained in this Certificate of
Incorporation, this corporation shall not be authorized to construct, maintain
or operate public utilities within the State of Delaware.

        FOURTH: The total number of shares of stock which the corporation shall
        ------
have authority to issue is ten thousand (10,000) and the par value of each such
share is three thousand dollars ($3,000.00), amounting in the aggregate to
thirty million dollars ($30,000,000.00).

        FIFTH: The minimum amount of capital which the corporation shall 
        -----
commence business with is three thousand dollars ($3,000.00).

        SIXTH: The names and addresses of the incorporators are as follows:
        -----

        Names                            Addresses
        -----                            --------- 

Robert E. Thomas           1437 So. Boulder Ave., Tulsa, Okla. 74119
Bruce C. Wilson            1437 So. Boulder Ave., Tulsa, Okla. 74119
Eugene 0. Bell             1437 So. Boulder Ave., Tulsa, Okla. 74119

     SEVENTH: The corporation is to have perpetual existence.
     -------

     EIGHTH: The private property of the stockholders shall not be subject to
     ------
the corporate debts to any extent whatever

     NINTH: The following provisions are inserted for the management of the
     -----
business and for the conduct of the affairs of this corporation and for the
further definition, limitation and regulation of the powers of this corporation
and of its directors and stockholders:

     (1) The number of directors of the corporation shall be such as from time
to time fixed by, or in the manner provided in the By-Laws, but shall not be
less than three. Election of directors need not be by ballot unless the By-Laws
so provide.

     (2) The Board of Directors shall have power:

         (a)  Without the assistance or vote of the stockholders to make, alter,
         amend, change, add to, or repeal the By-Laws of this corporation; to
         fix and vary the amount to be reserved for any proper purpose; to
         authorize and cause to be executed mortgages and liens upon any part
         of the property of the corporation, to determine the use and
         disposition of any surplus or net profits, and to fix the times and
         declaration and payment of dividends;

         (b) To determine from time to time whether, and to what extent, and
         what times and places, and under what conditions and regulations, the
         accounts and books of the corporation (other than the stock ledger) or
         any of them shall be open to the inspection of stockholders.

     (3) The directors in their discretion may submit any contract and use for
approval or ratification at any annual meeting of the stockholders or at any
meeting of the stockholders called for the purpose of considering any such
contract, 

                                      -3-

 
and deal in, both at wholesale and retail, coal and all products and by-products
thereof, and to engage in the business of processing and treating any and all
products from the same; to explore for, mine and produce and sell coal extracted
by any means whether the same be auger, strip mine, shaft mine or any other
method whether now known or hereafter developed.

        To build, erect, equip, purchase, lease, own, in whole or in part, and
operate all of the plants, equipment, manufactories, pipelines, appliances or
other equipment of every character and description necessary for the carrying on
of any of the aforesaid business; to do all things that may be necessary in the
general business of leasing, dealing in, marketing, refining, manufacturing and
extracting of coal and any by-products thereof.

        To purchase, lease, or otherwise acquire, or own, hold control, operate
and use franchises, easements, grants, powers, permits, rights, licenses,
privileges and immunities and other property of every kind and description.

        To do all and everything necessary, suitable and proper for the
accomplishment of any of the purposes or the attainment of any of the objects
and the furtherance of any of the powers hereinbefore set forth whether alone
or in association with other corporations, firms or individuals and to do every
other act or acts, thing or things incidental or appurtenant to or growing out
of or connected with the aforesaid business or powers, or any part of parts
thereof, provided the same be not inconsistent with the laws under which this
corporation is organized.

        To acquire, purchase, by subscription or otherwise and hold for
investment or otherwise and to use, sell, assign, transfer, mortgage, pledge, or
otherwise deal with and dispose of stocks, bonds, or any other obligations or
securities of any corporation or corporations; to merge or consolidate with any
corporation in such manner as may be permitted by law; to add in any manner any
corporation whose stock, bonds or other obligations are held or in any manner
guaranteed by this corporation in which this corporation is in any way
interested and to do other acts or things for the preservation, protection,
improvement or enhancement of the same or any such stocks, bonds or other
obligations; and while owner of any such stocks, bonds or other obligations, to
exercise all the rights, powers and privileges of ownership thereof, and to
exercise any and all voting powers therein; to guarantee payment of dividends
upon any stocks and the principal or interest, or both, of any bonds or other
obligations, and the performance of any contracts.

        The business and purpose of the corporation is from time to time to do
any one or more of the acts and things hereinbefore set forth, and it shall have
the power to conduct and carry on its said business or any part thereof, and to
have one or more offices, and to exercise any or all of its corporate powers and
rights in the State of Delaware and in the various other states, territories,
colonies and dependencies of the United States, in the District of Columbia and
in any one or all foreign countries.

        The enumeration herein of the objects and purposes of the corporation
shall be construed as powers as well as objects and purposes and shall not be
deemed to exclude by reference any powers, objects or purposes which this
corporation is empowered to exercise, whether expressly by force of the laws of
the State of Delaware now or hereafter in effect or impliedly by the reasonable
construction of said laws.

                                      -2-

 
and any contract that shall be approved or ratified by the vote of holders of a
majority of the stock of the corporation which is represented in person or by
proxy at such meeting (provided that a lawful quorum be there represented in
person or by proxy) shall be as valid and as binding upon the corporation and
upon all the stockholders as though it had been approved or ratified by every
stockholder of the corporation, whether or not the contract or act would
otherwise be open to legal attack because of directors interests, or for any
other reason.

        (4) In addition to the powers and authorities herein-before or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise and to do all things as may be exercised or done by the corporation,
subject, nevertheless, to the provisions of the statutes of Delaware, of this
certificate and to any By-Laws from time to time made by the stockholders,
provided, however, that no By-Laws so made shall invalidate any prior act of the
directors which would have been valid if such By-Laws had not been made.

        TENTH: Any person made a party to any action, suit or proceeding or by
        -----
reason of the fact that he , his testator or intestate, is or was a director,
officer or employee of this corporation shall serve as such at the request of
this corporation and shall be indemnified by the corporation against the
reasonable expenses, including attorneys fees actually and necessarily incurred
by him in connection with the defense of such action, suit or proceeding or in
connection with any appeal therein, except in relation to matters as to which it
shall be adjudged in such action that such director or employee is liable for
negligence or misconduct in the performance of his duties. Such right of
indemnification shall not be deemed exclusive of any other rights to which such
director, officer or employee may be entitled by law.


        ELEVENTH: The corporation reserves the right to amend, alter, change or
        --------
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereinafter prescribed by law, and all rights and powers
conferred herein on stockholders, directors and officers are subject to this
reserved power.

        IN WITNESS WHEREOF, we have hereunto set our hands and seals this the 
28th of February, 1974.




Robert E. Thomas                        /s/ Robert E. Thomas
                                        ------------------------------

Bruce C. Wilson                         /s/ Bruce C. Wilson
                                        ------------------------------

Eugene G. Bell                          /s/ Eugene G. Bell
                                        ------------------------------

                                      -4-

EX-3.16(A)

 
                           ARTICLES OF INCORPORATION
                                      OF
                         AEI COAL SALES COMPANY, INC.



     1.   Corporate Name.  The Corporation's name shall be AEI Coal Sales
          --------------                                                 
Company, Inc.

     2.   Authorized Shares.  The Corporation shall have authority to issue One
          -----------------                                                    
Thousand (1,000) shares of no par value common stock.

     3.   Registered Office and Agent.  The street address of the Corporation's
          ---------------------------                                          
initial registered office shall be 2700 Lexington Financial Center, Lexington,
Kentucky  40507.  The name of the Corporation's initial registered agent at that
office shall be BTH Inc., Lexington.

     4.   Principal  Office.  The mailing address of the Corporation's principal
          -----------------                                                     
office shall be 1500 North Big Run Road, Ashland, Kentucky  41102.

     5.   Incorporator.  The name and mailing address of the incorporator are:
          ------------                                                        
Warren J. Hoffmann, 2700 Lexington Financial Center, Lexington, Kentucky  40507.

     6.   Action by Shareholders in Lieu of Meeting.  Any action required or
          -----------------------------------------                         
permitted to be taken at a shareholders' meeting may be taken without a meeting
and without prior notice if the action is taken by shareholders entitled to vote
on the action who represent not less than eighty percent (80%) of the votes
entitled to be cast on such action (or such higher percentage as may be required
by these Articles), except for the election of directors, which shall require
the written consent of all the shareholders entitled to vote in the election.
Notice of the taking of any action by shareholders without a meeting by less
than unanimous written consent shall be given promptly after the action becomes
effective to those shareholders entitled to vote on the action who have not
consented in writing.

     7.   Indemnification.  Each person who is or becomes an executive officer
          ---------------                                                     
or director of the Corporation may be indemnified and advanced expenses by the
Corporation with respect to all threatened, pending or completed actions, suits
or proceedings in which that person was, is, or is threatened to be made a named
defendant or respondent because he is or was a director or executive officer of
the Corporation.  The Corporation may indemnify and advance expenses to its
executive officers or directors in connection with proceedings arising from that
person's conduct in his official capacity with the Corporation to the extent
permitted by the Kentucky Business Corporation Act, as amended from time to
time.  The indemnification and advancement of expenses provided by this Article
shall not be deemed exclusive of any other rights to which directors and
executive officers may be entitled under any agreement, vote of shareholders or
disinterested directors, or otherwise.  The Corporation may indemnify and
advance expenses to any employee or agent to the fullest extent permitted by
law.

 
     8.   Limitation of Director Liability.
          -------------------------------- 

          (a) Except as otherwise provided by Subsection (b) below, no director
of the Corporation shall have any personal liability to the Corporation or its
shareholders for monetary damages for breach of his duties as a director.

          (b) Nothing in Article 8 (a) above shall be deemed or construed to
eliminate or limit the liability of a director for:

              (i)   Any transaction in which the director's personal financial
interest is in conflict with the financial interests of the Corporation or its
shareholders;

              (ii)  Acts or omissions not in good faith or which involve
intentional misconduct or are known to the director to be a violation of law;

              (iii) Any vote for or assent to an unlawful distribution to
shareholders as prohibited under KRS 271B.8-330 (or under any corresponding
provision of the Kentucky Business Corporation Act, as amended from time to
time); or

              (iv)  Any transaction from which the director derived an improper
personal benefit.


                              /s/ WARREN J. HOFFMANN  
                              _______________________________________
                              Warren J. Hoffmann, Incorporator

                              Date:  August 24, 1998



 Prepared by:


____________________________________ 
Warren J. Hoffmann
Brown, Todd & Heyburn PLLC
2700 Lexington Financial Center
250 West Main Street
Lexington, Kentucky  40507-1749
(606) 231-0000

                                       2

EX-3.16(B)

 
                          AMENDED AND RESTATED BYLAWS



                                       OF



                          AEI COAL SALES COMPANY, INC.



     I certify that the following Amended and Restated Bylaws, consisting of
three pages, each of which I have initialed for identification, are the Bylaws
adopted by the Board of Directors of AEI Coal Sales Company, Inc. (the
"Corporation") by a Written Action by Director in Lieu of Meeting, dated January
__, 1999.


                                   /s/ JOHN LYNCH
                                   ______________________________________ 
                                   John Lynch, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                         AEI COAL SALES COMPANY, INC.



                         1.  Meetings of Shareholders
                             ------------------------

     1.1  Except as the Board of Directors may otherwise designate, the annual
meeting of the shareholders of the Corporation shall be held at the time and
date to be set by the Board of Directors of the Corporation

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal office.

                            2.  Board of Directors
                                ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the majority vote of a quorum of
shareholders who are present in person or by proxy at a meeting held to elect
directors.

     2.2  Meetings of the Board of Directors may be called by the
President/Chief Executive Officer or by any director.

     2.3  Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time and place of each meeting of the directors shall be either
(a) telephoned or personally delivered to each director at least forty-eight
hours before the time of the meeting, or (b) mailed to each director at his last
known address at least ninety-six hours before the time of the meeting.

                                  3.  Officers
                                      --------

     3.1  The Corporation shall have a President/Chief Executive Officer, a
Secretary and a Treasurer, and may have one or more Vice Presidents, all of whom
shall be appointed by the Board of Directors.  The Corporation may also have
such assistant officers as the Board of Directors may deem necessary, all of
whom shall be appointed by the Board of Directors or 

 
appointed by an officer or officers authorized by it. All officers and employees
of the Corporation shall report to, and otherwise be accountable to, the
officers (the "Officers") of AEI Coal Marketing & Development, LLC ("AEI
Marketing").

     3.2  The President shall have:

          (a) General charge and authority over the business of the Corporation,
subject to the direction of the Officers;

          (b) Authority to preside at all meetings of the shareholders and of
the Board of Directors;

          (c) Authority acting alone, except as otherwise directed by the
Officers, to sign and deliver any document on behalf of the Corporation,
including, without limitation, any deed conveying title to any real estate owned
by the Corporation and any contract for the sale or other disposition of any
such real estate; provided, however, that neither the president nor any other
officer of the Corporation shall enter into any coal supply agreement (i) for a
period of more than ninety (90) days, or (ii) which involves an aggregate dollar
amount exceeding Five Hundred Thousand Dollars ($500,000.00) without the prior
approval of AEI Marketing, and;

          (d) Such other powers and duties as the Officers may assign.

     3.3  The Vice President, or if there be more than one Vice President, the
Vice Presidents in the order of their seniority by designation (or, if not
designated, in the order of their seniority of election), shall perform the
duties of the President/Chief Executive Officer in his absence.  The Vice
Presidents shall have such other powers and duties as the Officers or the
President/Chief Executive Officer may assign to them.

     3.4  The Secretary shall:

          (a) Issue notices of all meetings for which notice is required to be
given;

          (b) Have responsibility for preparing minutes of the directors' and
shareholders' meetings and for authenticating records of the Corporation;

          (c) Have charge of the corporate record books; and

          (d) Have such other duties and powers as the Officers or the
President/Chief Executive Officer may assign.

     3.5  The Treasurer shall:

          (a) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

                                       2

 
          (b) Have such other duties and powers as the Officers or the
President/Chief Executive Officer may assign.

     3.6  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Officers or
the President/Chief Executive Officer may assign.

                         4.  Certificates and Transfer
                             -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President/Chief Executive
Officer.

     4.2  Certificates representing shares of the Corporation shall be signed
(either manually or in facsimile) by the President/Chief Executive Officer and
by the Secretary or Treasurer.

     4.3  Transfer of shares shall be made only on the stock transfer books of
the Corporation.



                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                       3

EX-3.17(A)

 
                                                                 Exhibit 3.17(a)
   STATE OF DELAWARE
   SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 11/02/1992
   712307005 - 2314549

                         CERTIFICATE OF INCORPORATION

                                      OF

                          AMERICOAL SERVICES COMPANY

                                  ARTICLE ONE
                                  -----------


        The name of the corporation is Americoal Service Company (hereinafter 
called the "Corporation").

                                  ARTICLE TWO
                                  -----------


        The address of the Corporation's registered office in the state of 
Delaware is 1013 Centre Road, Wilmington, Delaware 19805, in the City of 
Wilmington, County of New Castle. The name of its registered agent at such 
address is Corporation Service Company.

                                 ARTICLE THREE
                                 -------------

        The purpose of the Corporation is to engage in any lawful act or 
activity for which corporations may be organized under the General Corporation 
Law of Delaware.

                                 ARTICLE FOUR
                                 ------------

        The total number of shares which the Corporation shall have the 
authority to issue is One Thousand (1,000) shares, all of which shall be shares 
of Common Stock, without par value.

                                 ARTICLE FIVE
                                 ------------

        The name and mailing address of the incorporator is as follows:

        Name                                    Address
        ----                                    -------

        Eileen C. McNamara                      c/o Kirkland & Ellis
                                                55 East 52nd Street
                                                16th Floor
                                                New York, NY 10055

                                  ARTICLE SIX
                                  -----------

        The directors shall have the power to adopt, amend or repeal By-Laws, 
except as may otherwise be provided in the By-Laws.

 
                                 ARTICLE SEVEN
                                 -------------

        The personal liability of the directors of the Corporation is hereby 
eliminated to the fullest extent permitted by Paragraph (7) of Subsection (b) 
of Section 102 of the General Corporation Law of the State of Delaware, as the 
same may be amended or supplemented.

                                 ARTICLE EIGHT
                                 -------------

        The Corporation expressly elects not to be governed by Section 203 of 
the General Corporation Law of the State of Delaware.

                                 ARTICLE NINE
                                 ------------

        The Corporation reserves the right to amend or repeal any provisions 
contained in this Certificate of Incorporation from time to time and at any time
in the manner now or hereafter prescribed by the laws of the State of Delaware,
and all rights conferred upon stockholders and directors are granted subject to
such reservation.
 
        I, the undersigned, being the sole incorporator hereinbefore named, for 
the purpose of forming a corporation in pursuance of the General Corporation Law
of the State of Delaware, do make and file this Certificate, hereby declaring 
and certifying that the facts herein stated are true, and accordingly have 
hereunto set my hand this 2nd day of November, 1992.


                                           /s/ Eileen C. McNamara
                                           ----------------------------------
                                           Eileen C. McNamara
                                           Sole Incorporator

EX-3.17(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                         AMERICOAL DEVELOPMENT COMPANY



     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Director of AMERICOAL DEVELOPMENT COMPANY (the
"Corporation") by a Written Action by Sole Director in Lieu of Meeting, dated
________________, 1998.


                              /s/ JOHN LYNCH  
                              _________________________________________
                              John Lynch, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                         AMERICOAL DEVELOPMENT COMPANY



                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(I) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law,
notice of the time, place and purpose of each meeting of the directors shall be
either (I) telephoned or per  sonally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3
 
                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (C)  Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

     3.3  The Secretary shall

          (a) Issue notices of all meetings for which notice is required to be
given,

                                      -2-

 
          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (C)  Have such other duties and powers as the Board of Directors or
the President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (C)  Have such other duties and powers as the Board of Directors or
the President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.



                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

 
    STATE OF DELAWARE
   SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 06/14/1994
   944107424 - 2314549

                           CERTIFICATE OF AMENDMENT
                                      TO
                         CERTIFICATE OF INCORPORATION
                                      OF
                          AMERICOAL SERVICES COMPANY

          -----------------------------------------------------------

     James W. Mahler and Michael A. Kafoury, being the President and 
Secretary, respectively, of Americoal Services Company, a corporation organized 
and existing under and by virtue of the General Corporation Law of the State of 
Delaware (the "Corporation"), do hereby certify as follows;

        FIRST: That the Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation") is hereby amended by amending Article One in
                                                              -----------
this entirety to read as follows:

                                 "ARTICLE ONE"
                                  -----------

        The name of the corporation is Americoal Development Company 
(hereinafter called the "Corporation").

        SECOND:  That the Board of Directors of the Corporation approved the 
foregoing amendment in accordance with Section 242 of the General Corporation 
Law of the State of Delaware and directed that the amendment be submitted to the
stockholders of the Corporation for their consideration and approval.

        THIRD:  That the stockholders of the Corporation approved the foregoing 
amendment in accordance with Sections 228 (c) and 242 of the General Corporation
Law of the State of Delaware.

 
     IN WITNESS THEREOF, the undersigned, being the President and Secretary
hereinabove named, for the purpose of amending the Certificate of Incorporation
of the Corporation pursuant to the General Corporation Law of the State of
Delaware, under penalties of perjury do each hereby declare and certify that
this is the act and deed of the Corporation and the facts stated herein are
true, and accordingly have hereunto signed this Certificate of Amendment of
Certificate of Incorporation this 13th day of' June, 1994.



                                               AMERICOAL SERVICES COMPANY

                                               By: /s/ James W. Mahler 
                                                   ---------------------
                                                   James W. Mahler 
                                                   President

ATTEST:

By: /s/ Michael A. Kafoury
   ----------------------------
   Michael A. Kafoury
   Secretary

EX-3.18(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                          APPALACHIAN REALTY COMPANY






     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of APPALACHIAN REALTY COMPANY (the
"Corporation") by a Written Action by Sole Shareholder in Lieu of Meeting, dated
_________________, 1998.


                               /s/ JOHN LYNCH
                              _________________________________________
                              John Lynch, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                          APPALACHIAN REALTY COMPANY


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or per  sonally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.


                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

                                      -2-

 
     3.3  The Secretary shall

          (a) Issue notices of all meetings for which notice is required to be
given,
          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.





                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.19(A)

 
                                                                 Exhibit 3.19(a)

                         CERTIFICATE OF INCORPORATION

                                      OF

                             AYRSHIRE LAND COMPANY

     1. The name of the corporation is:

                             Ayrshire Land Company

     2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.

     3. The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.

     4. The total number of shares of stock which the corporation shall have
authority to issue is One Thousand (1,000) and the par value of each of such
shares shall be One Hundred Dollars ($100.00) amounting in the aggregate to One
Hundred Thousand Dollars ($100,000.00).

     5. The board of directors is authorized to make, alter or repeal the
by-laws of the corporation. Election of directors need not be by written
ballot.

     6. To the fullest extent permitted by the General Corporation Law of the
State of Delaware, as the same exists or may hereafter be amended, a director of
the Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as director. Any repeal or
modification of this Article shall not adversely affect any right or protection
of an existing director at the time of such repeal or modification.

     7. The name and mailing address of the incorporator is:

                 Raymond J. Cooke
                 AMAX Inc.
                 AMAX Center
                 Greenwich, CT 06830

 
     I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of
Delaware, do make this certificate, hereby declaring and certifying that this is
my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this 17th day of June, 1987.


                                              /s/ Raymond J. Cooke
                                             ---------------------------
                                                  Raymond J. Cooke

EX-3.19(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                             AYRSHIRE LAND COMPANY



     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of AYRSHIRE LAND COMPANY (the "Corporation") by
a Written Action by Sole Shareholder in Lieu of Meeting, dated
_________________, 1998.


                              /s/ JOHN LYNCH
                              _________________________________________
                              John Lynch, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                             AYRSHIRE LAND COMPANY


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or per  sonally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

                                      -2-

 
     3.3  The Secretary shall

          (a) Issue notices of all meetings for which notice is required to be
given,

          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.




                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.20(A)

 
                                                                 Exhibit 3.20(a)

                                                                                
                                                                                

                                                                    FILED       
                                                                                
                                                               DEC 21 1982 2PM  
                          CERTIFICATE OF INCORPORATION                          
                                                                  [SIGNATURE    
                                       OF                        APPEARS HERE] 
                                                                               
                            BELLAIRE TRUCKING COMPANY         SECRETARY OF STATE

                            *************************




           FIRST:    The name of the corporation is BELLAIRE TRUCKING COMPANY
(hererinafter called "the Corporation" or "this Corporation").

           SECOND:   The address of its registered office in the State of
Delaware is No. 100 West Tenth Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.

            THIRD:   The nature of the business or purposes to be conducted or
promoted are:

            (1) to hold an Ohio Public Utility Commission Common Carrier
certificate or Common Carrier permit, or both, and to engage in the business of
hauling coal and other substances, either directly or through independent
contractors in the State of Ohio and anywhere else the Corporation may be so
licensed; to carry on its operations and to conduct its business and other
activities ancillary to this business including, but not limited to the
ownership of refueling facilities; and to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.

            FOURTH:  The total number of shares of stock which the corporation
shall have authority to issue is one thousand (1,000) shares of Common Stock
with a par value of one dollar ($1.00) per share.

            FIFTH:   The name and mailing address of the incorporator is as 
follows:
                       NAME                            MAILING ADDRESS
                       ----                            ---------------
                       SHELL OIL COMPANY               One Shell Plaza
                                                       P. 0. Box 2463
                                                       Houston, TX 77001

            SIXTH:   In addition to the powers conferred by the laws of the 
State of Delaware, the Board of Directors shall have the power from time to time
to make, alter, amend and repeal the By-Laws of the corporation, subject to the
power of the holders of the Common Stock to alter or repeal the By-Laws made by
the Board of Directors.

 
              THE UNDERSIGNED, being the incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, does make this certificate, hereby declaring and
certifying that this is its act and deed and the facts herein stated are true,
and accordingly has hereunto set its hand and seal this 18th day of December,
                                                        ----
1981.



                                                    SHELL OIL COMPANY         
                                                                              
                                                                              
    (CORPORATE SEAL)                                                          
                                                                              
                                                    By /s/ C. L. Blackburn    
                                                      ------------------------
                                                      Executive Vice President



ATTEST:




/s/ Kim Jensan Clifford
- -----------------------
Assistant Secretary

 
STATE OF TEXAS    )
                  ) SS:
COUNTY OF HARRIS  )

              BEFORE ME, A Notary Public in and for Harris County, Texas, on
this day personally appeared C. L. Blackburn known to me to be the person and
officer whose name is subscribed to the foregoing Certificate of Incorporation,
and having been by me first duly sworn, declared that the same was the act and
deed of said SHELL OIL COMPANY, a corporation; and that he executed the same as
the act and deed of such corporation for the purposes and consideration therein
expressed and that the facts stated therein are true.

             GIVEN under my hand and seal of office this 18th day of December,
                                                         ----
1981.


                                    /s/ L. C. Meier
                                    --------------------------------------------
                                    Notary Public in and for
[SEAL APPEARS HERE]                 Harris County, Texas
                                                                               
                                                     L. C: MEIER                
                                     Notary Public in and for the State of Texas
                                        My Commission Expires April 20, 1985    
                                   

EX-3.20(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF 

                           BELLAIRE TRUCKING COMPANY

     I certify that the following Amended and Restated Bylaws, consisting of 
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Director of BELLAIRE TRUCKING COMPANY (the "Corporation")
by a Written Action by Sole Director in Lieu of Meeting, dated
__________________, 1998.



                                             /s/ JOHN LYNCH
                                             ___________________________________
                                             John Lynch, Secretary 

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                           BELLAIRE TRUCKING COMPANY

                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1    The annual meeting of the shareholders of the Corporation shall be 
held at the time and date to be set by the Board of Directors of the 
Corporation.

     1.2    The annual meeting of the shareholders shall be held at a place 
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the 
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3    Special meetings of the shareholders shall be held at a place 
designated by the Board of Directors if the special meeting is called by the 
Board of Directors. If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business 
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1    The exact number of directors may be fixed, increased or decreased 
from time to time by a resolution adopted by the vote of the shareholders who 
(I) are present in person or by proxy at a meeting held to elect directors and 
(ii) have a majority of the voting power of the shares represented at such 
meeting and entitled to vote in the election.


 
     2.2    Meetings of the Board of Directors may be called by the President or
by any director. 

     2.3    Unless waived as permitted by the Delaware General Corporation Law, 
notice of the time, place and purpose of each meeting of the directors shall be 
either (I) telephoned or personally delivered to each director at least 
forty-eight hours before the time of the meeting or (ii) mailed to each director
at his last known address at least ninety-six hours before the time of the 
meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1    The Corporation shall have a President, a Vice President, a 
Secretary and a Treasurer, all of whom shall be elected by the Board of 
Directors. The Corporation may also have such assistant officers as the Board of
Directors may deem necessary, all of whom shall be elected by the Board of 
Directors or chosen by an officer or officers designated by it.

     3.2    The President shall

            (a)    Have general charge and authority over the business of the 
Corporation subject to the direction of the Board of Directors,

            (b)    Have authority to preside at all meetings of the shareholders
and of the Board of Directors,

            (c)    Have authority acting alone, except as otherwise directed by 
the Board of Directors, to sign and deliver any document on behalf of the 
Corporation, and

            (d)    Have such other powers and duties as the Board of Directors 
may assign to him.

     3.3    The Secretary shall 

            (a)    Issue notices of all meetings for which notice is required to
be given,

                                      -2-


            (b)    Keep the minutes of all meetings and have charge of the
corporate record books, and

            (C)    Have such other duties and powers as the Board of Directors
or the President may assign to him.

     3.4    The Treasurer shall

            (a)    Have the custody of all funds and securities of the
Corporation,

            (b)    Keep adequate and correct accounts of the Corporation's
affairs and transactions, and

            (C)    Have such other duties and powers as the Board of Directors
or the President may assign to him.

     3.5    Other officers and agents of the Corporation shall have such
authority and perform such duties in the management of the Corporation as the
Board of Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1    Shares of the Corporation shall be represented by certificates in
such form as shall from time to time be prescribed by the President.

     4.2    Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.





                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                           Lexington, Kentucky 40507

                                      -4-

EX-3.22(A)

 
                           ARTICLES OF INCORPORATION
                                      OF
                                CC COAL COMPANY



     1.   Corporate Name.  The Corporation's name shall be CC Coal Company.
          --------------                                                   

     2.   Authorized Shares.  The Corporation shall have authority to issue One
          -----------------                                                    
Thousand (1,000) shares of no par value common stock.

     3.   Registered Office and Agent.  The street address of the Corporation's
          ---------------------------                                          
initial registered office shall be 2700 Lexington Financial Center, Lexington,
Kentucky  40507.  The name of the Corporation's initial registered agent at that
office shall be BTH, Inc., Lexington.

     4.   Principal  Office.  The mailing address of the Corporation's principal
          -----------------                                                     
office shall be 1500 North Big Run Road, Ashland, Kentucky  41102.

     5.   Incorporator.  The name and mailing address of the incorporator are:
          ------------                                                        
Bryan K. Mattingly, 2700 Lexington Financial Center, Lexington, Kentucky  40507.

     6.   Action by Shareholders in Lieu of Meeting.  Any action required or
          -----------------------------------------                         
permitted to be taken at a shareholders' meeting may be taken without a meeting
and without prior notice if the action is taken by shareholders entitled to vote
on the action who represent not less than eighty percent (80%) of the votes
entitled to be cast on such action (or such higher percentage as may be required
by these Articles), except for the election of directors, which shall require
the written consent of all the shareholders entitled to vote in the election.
Notice of the taking of any action by shareholders without a meeting by less
than unanimous written consent shall be given promptly after the action becomes
effective to those shareholders entitled to vote on the action who have not
consented in writing.

     7.   Indemnification.  Each person who is or becomes an executive officer
          ---------------                                                     
or director of the Corporation shall be indemnified and advanced expenses by the
Corporation with respect to all threatened, pending or completed actions, suits
or proceedings in which that person was, is, or is threatened to be made a named
defendant or respondent because he is or was a director or executive officer of
the Corporation.  This Article obligates the Corporation to indemnify and
advance expenses to its executive officers or directors only in connection with
proceedings arising from that person's conduct in his official capacity with the
Corporation to the extent permitted by the Kentucky Business Corporation Act, as
amended from time to time.  The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which directors and executive officers may be entitled under any agreement, vote
of shareholders or disinterested directors, or otherwise.  The Corporation may
indemnify and advance expenses to any employee or agent to the fullest extent
permitted by law.

 
     8.   Limitation of Director Liability.
          -------------------------------- 

          (a)  Except as otherwise provided by Subsection (b) below, no director
of the Corporation shall have any personal liability to the Corporation or its
shareholders for monetary damages for breach of his duties as a director.

          (b)  Nothing in Article 8 (a) above shall be deemed or construed to
eliminate or limit the liability of a director for:

               (i)   Any transaction in which the director's personal financial
interest is in conflict with the financial interests of the Corporation or its
shareholders;

               (ii)  Acts or omissions not in good faith or which involve
intentional misconduct or are known to the director to be a violation of law;

               (iii) Any vote for or assent to an unlawful distribution to
shareholders as prohibited under KRS 271B.8-330 (or under any corresponding
provision of the Kentucky Business Corporation Act, as amended from time to
time); or

               (iv)  Any transaction from which the director derived an improper
personal benefit.


                              /s/ BRYAN K. MATTINGLY
                              ________________________________________ 
                              Bryan K. Mattingly, Incorporator

                              Date: June 19, 1998



 Prepared by:


________________________________ 
Bryan K. Mattingly
Brown, Todd & Heyburn PLLC
2700 Lexington Financial Center
250 West Main Street
Lexington, Kentucky  40507-1749
(606) 231-0000

                                       2

EX-3.22(B)

 
                                    BYLAWS



                                      OF



                                CC COAL COMPANY



     I certify that the following Bylaws, consisting of three pages, each of
which I have initialed for identification, are the Bylaws adopted by the Board
of Directors of CC Coal Company (the "Corporation") by a Written Action by
Director in Lieu of Organization Meeting, dated June 19, 1998.


                                        /s/ JOHN LYNCH
                                        ___________________________________
                                        John Lynch, Secretary

 
                                    BYLAWS

                                      OF

                                CC COAL COMPANY



                         1.  Meetings of Shareholders
                             ------------------------

     1.1  Except as the Board of Directors may otherwise designate, the annual
meeting of the shareholders of the Corporation shall be held at the time and
date to be set by the Board of Directors of the Corporation

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal office.

                            2.  Board of Directors
                                ------------------
   
     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the majority vote of a quorum of
shareholders who are present in person or by proxy at a meeting held to elect
directors.

     2.2  Meetings of the Board of Directors may be called by the
President/Chief Executive Officer or by any director.

     2.3  Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time and place of each meeting of the directors shall be either
(a) telephoned or personally delivered to each director at least forty-eight
hours before the time of the meeting, or (b) mailed to each director at his last
known address at least ninety-six hours before the time of the meeting.

                                 3.  Officers
                                     --------

     3.1  The Corporation shall have a President/Chief Executive Officer, a
Secretary and a Treasurer, and may have one or more Vice Presidents, all of whom
shall be appointed by the Board of Directors.  The Corporation may also have
such assistant officers as the Board of Directors may deem necessary, all of
whom shall be appointed by the Board of Directors or appointed by an officer or
officers authorized by it.

 
     3.2  The President shall have:

          (a) General charge and authority over the business of the Corporation,
subject to the direction of the Board of Directors;

          (b) Authority to preside at all meetings of the shareholders and of
the Board of Directors;

          (c) Authority acting alone, except as otherwise directed by the Board
of Directors, to sign and deliver any document on behalf of the Corporation,
including, without limitation, any deed conveying title to any real estate owned
by the Corporation and any contract for the sale or other disposition of any
such real estate, and;

          (d) Such other powers and duties as the Board of Directors may assign.

     3.3  The Vice President, or if there be more than one Vice President, the
Vice Presidents in the order of their seniority by designation (or, if not
designated, in the order of their seniority of election), shall perform the
duties of the President/Chief Executive Officer in his absence.  The Vice
Presidents shall have such other powers and duties as the Board of Directors or
the President/Chief Executive Officer may assign to them.

     3.4  The Secretary shall:

          (a) Issue notices of all meetings for which notice is required to be
given;

          (b) Have responsibility for preparing minutes of the directors' and
shareholders' meetings and for authenticating records of the Corporation;

          (c) Have charge of the corporate record books; and

          (d) Have such other duties and powers as the Board of Directors or the
President/Chief Executive Officer may assign.

     3.5  The Treasurer shall:

          (a) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (b) Have such other duties and powers as the Board of Directors or the
President/Chief Executive Officer may assign.

     3.6  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President/Chief Executive Officer may assign.

                                       2

 
                         4.  Certificates and Transfer
                             -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President/Chief Executive
Officer.

     4.2  Certificates representing shares of the Corporation shall be signed
(either manually or in facsimile) by the President/Chief Executive Officer and
by the Secretary or Treasurer.

     4.3  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                       3

EX-3.23(A)

 
                                                                 Exhibit 3.23(a)

                                                                     FILED
                                                                DEC 31 1987 10AM

                                 INCORPORATOR'S                    [SIGNATURE
                      AMENDMENT OF CERTIFICATE OF INCORPORATION   APPEARS HERE]
                        OF CANNELTON COAL SALES COMPANY
                        PURSUANT TO 10 DEL.C. SECTION 241     SECRETARY OF STATE
                        ---------------------------------



          I, WILLIAM L. GARRETT, JR., the sole incorporator of CANNELTON COAL
SALES COMPANY, hereby certify as follows:

          (1) The Certificate of Incorporation shall be amended so that the name
of said corporation shall be changed to:
CANNELTON SALES COMPANY;

          (2) The corporation has not received any payment for any of its stock;
                        
          (3) This Amendment has been duly adopted in accordance with 10 Del.C.
                                                                         ------
Section 241.
                                                                             

                                                /s/ WILLIAM L. GARRETT, JR.
                                                ---------------------------
                                                WILLIAM L. GARRETT, JR.
                                                1207 King Street
                                                Wilmington, Delaware 19801
                                                INCORPORATOR


          SWORN TO AND SUBSCRIBED before me this 30th day of DECEMBER, 1987.


                                                [SIGNATURE APPEARS HERE]
                                                ---------------------------
                                                Atty. at law

 
                          CERTIFICATE OF INCORPORATION
                                       OF
                       COAL VENTURES HOLDING COMPANY, INC.

                                    * * * * *


          l. The name of the corporation is COAL VENTURES HOLDING COMPANY, INC.

          2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.

          3. The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.

          4. The total number of shares of stock which the corporation shall
have authority to issue is One Thousand (1,000) and the par value of each of
such shares is Zero Dollars and One Cent ($0.01) amounting in the aggregate to
Ten Dollars and No Cents ($10.00).

          5. The board of directors is authorized to make, alter or repeal the
by-laws of the corporation. Election of directors need not be by written ballet.

          6. The name and mailing address of the sole incorporation is: 
                        M. A. Brzoska
                        Corporation Trust Center
                        1209 Orange Street
                        Wilmington, Delaware 19801

          7. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit.

          8. The corporation shall indemnify its officers, directors, employees
and agents to the extent permitted by the General Corporation Law of Delaware.

          I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 5th day of June, 1998.

                               /s/ M. A. Brzoska
                             -------------------------                     
                               Sole Incorporator
                               M. A. Brzoska


                                    Page 1

EX-3.23(B)

 
                                    BYLAWS 

                                      OF

                      COAL VENTURES HOLDING COMPANY, INC.

     I certify that the following Bylaws, consisting of four pages, each of 
which I have initialed for identification, are the Bylaws adopted by the sole 
Director of Coal Ventures Holding Company, Inc. (the "Corporation") by a Written
Action by Sole Director in Lieu of Meeting, dated June ____, 1998.


                                                
                                                /s/ JOHN LYNCH
                                                ________________________________
                                                John Lynch, Secretary

 
                                    BYLAWS 

                                      OF

                      COAL VENTURES HOLDING COMPANY, INC.

                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be 
held at the time and date to be set by the Board of Directors of the 
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place 
designated by the Board of Directors or, if the Board of Directors does not 
designate a place, then at a place designated by the Secretary or, if the 
Secretary does not designate a place, at the Corporation's principal business 
office.

     1.3  Special meetings of the shareholders shall be held at a place 
designated by the Board of Directors if the special meeting is called by the 
Board of Directors. If the special meeting is not called by the Board of 
Directors, the meeting shall be held at the Corporation's principal business 
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased 
from time to time by a resolution adopted by the vote of the shareholders who 
(i) are present in person or by proxy at a meeting held to elect directors and 
(ii) have a majority of the voting power of the shares represented at such 
meeting and entitled to vote in the election.



 
     2.2  Meetings of the Board of Directors may be called by the President or 
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law, 
notice of the time, place and purpose of each meeting of the directors shall be 
either (i) telephoned or personally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary 
and a Treasurer, all of whom shall be elected by the Board of Directors. The 
Corporation may also have such assistant officers as the Board of Directors may 
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a)  Have general charge and authority over the business of the 
Corporation subject to the direction of the Board of Directors,

          (b)  Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c)  Have authority acting alone, except as otherwise directed by the 
Board of Directors, to sign and deliver any document on behalf of the 
Corporation, and 

          (d)  Have such other powers and duties as the Board of Directors may 
assign to him.

                                      -2-

 
     3.3  The Secretary shall

          (a)  Issue notices of all meetings for which notice is required to be 
given, 

          (b)  Keep the minutes of all meetings and have charge of the corporate
record books, and 

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.4  The Treasurer shall
          
          (a)  Have the custody of all funds and securities of the Corporation, 

          (b)  Keep adequate and correct accounts of the Corporation's affairs 
and transactions, and

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of 
Directors or the President may assign to them.

                                   SECTION 4

                          Certificates and Transfer
                          --------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of 
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority 
of the directors of the Corporation.


                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                           Lexington, Kentucky 40507

                                      -4-

EX-3.24(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                       EAST KENTUCKY ENERGY CORPORATION



     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of EAST KENTUCKY ENERGY CORPORATION (the
"Corporation") by a Written Action by Sole Shareholder in Lieu of Meeting, dated
_________________, 1998.


                              /s/ JOHN LYNCH  
                              _________________________________________
                              John Lynch, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                       EAST KENTUCKY ENERGY CORPORATION


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(I) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time, place and purpose of each meeting of the directors shall be
either (I) telephoned or per  sonally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c)  Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

     3.3  The Secretary shall

          (a) Issue notices of all meetings for which notice is required to be
given,

                                      -2-

 
          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c)  Have such other duties and powers as the Board of Directors or
the President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c)  Have such other duties and powers as the Board of Directors or
the President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.


                                   SECTION 5

                                  Amendments
                                  ----------

                                      -3-

 
     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.



                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.26(A)

 
                                                                 Exhibit 3.26(a)

                                  8902360007                        FILED

                                                                AUG 24 1989 9AM
                          CERTIFICATE OF INCORPORATION        
                                                                 [SIGNATURE 
                                       OF                        APPEARS HERE]
                                                              SECRETARY OF STATE
                               ENCOAL CORPORATION

                              * * * * * * * * * *





            FIRST:   The name of the corporation is Encoal Corporation 
(hereinafter called "the Corporation" or "this Corporation").

            SECOND:  The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.

            THIRD:   The nature of the business purposes to be conducted or 
promoted are:

            To engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware, including, but not
limited to, conducting its business and affairs, carrying on its operations, and
having offices and exercising its powers in foreign countries.

            FOURTH:  The election of directors need not be by written ballot 
unless the By-Laws of the Corporation shall so provide.

            FIFTH:   The total number of shares of stock which the Corporation
shall have authority to issue is One Thousand (1,000) shares of Common Stock
with a par value of one dollar ($1.00) per share.

            SIXTH:   The name and mailing address of the incorporator is as 
follows:
                   NAME                            MAILING ADDRESS
                   ----                            ---------------
            Shell Mining Company                   P.O. Box 2906
                                                   Houston, Texas 77252

            SEVENTH: The Board of Directors of the Corporation shall direct the
management of the business and the conduct of the affairs of the Corporation and
shall establish policies, procedures, and controls which shall govern the
conduct of the Corporation and which shall preserve the separate legal identity
of the Corporation.

 
            EIGHTH:  A director of this Corporation, or any person serving as a
director of another corporation at the request of this Corporation, shall not be
personally liable to this Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to this Corporation (or such other
corporation) or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit.

            This Corporation shall have the authority to the full extent not
prohibited by law, as provided in the By-Laws of this Corporation or other-wise
authorized by the Board of Directors or by the stockholders of this Corporation,
to indemnify any person who is or was a director, officer, employee or agent of
this Corporation or is or was serving at the request of this Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise or entity from and
against any and all expenses, liabilities or losses asserted against, or
incurred by any such person in any such capacity, or arising out of his status
as such; and the indemnification authorized herein shall not be deemed exclusive
of any other rights to which those indemnified may be entitled under any By-Law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.

            This Corporation shall have the authority to the full extent not
prohibited by law, as provided in the By-Laws of this Corporation or otherwise
authorized by the Board of Directors or by the stockholders of this Corporation,
to purchase and maintain insurance in any form from any affiliated or other
insurance company and to use other arrangements (including, without limitation,
trust funds, security interests, or surety arrangements) to protect itself or
any person who is or was a director, officer, employee or agent of this
Corporation or serving at the request of this Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise or entity against any expense,
liability or loss asserted against, or incurred by any such person in any such
capacity, or arising out of his status as such, whether or not this Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.

 
             THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this certificate, hereby declaring and certifying
that this is its act and deed and the facts herein stated are true, and
accordingly has hereunto set its hand and seal this 22nd day of August, 1989.


                                             SHELL MINING COMPANY


                                             By: /s/ Jack L. Mahaffey
                                                 ------------------------------
                                                 President


(CORPORATE SEAL)


ATTEST:


/s/ [SIGNATURE APPEARS HERE]
- ----------------------------
         Secretary




STATE OF TEXAS    )
                  ) SS
COUNTY OF HARRIS  )


      BEFORE ME, A Notary Public in and for the State of Texas, on this day
personally appeared Jack L. Mahaffey known to me to be the person and officer
whose name is subscribed to the foregoing Certificate of Incorporation, and
having been by me duly sworn, declared that the same was the act and deed of
said SHELL MINING COMPANY, a corporation; and that he executed the same as the
act and deed of such corporation for the purposes and consideration therein
expressed and that the facts stated therein are true.

      GIVEN under my hand and seal of office this 22nd day of August, 1989.
                                                  ----


                                                   /s/ Jenny Lynn Peloquen
                                                   -----------------------------
                  [SEAL APPEARS HERE]                Notary Public in and for
                                                       the State of Texas

EX-3.26(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF 

                              ENCOAL CORPORATION

     I certify that the following Amended and Restated Bylaws, consisting of 
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Director of ENCOAL CORPORATION (the "Corporation") by a
Written Action by Sole Director in Lieu of Meeting, dated __________________,
1998.



                                             /s/ JOHN LYNCH
                                             ___________________________________
                                             John Lynch, Secretary 

 

                          AMENDED AND RESTATED BYLAWS

                                      OF

                              ENCOAL CORPORATION

                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be 
held at the time and date to be set by the Board of Directors of the 
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place 
designated by the Board of Directors or, if the Board of Directors does not 
designate a place, then at a place designated by the Secretary or, if the 
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place 
designated by the Board of Directors if the special meeting is called by the 
Board of Directors. If the special meeting is not called by the Board of 
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased 
from time to time by a resolution adopted by the vote of the shareholders who
(I) are present in person or by proxy at a meeting held to elect directors and 
(ii) have a majority of the voting power of the shares represented at such 
meeting and entitled to vote in the election.


 
     2.2    Meetings of the Board of Directors may be called by the President or
by any director. 

     2.3    Unless waived as permitted by the Delaware General Corporation Law, 
notice of the time, place and purpose of each meeting of the directors shall be 
either (I) telephoned or personally delivered to each director at least 
forty-eight hours before the time of the meeting or (ii) mailed to each director
at his last known address at least ninety-six hours before the time of the 
meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1    The Corporation shall have a President, a Vice President, a 
Secretary and a Treasurer, all of whom shall be elected by the Board of 
Directors. The Corporation may also have such assistant officers as the Board of
Directors may deem necessary, all of whom shall be elected by the Board of 
Directors or chosen by an officer or officers designated by it.

     3.2    The President shall

            (a)    Have general charge and authority over the business of the 
Corporation subject to the direction of the Board of Directors,

            (b)    Have authority to preside at all meetings of the shareholders
and of the Board of Directors,

            (c)    Have authority acting alone, except as otherwise directed by 
the Board of Directors, to sign and deliver any document on behalf of the 
Corporation, and

            (d)    Have such other powers and duties as the Board of Directors 
may assign to him.

     3.3    The Secretary shall 

            (a)    Issue notices of all meetings for which notice is required to
be given,

                                      -2-


 

          (b)  Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.4  The Treasurer shall

          (a)  Have the custody of all funds and securities of the Corporation,

          (b)  Keep adequate and correct accounts of the Corporation's affairs 
and transactions, and 

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.


     4.2  Transfer of shares shall be made only on the stock transfer books of 
the Corporation.

                                      -3-


 

                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.



                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                           Lexington, Kentucky 40507

                                      -4-

EX-3.27(A)

 
                                                                 Exhibit 3.27(a)

     STATE OF DELAWARE
    SECRETARY OF STATE
 DIVISION OF CORPORATIONS
FILED 09:00 AM 09/18/1996
   960271239 - 2664604


                          CERTIFICATE OF INCORPORATION

                                       OF

                                ENERZ CORPORATION


                                   ARTICLE ONE
                                   -----------

           The name of the corporation is EnerZ Corporation (hereinafter called
the "Corporation").

                                   ARTICLE TWO
                                   -----------

           The address of the Corporation's registered office in the state of
Delaware is 1013 Centre Road, Wilmington, Delaware 19805, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Prentice-Hall Corporation System, Inc.

                                  ARTICLE THREE
                                  -------------

           The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.

                                  ARTICLE FOUR
                                  ------------

           The total number of shares which the Corporation shall have the
authority to issue is One Thousand (1,000) shares, all of which shall be shares
of Common Stock, par value $.01 per share.

                                  ARTICLE FIVE
                                  ------------

           The name and mailing address of the incorporator is as follows: 

           Name                         Address 
           ----                         ------- 

           Eileen C: McNamara           c/o Kirkland & Ellis 
                                        153 East 53rd Street 
                                        39th Floor
                                        New York, NY 10022

 
                                  ARTICLE SIX
                                  -----------

           The directors shall have the power to adopt, amend or repeal By-Laws,
except as may otherwise be provided in the By-Laws.

                                 ARTICLE SEVEN
                                 -------------

           The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by Paragraph (7) of Subsection (b) of
Section 102 of the General Corporation Law of the State of Delaware, as the same
may be amended or supplemented.

                                 ARTICLE EIGHT
                                ------------- 

           The Corporation expressly elects not to be governed by Section 203 of
the General Corporation Law of the State of Delaware.

                                 ARTICLE NINE
                                 ------------

           The Corporation reserves the right to amend or repeal any provisions
contained in this Certificate of Incorporation from time to time and at any time
in the manner now or hereafter prescribed by the laws of the State of Delaware,
and all rights conferred upon stockholders and directors are granted subject to
such reservation.


           I, the undersigned, being the sole incorporator hereinbefore named,
for the purpose of forming a corporation in pursuance of the General Corporation
Law of the State of Delaware, do make and file this Certificate, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have hereunto set my band this 18th day of September, 1996.



                                       /s/ Eileen C. McNamara
                                       ----------------------
                                       Eileen C. McNamara
                                       Sole Incorporator

EX-3.27(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                               ENERZ CORPORATION


     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Director of ENERZ CORPORATION  (the "Corporation") by a
Written Action by Sole Director in Lieu of Meeting, dated ________________,
1998.


                              /s/ JOHN LYNCH  
                              ___________________________________
                              John Lynch, Secretary

 
                                                              EXHIBIT NO 3.27(B)


                          AMENDED AND RESTATED BYLAWS

                                      OF

                               ENERZ CORPORATION



                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(I) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law,
notice of the time, place and purpose of each meeting of the directors shall be
either (I) telephoned or per  sonally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a)  Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b)  Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (C)  Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d)  Have such other powers and duties as the Board of Directors may
assign to him.

     3.3  The Secretary shall

          (a)  Issue notices of all meetings for which notice is required to be
given,

                                      -2-

 
          (b)  Keep the minutes of all meetings and have charge of the corporate
record books, and

          (C)  Have such other duties and powers as the Board of Directors or
the President may assign to him.

     3.4  The Treasurer shall

          (a)  Have the custody of all funds and securities of the Corporation,

          (b)  Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (C)  Have such other duties and powers as the Board of Directors or
the President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.


                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.28(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF 

                           EVERGREEN MINING COMPANY

     I certify that the following Amended and Restated Bylaws, consisting of 
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of EVERGREEN MINING COMPANY (the "Corporation")
by a Written Action by Sole Shareholder in Lieu of Meeting, dated
__________________, 1998.



                                             /s/ JOHN LYNCH   
                                             ___________________________________
                                             John Lynch, Secretary 

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                           EVERGREEN MINING COMPANY


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be 
held at the time and date to be set by the Board of Directors of the 
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place 
designated by the Board of Directors or, if the Board of Directors does not 
designate a place, then at a place designated by the Secretary or, if the 
Secretary does not designate a place, at the Corporation's principal business 
office.

     1.3  Special meetings of the shareholders shall be held at a place 
designated by the Board of Directors if the special meeting is called by the 
Board of Directors. If the special meeting is not called by the Board of 
Directors, the meeting shall be held at the Corporation's principal business 
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or 
by any director.

     2.3  Unless waived as permitted by the West Virginia Code, notice of the
time, place and purpose of each meeting of the directors shall be either (i)
telephoned or personally delivered to each director at least forty-eight hours
before the time of the meeting or (ii) mailed to each director at his last known
address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors. The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a)  Have general charge and authority over the business of the 
Corporation subject to the direction of the Board of Directors,

          (b)  Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c)  Have authority acting alone, except as otherwise directed by the 
Board of Directors, to sign and deliver any document on behalf of the 
Corporation, and

          (d)  Have such other powers and duties as the Board of Directors may 
assign to him.

     3.3  The Secretary shall

          (a)  Issue notices of all meetings for which notice is required to be 
given,

                                      -2-

 
               
          (b)  Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c)  Have such other duties and powers as the Board of Directors or
the President may assign to him.


     3.4  The Treasurer shall

          (a)  Have the custody of all funds and securities of the Corporation,

          (b)  Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.



                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-
    

 


                                   SECTION 5


                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.




                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                           Lexington, Kentucky 40507

                                      -4-

EX-3.29(A)

 
                                                                 Exhibit 3.29(a)

ZEIG1A.LPF

                         CERTIFICATE OF INCORPORATION
                         ----------------------------

                                      OF
                                      --

                             FAIRVIEW LAND COMPANY
                             ---------------------

                                 ARTICLE FIRST
                                 -------------
                                  
             The name of the corporation is Fairview Land Company.

                                ARTICLE SECOND
                                --------------

     The address of the corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company .

                                 ARTICLE THIRD
                                 -------------

     The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware, as amended.

                                ARTICLE FOURTH
                                --------------  

     The total number of shares of stock which the corporation has authority to
issue is one thousand (1,000) shares of Common Stock, with a par value of one
cent ($.01) per share.

                                 ARTICLE FIFTH
                                 -------------

     The name and mailing address of the sole incorporator are as follows:

              NAME                                     MAILING ADDRESS
              ----                                     ---------------

     Linda Perkins Felde                          200 East Randolph Drive
                                                  Suite 5700
                                                  Chicago, Illinois 60601

 
ZEIGlA. LPF


                                 ARTICLE SIXTH
                                 -------------

     The corporation is to have perpetual existence.


                                ARTICLE SEVENTH
                                ---------------

     In furtherance and not in limitation of the powers conferred by statute,
the board of directors of the corporation is expressly authorized to make, alter
or repeal the by-laws of the corporation.

                                ARTICLE EIGHTH
                                --------------

     Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws of the corporation may provide. The books of the
corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the board of directors or in the by-laws
of the corporation. Election of directors need not be by written ballot unless
the by-laws of the corporation so provide.


                                 ARTICLE NINTH
                                 -------------

     To the fullest extent permitted by the General Corporation Law of the State
of Delaware as the same exists or may hereafter be amended, a director of the
corporation shall not be liable to the corporation or its stockholders for
monetary damages for a breach of fiduciary duty as a director. Any repeal or
modification of this ARTICLE NINTH shall not adversely affect any right or
                     -------------
protection of a director of the corporation existing at the time of such repeal
or modification.

                                 ARTICLE TENTH
                                 -------------     

     The corporation expressly elects not to be governed by Section 203 of the
General Corporation Law of the State of Delaware.


                                      -2-

 
ZEIG1A.LPF

                               ARTICLE ELEVENTH
                               ----------------

     The corporation reserves the right to amend, alter, change or repeal any
provision contained in this certificate of incorporation in the manner now or
hereafter prescribed herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are granted subject to this
reservation.

     I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts stated herein are true, and
accordingly have hereunto set my hand, on the 9th day of August, 1990.



                               /s/ Linda Perkins Felde
                              -----------------------------------
                              Linda Perkins Felde


                                      -3-

EX-3.29(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                             FAIRVIEW LAND COMPANY



     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Director of FAIRVIEW LAND COMPANY (the "Corporation") by a
Written Action by Sole Director in Lieu of Meeting, dated ________________,
1998.

                              /s/ JOHN LYNCH  
                              ____________________________________
                              John Lynch, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                             FAIRVIEW LAND COMPANY



                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(I) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law,
notice of the time, place and purpose of each meeting of the directors shall be
either (I) telephoned or per  sonally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (C) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

     3.3  The Secretary shall

          (a) Issue notices of all meetings for which notice is required to be
given,

                                      -2-

 
          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (C) Have such other duties and powers as the Board of Directors or
the President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (C) Have such other duties and powers as the Board of Directors or
the President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.


                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.30(B)

 
                              AMENDED AND RESTATED

                                     BYLAWS

                                       OF

                          FRANKLIN COAL SALES COMPANY



     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Director of FRANKLIN COAL SALES COMPANY (the "Corporation")
by a Written Action by Sole Director in Lieu of Meeting, dated ________________,
1998.


                              /s/ JOHN LYNCH  
                              _________________________________________
                              John Lynch, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                       OF

                          FRANKLIN COAL SALES COMPANY



                                   SECTION 1

                            Meetings of Shareholders
                            ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                               Board of Directors
                               ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(I) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law,
notice of the time, place and purpose of each meeting of the directors shall be
either (I) telephoned or per  sonally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                    Officers
                                    --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (C) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

     3.3  The Secretary shall

          (a) Issue notices of all meetings for which notice is required to be
given,

                                      -2-

 
          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (C) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (C) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                   Amendments
                                   ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.



                                  Prepared by
                           BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                           Lexington, Kentucky  40507

                                      -4-

EX-3.31(A)

 
                                                                 Exhibit 3.31(a)


                         CERTIFICATE OF INCORPORATION

                                      OF

                        GRASSY COVE COAL MINING COMPANY


                                   ARTICLE I
                                   --------- 

                                     Name
                                     ----

                        The name of the Corporation is:

                        GRASSY COVE COAL MINING COMPANY


                                  ARTICLE II
                                  ----------

                    Registered Office and Registered Agent
                    --------------------------------------

     The registered office of the Corporation in the State of Delaware is to be
located in 100 West Tenth Street, City of Wilmington, County of New Castle. The
name of the registered agent of the Corporation at such address is The
Corporation Trust Company.


                                  ARTICLE III
                                  -----------

                               Corporate Purpose
                               -----------------

     The purposes of the corporation are:

     (1) to acquire, hold, explore or dispose of coal properties or other
interests in real property;

     (2) to develop, remove and recover coal and any other mineral from
properties;

     (3) To manufacture, purchase or otherwise

 
acquire, invest in, own, mortgage, pledge, sell, assign and transfer or
otherwise dispose of, trade, deal in and deal with goods, wares and merchandise
and personal property of every class and description;

     (4) To acquire, and pay for in cash, stock or bonds of this corporation or
otherwise, the good will, rights, assets and property, and to undertake or
assume the whole or any part of the obligations or liabilities of any person,
firm, association or corporation;

     (5) To borrow or raise money for any of the purposes of the corporation
and, from time to time without limit as to amount, to draw, make, accept,
endorse, execute and issue promissory notes, drafts, bills of exchange,
warrants, bonds, debentures and other negotiable or non-negotiable instruments
and evidence of indebtedness, and to secure the payment of any thereof and of
the interest thereon by mortgage upon or pledge, conveyance or assignment in
trust of the whole or any part of the property of the corporation, whether at
the time owned or thereafter acquired, and to sell, pledge or otherwise dispose
of such bonds or other obligations of the corporation for its corporate
purposes;

     (6) To purchase, receive, take by grant, gift


                                      -2-

 
     devise, bequest or otherwise, lease, or otherwise acquire, own, hold,
     improve, employ, use and otherwise deal in and with real or personal
     property, or any interest therein, wherever situated, and to sell, convey,
     lease, exchange, transfer, or otherwise dispose of, or mortgage or pledge,
     all or any of the corporation's property and assets, or any interest
     therein, wherever situated;

          (7) To engage in any lawful act or activity for which corporations may
     now or hereafter be organized under the General Corporation Law of
     Delaware.


                                   ARTICLE IV
                                   ----------

                                  Capital Stock
                                  -------------
 
     The total number of shares of capital stock which the Corporation shall
have authority to issue is 1,000 shares of Common Stock of the par value of
$1.00 each.


                                   ARTICLE V
                                   ---------

                                 Incorporator
                                 ------------

     The name and mailing address of the incorporator of the Corporation is as
follows:


                                      -3-

 
                Name                                    Mailing Address
                ----                                    ---------------

          LISA ANNE GASTON                              DAVIS POLK & WARDWELL
                                                        1 Chase Manhattan Plaza
                                                        New York, New York 10005


                                  ARTICLE VI
                                  ----------

                               Initial Director
                               ----------------

                The name and mailing addresses of the persons who are to serve
as directors until the first annual meeting of stockholders or until successors
are elected and qualified are as follows:

                Names                                Mailing Addresses
                -----                                -----------------

          J.   H. HENDERSON                          P.O. Box 2159
                                                     Dallas, Texas 75221

          LEON OLIVER                                P.O. Box 2159
                                                     Dallas, Texas 75221

          J.   LAURENT SWINNEN                       Rue de la Loi, 33
                                                     1040 Bruxelles
                                                     Belgium


                                  ARTICLE VII
                                  -----------

                              Board of Directors
                              ------------------

          SECTION 1. Powers of the Board of Directors. In furtherance and not in
                     --------------------------------
limitation of the powers conferred by statute, the Board of Directors of the
Corporation is expressly authorized to make, alter, amend or repeal from


                                      -4-

 
time to time any of the By-Laws of the Corporation; provided, however, that any
                                                    -----------------
By-Laws made by the Board of Directors may be altered, amended or repealed by
the holders of Common Stock of the Corporation entitled to vote thereon at any
annual meeting or at any special meeting called for that purpose.

     SECTION 2. Election of Directors. The elections of directors need not be by
                ---------------------
ballot unless the By-Laws of the Corporation shall so provide.


                                 ARTICLE VIII
                                 ------------

                  Amendments to Certificate of Incorporation
                  ------------------------------------------

     The Certificate of Incorporation of the Corporation may be amended in the
manner now or hereafter prescribed by law.



                                  ARTICLE IX
                                  ----------

                                Indemnification
                                --------------- 

     The corporation shall, to the full extent permitted by Section 145 of the
Delaware General Corporation Law, as amended from time to time, indemnify all
persons whom it may indemnify pursuant to such Section.

                                      -5-

 
                                    ARTICLE X
                                    ---------

                           Compromises or Arrangements
                           ---------------------------

     Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as such court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of

                                      -6-

 
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which such application has
been made, be binding on all the creditors or class of creditors, and/or on all
the stockholders or class of stockholders, of this Corporation, as the case may
be, and also on this Corporation.


     I, THE UNDERSIGNED, being the incorporator herein-before named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 2nd day of February, 1984.


                                              /s/ Lisa Anne Gaston
                                              -------------------------
                                                   LISA ANNE GASTON


                                      -7-

EX-3.31(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                        GRASSY COVE COAL MINING COMPANY


     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of GRASSY COVE COAL MINING COMPANY (the
"Corporation") by a Written Action by Sole Shareholder in Lieu of Meeting, dated
_________________, 1998.


                              /s/ JOHN LYNCH  
                              _________________________________________
                              John Lynch, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                        GRASSY COVE COAL MINING COMPANY


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or per  sonally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                    Officers
                                    --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

                                      -2-

 
     3.3  The Secretary shall

          (a) Issue notices of all meetings for which notice is required to be
given,

          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.


                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.32(A)

 
                                                                 EXHIBIT 3.32(A)

    STATE OF DELAWARE
    SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 07/18/1995
   950159545 -- 2525165

                         CERTIFICATE OF INCORPORATION

                                      OF

                         HERITAGE MINING COMPANY, INC.


                                  ARTICLE ONE
                                  -----------

          The name of the corporation is Heritage Mining Company, Inc.
     (hereinafter called the "Corporation").

                                  ARTICLE TWO
                                  -----------

          The address of the Corporation's registered office in the state of
     Delaware as 1013 Centre Road, Wilmington, Delaware 19805, in the City of
     Wilmington County of New Castle. The name of its registered agent at such
     address is Corporation Service Company.

                                 ARTICLE THREE
                                 -------------

          The purpose of the Corporation is to engage in any lawful act or
     activity for which corporations may be organized under the General
     Corporation Law of Delaware

                                 ARTICLE FOUR
                                 ------------

          The total number of shares which the Corporation shall have the
     authority to issue is One Hundred (100) shares, all of which shall be
     shares of Common Stock, par value $.01 per share.

                                 ARTICLE FIVE
                                 ------------

          The name and mailing address of the incorporator are as follows:
 
          Name                               Address
          ----                               -------

          Eileen C. McNamara                 c/o Kirkland & Ellis
                                             153 East 53rd Street
                                             39th Floor
                                             New York, NY 10022

                                  ARTICLE SIX
                                  -----------

          The directors shall have the power to adopt, amend or repeal By-Laws,
     except as may otherwise be provided in the By-Laws.

 
                                 ARTICLE SEVEN
                                 -------------

          The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by Paragraph (7) of Subsection (b) of
Section 102 of the General Corporation Law of the State of Delaware, as the same
may be amended or supplemented.

                                 ARTICLE EIGHT
                                 -------------

          The Corporation expressly elects not to be governed by Section 203 of
the General Corporation Law of the State of Delaware.

                                 ARTICLE NINE
                                 ------------
 
          The Corporation reserves the right to amend or repeal any provisions
contained in this Certificate of Incorporation from time to time and at any time
in the manner now or hereafter prescribed by the laws of the State of Delaware,
and all rights conferred upon stockholders and directors are granted subject to
such reservation.


          I, the undersigned being the sole Incorporator hereinbefore named for
the purpose of forming a corporation in pursuance of the General Corporation Law
of the State of Delaware, do make and file this Certificate, hereby declaring
and certifying that the facts herein stated are true, and accordingly have
hereunto set my hand this 18th day of July, 1995.


                                            /s/ Eileen C. McNamara 
                                            -------------------------------
                                            Eileen C. McNamara
                                            Sole Incorporator

 
                                                            STATE OF DELAWARE 
                                                           SECRETARY OF STATE
                                                       DIVISION OF CORPORATIONS
                                                      FILED 09:00 AM 12/07/1995
                                                         950286160 - 2525165
  
                          CERTIFICATE OF AMENDMENT  
                                      TO
                         CERTIFICATE OF INCORPORATION
                                      OF
                         HERITAGE MINING COMPANY, INC.

          The undersigned, being the President and Secretary, respectively, of
Heritage Mining Company, Inc., a corporation and existing under and by virtue of
the General Corporation Law of the State of Delaware (the "Corporation"), do
hereby certify as follows:

          1.       That the Directors of the Corporation pursuant to a Written 
          Consent and in accordance with Sections 141(F) and 242 of the General
          Corporation Law of the State of Delaware, adopted the resolution set
          forth below proposing an amendment to the Certificate of Incorporation
          of the Corporation (the "Amendment") and further directed that the
          Amendment be submitted to the stockholders of the Corporation entitled
          to vote thereon for their consideration and approval:

                   RESOLVED, that the Certificate of Incorporation of the
          Corporation be amended by deleting Article First and creating a new
          Article First to read as following (the "Amendment"):
 
                   "FIRST: The name of the corporation is Heritage Mining
          Company (hereinafter called "the Corporation" or "this Corporation")."

          2.       That the Sole Stockholder of the Corporation, by written 
          consent, approved and adopted the Amendment in accordance with
          Sections 228 and 242 of the General Corporation Law of the State of
          Delaware.


         IN WITNESS WHEREOF, the undersigned, being the Vice President and
Secretary hereinabove named, for the purpose of amending the Certificate of
Incorporation of the Corporation pursuant to the General Corporation Law of the
State of Delaware, under penalties of perjury do each hereby declare and certify
that this is the act and deed of the Corporation and the facts stated herein are
true, and accordingly have hereunto signed this Certificate of Amendment to
Certificate of Incorporation this 4th day of December, 1995.



                         By: /s/ Michael A. Kafoury   
                             ---------------------------
                             Michael A. Kafoury
                             Secretary

EX-3.32(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                            HERITAGE MINING COMPANY


     I certify that the following Bylaws, consisting of four pages, each of
which I have initialed for identification, are the Bylaws adopted by the sole
Director of HERITAGE MINING COMPANY (the "Corporation") by a Written Action by
Sole Director in Lieu of Meeting, dated _____________, 1998.

                                        /s/ JOHN LYNCH
                                        ______________________________________
                                        John Lynch, Secretary


                          AMENDED AND RESTATED BYLAWS

                                      OF

                           HERITAGE MINING COMPANY 


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

 
     1.1  The annual meeting of the shareholders of the Corporation shall be 
held at the time and date to be set by the Board of Directors of the 
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place 
designated by the Board of Directors or, if the Board of Directors does not 
designate a place, then at a place designated by the Secretary or, if the 
Secretary does not designate a place, at the Corporation's principal business 
office.

     1.3  Special meetings of the shareholders shall be held at a place 
designated by the Board of Directors if the special meeting is called by the 
Board of Directors. If the special meeting is not called by the Board of 
Directors, the meeting shall be held at the Corporation's principal business 
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased 
from time to time by a resolution adopted by the vote of the shareholders who 
(i) are present in person or by proxy at a meeting held to elect directors and 
(ii) have a majority of the voting power of the shares represented at such 
meeting and entitled to vote in the election.



     2.2  Meetings of the Board of Directors may be called by the President or 
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law, 
notice of the time, place and purpose of each meeting of the directors shall be 
either (i) telephoned or personally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary 
and a Treasurer, all of whom shall be elected by the Board of Directors. The 
Corporation may also have such assistant officers as the Board of Directors may 
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a)  Have general charge and authority over the business of the 
Corporation subject to the direction of the Board of Directors,

          (b)  Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c)  Have authority acting alone, except as otherwise directed by the 
Board of Directors, to sign and deliver any document on behalf of the 
Corporation, and 

          (d)  Have such other powers and duties as the Board of Directors may 
assign to him.

     3.3  The Secretary shall 

          (a)  Issue notices of all meetings for which notice is required to be 
given,

                                      -2-
 



          (b)  Keep the minutes of all meetings and have charge of the corporate
record books, and 

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.4  The Treasurer shall
          
          (a)  Have the custody of all funds and securities of the Corporation, 

          (b)  Keep adequate and correct accounts of the Corporation's affairs 
and transactions, and

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of 
Directors or the President may assign to them.

                                   SECTION 4

                          Certificates and Transfer
                          --------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of 
the Corporation.

                                      -3-
 


 

                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.


                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                           Lexington, Kentucky 40507

                                      -4-

EX-3.33(B)

 
                             AMENDED AND RESTATED
  
                                    BYLAWS

                                      OF

                              KERMIT COAL COMPANY


     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of KERMIT COAL COMPANY (the "Corporation") by a
Written Action by Sole Shareholder in Lieu of Meeting, dated __________________,
1998.



                                           /s/ KEN MEADOWS
                                           _____________________________________
                                           Ken Meadows, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                              KERMIT COAL COMPANY

                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1    The annual meeting of the shareholders of the Corporation shall be 
held at the time and date to be set by the Board of Directors of the 
Corporation.

     1.2    The annual meeting of the shareholders shall be held at a place 
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the 
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3    Special meetings of the shareholders shall be held at a place 
designated by the Board of Directors if the special meeting is called by the 
Board of Directors. If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business 
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1    The exact number of directors may be fixed, increased or decreased 
from time to time by a resolution adopted by the vote of the shareholders who 
(i) are present in person or by proxy at a meeting held to elect directors and 
(ii) have a majority of the voting power of the shares represented at such 
meeting and entitled to vote in the election.

 
     2.2     Meetings of the Board of Directors may be called by the President
or by any director.

     2.3     Unless waived as permitted by the West Virginia Code, notice of the
time, place and purpose of each meeting of the directors shall be either (i)
telephoned or personally delivered to each director at least forty-eight hours
before the time of the meeting or (ii) mailed to each director at his last known
address at least ninety-six hours before the time of the meeting.
 
                                   SECTION 3

                                   Officers
                                   --------

     3.1     The Corporation shall have a President, a Vice President, a
Secretary and a Treasurer, all of whom shall be elected by the Board of
Directors. The Corporation may also have such assistant officers as the Board of
Directors may deem necessary, all of whom shall be elected by the Board of
Directors or chosen by an officer or officers designated by it.

     3.2     The President shall

             (a)  Have general charge and authority over the business of the 
Corporation subject to the direction of the Board of Directors,

             (b)  Have authority to preside at all meetings of the shareholders
and of the Board of Directors,

             (c)  Have authority acting alone, except as otherwise directed by 
the Board of Directors, to sign and deliver any document on behalf of the 
Corporation, and

             (d)  Have such other powers and duties as the Board of Directors 
may assign to him.

     3.3     The Secretary shall

             (a)  Issue notices of all meetings for which notice is required to
be given,

                                      -2-

   









      

 
          (b)  Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c)  Have such other duties and powers as the Board of Directors or
the President may assign to him.

     3.4  The Treasurer shall

          (a)  Have the custody of all funds and securities of the Corporation,

          (b)  Keep adequate and correct accounts of the Corporation's affairs 
and transactions, and

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of 
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of 
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.



                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                           Lexington, Kentucky 40507

                                      -4-

EX-3.34(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                               MEADOWLARK, INC.



     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the [sole] Shareholder[s] of MEADOWLARK, INC. (the "Corporation") by
a Written Action by Shareholders in Lieu of Meeting, dated _________________,
1998.


                              /s/ JOHN LYNCH
                              _________________________________________
                              John Lynch, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                               MEADOWLARK, INC.


                                   SECTION 1

                            Meetings of Shareholders
                            ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2
                               Board of Directors
                               ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Indiana Code, notice of the time,
place and purpose of each meeting of the directors shall be either (i)
telephoned or personally delivered to each director at least forty-eight hours
before the time of the meeting or (ii) mailed to each director at his last known
address at least ninety-six hours before the time of the meeting.

                                   SECTION 3
          
                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

     3.3  The Secretary shall

                                      -2-

 
          (a) Issue notices of all meetings for which notice is required to be
given,

          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------
     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                   SECTION 5

                                      -3-

 
                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.



                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.35(A)

 
                                                              Exhibit 3.35(a)


                                                                 FILED
                                                               NOV 05 1992
                                                             IN THE OFFICE OF
                                                            SECRETARY OF STATE
                                                              WEST VIRGINIA

                           ARTICLES OF INCORPORATION

                                      OF

                              MEGA MINERALS, INC.

- -------------------------------------------------------------------------------

          The undersigned, acting as Incorporator(s) of a corporation under
      Section 27, Article 1, Chapter 31 of the Code of West Virginia, 1931, as
      amended, adopt(s) the following Articles of Incorporation for such
      corporation:


1.        The undersigned agree to become a corporation by the name of MEGA
MINERALS, INC.

II.       The address of the principal office of said corporation shall be 
located at Post Office Box 688, in the city, town or village of Princeton,
County of Mercer, State of West Virginia, ZIP 24740.

IF either the principal office or the principal place of business of said
corporation is NOT located in the State of West Virginia give address of the
exact location.

- -------------------------------------------------------------------------------

III.    The purpose or purposes for which corporation is formed are as follows:

        To operate a leasing business. To purchase, hold, pledge, transfer, 
sell or otherwise dispose of or deal in, the shares of capital stock, bonds,
debentures, notes or other securities or evidences of indebtedness of any
corporation; to receive, collect and dispose of dividends, interests or other
income on any such securities held by it, and do any and all acts and things
tending to increase the value of said corporation; to issue bonds and secure the
same by pledge or deed of trust of or upon any part of such securities or other
property held or owned by the company and to sell or pledge such bonds for
proper corporate purposes and in the promotion of its corporate business; to
purchase, receive, hold and dispose of any securities of any person or
corporation, whether such securities shall be bond, mortgages, debentures,
notes, shares of capital stock or otherwise, and in respect to any such
securities, to exercise any and all rights and privileges of ownership thereof,
and generally to act as investment brokers, agents or principals.

          To borrow and lend money, and negotiate loans; to draw, accept,  
endorse, buy, and sell promissory notes, bonds, stocks, debentures, coupons, and
other securities; to

                                                                              

 
issue and commission, subscribe for, take, acquire, hold, sell, exchange, and
deal in shares, stocks, bonds, obligations, and securities of any government,
authority, or company; in form, promote, subsidize, and assist companies,
syndicates, or partnerships of all kinds, and to finance and refinance the same.

     To develop and turn to account any and acquired by or in which the company
is interested, and in particular by laying out and preparing the same for
building purposes, construction, altering, repairing, pulling down, decorating,
maintaining, furnishing, fitting up and improving buildings, and planting,
paving, draining, letting on building leases or building agreements, and by
advancing money to and entering into contracts and arrangements of all kinds
with builders, tenants, and others. To engage in general insurance brokerage
business for the purpose of selling fire, accident, liability, collision, theft,
property damage, and other insurance. To carry on and undertake any business
undertaking, transaction or operation commonly carried on or undertaken by
capitalist, promoter, financier, concessionaries, contractors, brokers,
commission merchants, and any other incidental business which may seem to the
company convenient to carry on in connection with the above or calculated
directly or indirectly to enhance the value of or tender profitable any of the
company's property or rights.

     In furtherance and not in limitation of the privileges of this Corporation
it shall be lawful to purchase or acquire in any lawful manner, and to hold,
own, mortgage, pledge, sell, lease, transfer, or in any manner dispose of, and
deal and trade in, real estate, goods, wares, merchandise, and property of any
and every class and description and in any part of the world.

     To acquire the good will, rights, and property, and undertake the whole or
any part of the assets or liabilities of any person, firm, association, or
corporation engaged in any business authorized in these purposes, to pay for
same in cash, the stock of any company, bonds or otherwise to hold or in any
manner dispose of the whole of any part of the property purchased; conduct in
any lawful manner the whole or any part of any business so acquired, and to
exercise all the powers necessary or convenient in and about the conduct and
management of such business. To guarantee purchase, hold, sell, assign,
transfer, mortgage, pledge, or otherwise dispose of the shares of the capital
stock of, or any bonds, securities or evidence of indebtedness created by any
other corporation or corporations in this State or any other State, country,
nation, or government, and while owner of said stock may exercise all the
rights, powers, and

 
privileges of ownership, including the right to vote thereon, to the same extent
as a natural person might or could do. In carrying out these purposes to enter
into, make, and perform contracts of every kind with any person, firm,
association, or corporation, municipality, body, politic, country, territory,
State, government or colony or dependency thereof and without limit as to the
amount to draw, make, accent, endorse, discount, execute, and issue promissory
notes, drafts, bills of exchange, warrants, debentures, and other negotiable or
transferable instruments and evidences of indebtedness, whether secured by
mortgage or otherwise, as well as to secure the same by mortgage or otherwise.

     To conduct a business in any of the states, territories, colonies, or
dependencies of the United States in the District of Columbia, and
in any and all foreign countries to have one or more offices therein and therein
to hold, purchase, mortgage, and convey real estate and personal property,
without limit as to amount, and therein to hold the meetings of incorporator,
stockholders, and directors of the Corporation.

     To do any or all of the things herein set forth to the same extent as a
natural person or persons might or could do and in any part of the world, as
principals, agents, contractors, trustees or otherwise, and either alone or in
company with others. 

     To purchase, hold, and reissue any of the shares of capital stock .

IV.  Provisions granting preemptive rights are:

     NONE

V.   Provisions for the regulation of the internal affairs of the corporation 
     are:

     The internal affairs of the corporation will be regulated by the Board of
Directors and officers of said corporation. By-laws will be drawn up and
approved by the stockholders of said corporation.

VI.  The amount of the total authorized capital stock of said corporation shall
be One Thousand Dollars ($1,000.00), which shall be divided into One Hundred
shares of the par value of Ten Dollars ($10.00) each.

VII. The full names and addresses of the incorporator(s), including street and
street numbers, if any, the city, town or village, including ZIP numbers the
number of shares subscribed for by each are as follows:

 
NAME                  ADDRESSES                              NO. OF
                                                             SHARES
                                                           (optional)

Debra Kilgore         Post Office Box 5l29, Princeton, WV 24740

VIII.  The existence of this corporation is to be perpetual.

IX.    The name and address of the appointed person to whom notice or process 
may be sent.

       Debra Kilgore. Past Office Box 5l29, Princeton, WV 24740

X.     The number of directors constituting the initial Board of Directors of
the corporation is one (1), and the names and addresses of the persons who are
to serve as directors until the first annual meeting of shareholders or until
their successors are elected and shall qualify.

NAME                  ADDRESSES

Richard Preservati    Post Office Box 688, Princeton, WV 24740


       I/we, the undersigned, for the purpose of forming a corporation under the
laws of the State of West Virginia, do make and file these Articles of
Incorporation, and I/we have accordingly hereunto set my/our respective hand(s)
this 4th day of November, 1992.


                                         /s/ Debra Kilgore
                                         ----------------------------
                                         DEBRA KILGORE





STATE OF WEST VIRGINIA,

COUNTY OF MERCER, to-wit:

     I. [SIGNATURE APPEARS HERE] a Notary Public, in and for the County and
State at aforesaid, hereby certify that DEBRA KILGORE, whose name(s) are signed
to the foregoing Articles of Incorporation, bearing date the 4th day of
November, 1992, this day personally appeared before me in my said County and
acknowledged his/her/their signature(s) to be the same.

 
      Given under my hand and official seal this 4th day of November, 1992



[SEAL OF THE STATE OF WEST VIRGINIA          /s/ Barbara S. Belcher
 APPEARS HERE]                               ------------------------------
(NOTARIAL SEAL)                              NOTARY PUBLIC

My Commission Expires: 10-19-98.


Articles of Incorporation
prepared by:
DAVID BURTON
Burton & Kilgore
Attorneys at Law
P.0. Box 5129
1460 Main St.
Princeton, WV 24740

EX-3.35(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF 

                              MEGA MINERALS, INC.

     I certify that the following Amended and Restated Bylaws, consisting of 
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of MEGA MINERALS, INC. (the "Corporation") by a
Written Action by Sole Shareholder in Lieu of Meeting, dated __________________,
1998.



                                             /s/ JOHN LYNCH
                                             ___________________________________
                                             John Lynch, Secretary 

 
                                                              EXHIBIT NO 3.35(b)

                          AMENDED AND RESTATED BYLAWS

                                      OF

                             MEGA MINERALS, INC.


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------


     1.1  The annual meeting of the shareholders of the Corporation shall be 
held at the time and date to be set by the Board of Directors of the 
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place 
designated by the Board of Directors if the special meeting is called by the 
Board of Directors. If the special meeting is not called by the Board of 
Directors, the meeting shall be held at the Corporation's principal business 
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.



 


 
     2.2  Meetings of the Board of Directors may be called by the President or 
by any director.

     2.3  Unless waived as permitted by the West Virginia Code, notice of the 
time, place and purpose of each meeting of the directors shall be either (i) 
telephoned or personally delivered to each director at least forty-eight hours 
before the time of the meeting or (ii) mailed to each director at his last known
address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors. The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a)  Have general charge and authority over the business of the 
Corporation subject to the direction of the Board of Directors,

          (b)  Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c)  Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d)  Have such other powers and duties as the Board of Directors may
assign to him.

     3.3  The Secretary shall

                                     -2- 



 
          (a)  Issue notices of all meetings for which notice is required to be 
given,

          (b)  Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.4  The Treasurer shall

          (a)  Have custody of all funds and securities of the Corporation,

          (b)  Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of 
the Corporation.

                                      -3-



          

      

 
                                   SECTION 5

                                  Amendments
                                  ----------


     These bylaws may be altered, amended, repealed or restated by a majority of
the directors or the Corporation.


                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                           Lexington, Kentucky 40507

                                      -4-

EX-3.36(A)

 
                           CERTIFICATE OF AMENDMENT 

                                      OF

                         CERTIFICATE OF INCORPORATION

                                      OF 

                            AMAX COAL SALES COMPANY

     1.   The name of the Corporation (hereinafter called the "Corporation") is 
Amax Coal Sales Company.

     2.   The Certificate of Incorporation of the Corporation is hereby amended 
by changing the first Article thereof so that, as amended, said Article shall 
read as follows:

          "1.  The name of the corporation is: Midwest Coal Sales Company."

     3.   The Amendment of the Certificate of Incorporation herein certified has
been duly adopted in accordance with the provisions of Section 228 and 242 of 
the General Corporation Law of the State of Delaware.

     4.   The effective date of the Amendment herein certified shall be the date
of filing.

     Dated this the 29th day of June, 1998.


                                                  AMAX COAL SALES COMPANY


                                                  BY: /s/ William H. Haselhoff
                                                     ___________________________

                                                  TITLE:  Vice President 
                                                          of Administration
                                                        ________________________

EX-3.36(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                          MIDWEST COAL SALES COMPANY


     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of MIDWEST COAL SALES COMPANY (the
"Corporation") by a Written Action by Sole Shareholder in Lieu of Meeting, dated
_________________, 1998.


                              /s/ JOHN LYNCH
                              _________________________________________
                              John Lynch, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                          MIDWEST COAL SALES COMPANY


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or per  sonally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

 
     3.3  The Secretary shall

          (a) Issue notices of all meetings for which notice is required to be
given,

          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.



                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

EX-3.37(A)

 
                                                                 Exhibit 3.37(a)

                           ARTICLE OF INCORPORATION

                                      OF

                             MID-VOL LEASING, INC.

- --------------------------------------------------------------------------------

I.   The undersigned Article of Incorporator(s) of a corporation under 
Section 27, Article 1, XXXXXXXXX of the Code of West Virginia, 1931, as amended,
adopt(s) the following Articles of Incorporation for such corporation:

II.  The address of the principal office of said corporation shall be located at
Post Office Box 1112, in the city, town or village of Princeton, County of 
Mercer, State of West Virginia, 24740.

     If either the principal office or the principal place of business of said 
corporation is NOT located in the State of West Virginia, give address of the 
exact location.

- --------------------------------------------------------------------------------

III. The purpose or purposes for which corporation is formed are as follows:

     To operate it business involving leasing and related business. To purchase,
hold, pledge, transfer, sell or otherwise dispose of or deal in, the shares of 
capital stock, bonds, debentures, notes or other securities or evidences of 
indebtedness of any corporation to receive, collect and dispose of dividends, 
interests or other income on any such securities held by it, and do any and all 
acts and things tending to increase the value of said corporation; to issue 
bonds and secure the same by pledge or deed of trust of or upon any part of such
securities or other property held or owned by the company and to sell or pledge 
such bonds for proper corporate purposes and in the promotion of its corporate 
business; to purchase, receive, hold and dispose of any securities of any person
or corporation, whether such securities shall be bonds, mortgages, debentures, 
notes, shares of capital stock or otherwise, and in respect to any such 
securities, to exercise any and all rights and privileges of ownership thereof, 
and generally to act as investment brokers, agents or principals.

     To borrow and lend money to negotiate loans; to draw, accept, endorse, buy 
and sell promissory notes, bonds, stocks, debentures, coupons, and other 
securities; to

 
privileges of ownership, including the right to vote thereon, to the same extent
as a natural person might or could do. In carrying out these purposes to enter 
into, make and perform contracts of every kind with any person, firm, 
association, or corporation, municipality, body politic, country, territory, 
State, government or colony or dependency thereof, and without limit as to the 
amount to draw, make, accept, endorse, discount, execute and issue promissory 
notes, drafts, bills of exchange, warrants, debentures, and other negotiable or 
transferable instruments and evidences of indebtedness, whether secured by 
mortgage or otherwise, as well as to secure the same by mortgage or otherwise.

     To conduct a business in any of the state, territories, colonies, or 
dependencies of the United States, in the District of Columbia, and in any and 
all foreign countries; to have one or more offices therein and therein to hold, 
purchase, mortgage, and convey real estate and personal property, without limit
as to amount, and therein to hold the meetings of incorporators, stockholders,
and directors of the Corporation.

     To do any or all of the things herein set forth to the same extent as a 
natural person or persons might or could do and in any part of the world, as 
principals, agents, contractors, trustees or otherwise, and either alone or in 
company with others.

     To purchase, hold, and reissue any of the shares of capital stock.

IV.  Provisions granting preemptive rights are:

     NONE

V.   Provisions for the regulation of the internal affairs of the corporation 

     The internal affairs of the corporation will be regulated by the Board of 
Directors and officers of said corporation. By-Laws will be drawn up and 
approved by the stockholders of said corporation.

VI.  The amount of the total authorized capital stock of said corporation shall 
be $1,000.00 dollars, which shall be divided into 100 shares of the par value of
$10.00 dollars each.

VII. The full names and addresses of the incorporator(s), including street and 
street numbers, if any, the city, town or village, including ZIP number, the 
number of shares subscribed for by each are as follows:

 
NAME                      ADDRESSES                             NO. OF
                                                                SHARES
                                                                (optional)

David Burton              Post Office Box 5129, Princeton, West Virginia 24749


VIII. The existence of this corporation is to be perpetual.

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

IX.   The name and address of the appointed person to whom notice or process may
be sent:

Richard Preservati, Director
Mid-Vol Leasing, Inc.
Post Office Box 1112
Princeton, West Virginia 24740

X.    The number of directors constituting the initial Board of Directors of the
corporation is One, and the names and addresses of the persons who are to 
service as directors until the first annual meeting of shareholders or until 
their successors are elected and shall qualify.

NAME                            ADDRESS

Richard Preservati, Director, Post Office Box 1112, Princeton, West Virginia 
24740


      I, WE, the undersigned, for the purpose of forming a corporation under the
laws of the State of West Virginia, do make and file this Articles of 
Incorporation, and I/We have accordingly hereunto set our respective hands this 
27th day of April, 1989.

(All Incorporators must sign below. Names and signatures must appear the same 
throughout the Articles of Incorporation.) Xerox copies of Signatures are not 
acceptable.


                                                /s/ David Burton
                                                --------------------------------
                                                DAVID BURTON


STATE OF WEST VIRGINIA,
COUNTY OF MERCER, to-wit:

      I, Donna W. Bolliver, a Notary Public, in and for the County and State 
aforesaid hereby certify that DAVID BURTON, above names are signed to the 
foregoing Article of Incorporation (names of all incorporators) as shown in 
Article VII must be

 
paid on commission, subscribe for, take, acquire, hold, sell, exchange, and deal
in shares, stocks, bonds, obligations, and securities of any government, 
authority, or company to form, promote, subsidize, and assist companies, 
syndicates, or partnerships of any kinds, and to finance and refinance the same.

     To develop and turn to account any and acquired by or in which company is 
interested, and is particular by laying out and preparing the same for building 
purposes, construction, altering, repairing, pulling down, decorating, 
maintaining, furnishing, fitting up and improving buildings, and painting, 
paving, draining, letting on building leases or building agreements, and by 
evidencing money to and entering into contracts and arrangements of all kinds 
with builders, tenants, and others. To engage in general insurance brokerage 
business for the purpose of selling fire, accident, liability, collision, theft,
property damage, and other insurance. To carry on and undertake any business 
undertaking, transaction or operation commonly carried on or undertaken by 
capitalist, promoter, financiers, concessionaries, contractors, brokers, 
commission merchants, and any other incidental business which may seem to the 
company convenient to carry on in connection with the above or calculated or 
indirectly to enhance the value of or render profitable any of the company's 
property or rights.

     In futherance and not in limitation of the privileges of this Corporation 
it shall be lawful to purchase or acquire in any lawful manner, and to hold, 
own, mortgage, pledge, sell, lease, transfer, or in any manner dispose of, and 
deal and trade in, real estate, goods, wares, merchandise, and property of any 
and every class and description, and in any part of the world.

     In acquire the good will, rights, and property, and undertake the whole or 
any part of the assets or liabilities of any person, firm, association, or 
corporation engaged in any business authorized in these purposes, to pay for 
same in cash, the stock of any company, bonds or otherwise; to hold or in any 
manner dispose of the whole or any part of the property so purchased; to conduct
in any lawful manner the whole or any part of any business so acquired, and to 
exercise all the powers necessary or convenient in and about the conduct and 
management of such business. to guarantee, purchase, hold, sell, assign, 
transfer, mortgage, pledge, or otherwise dispose of the shares of the capital 
stock or any bonds, securities or evidences of indebtedness created by any 
other corporation or corporations in this State or any other State, country, 
nation, or government, and while owner of said stock may exercise all the 
rights, powers, and

 
inserted in this space of official taking acknowledgment) bearing date, the 27th
day of April, 1989, this day personally appeared before me in my said County and
severally acknowledged their signature(s) to be the same.

     Observed under my hand and official said this 27th day of April, 1989.

[SEAL APPEARS HERE]             /s/ Donna W. Jolliver
                                --------------------------------
                                NOTARY PUBLIC

(NOTARY SEAL)

My Commission Expires 10-22-96
                      --------

Article of Incorporation
prepared by

David Burton
Attorney at Law
Post Office Box 5129
Princeton, West Virginia 24740

EX-3.37(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                             MID-VOL LEASING, INC.

     I certify that the following Amended and Restated Bylaws, consisting of 
four pages, each if which I have initialed for identification, are the Bylaws 
adopted by the sole Shareholder of MID-VOL LEASING, INC. (the "Corporation") by 
a Written Action by Sole Shareholder in Lieu of Meeting, dated ____________, 
1998.

                                             /s/ JOHN LYNCH
                                             ________________________________
                                             John Lynch, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                             MID-VOL LEASING, INC.


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be 
held at the time and date to be set by the Board of Directors of the 
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place 
designated by the Board of Directors or, if the Board of Directors does not 
designate a place, then at a place designated by the Secretary or, if the 
Secretary does not designate a place, at the Corporation's principal business 
office.

     1.3  Special meetings of the shareholders shall be held at a place 
designated by the Board of Directors if the special meeting is called by the 
Board of Directors. If the special meeting is not called by the Board of 
Directors, the meeting shall be held at the Corporation's principal business 
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased 
from time to time by a resolution adopted by the vote of the shareholders who 
(i) are present in person or by proxy at a meeting held to elect directors and 
(ii) have a majority of the voting power of the shares represented at such 
meeting and entitled to vote in the election.



     2.2  Meetings of the Board of Directors may be called by the President or 
by any director.

     2.3  Unless waived as permitted by the West Virginia Code, notice of the
time, place and purpose of each meeting of the directors shall be either (i)
telephoned or personally delivered to each director at least forty-eight hours
before the time of the meeting or (ii) mailed to each director at his last known
address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary 
and a Treasurer, all of whom shall be elected by the Board of Directors. The 
Corporation may also have such assistant officers as the Board of Directors may 
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a)  Have general charge and authority over the business of the 
Corporation subject to the direction of the Board of Directors,

          (b)  Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c)  Have authority acting alone, except as otherwise directed by the 
Board of Directors, to sign and deliver any document on behalf of the 
Corporation, and 

          (d)  Have such other powers and duties as the Board of Directors may 
assign to him.

     3.3  The Secretary shall 

                                      -2-
 

 


 
          (a)  Issue notices of all meetings for which notice is required to be 
given, 

          (b)  Keep the minutes of all meetings and have charge of the corporate
record books, and 

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.4  The Treasurer shall
          
          (a)  Have the custody of all funds and securities of the Corporation, 

          (b)  Keep adequate and correct accounts of the Corporation's affairs 
and transactions, and

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of 
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of 
the Corporation.

                                      -3-


 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.



                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                           Lexington, Kentucky 40507

                                      -4-

EX-3.38(A)

 
                                                                 Exhibit 3.38(a)

    STATE OF DELAWARE
    SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 11/02/1992
   712307006 - 2314551


                         CERTIFICATE OF INCORPORATION

                                      OF

                             PHOENIX LAND COMPANY


                                  ARTICLE ONE
                                  -----------

     The name of the corporation is Phoenix Land Company (hereinafter called the
"Corporation").

                                   ARTICLE TWO
                                   -----------

     The address of the Corporation's registered office in the state of
Delaware is 1013 Centre Road, Wilmington, Delaware 19805, in this City of
Wilmington, County of New Castle. The name of its registered agent at such
address is Corporation Service Company.

                                 ARTICLE THREE
                                 -------------

     The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.


                                 ARTICLE FOUR
                                 ------------

     The total number of shares which the Corporation shall have the authority
to issue is One Thousand (1,000) shares, all of which shall be shares of Common
Stock, without par value.


                                 ARTICLE FIVE
                                 ------------

     The name and mailing address of the incorporator is as follows;

     Name                        Address
     ----                        -------

     Eileen C. McNamara          c/o Kirkland & Ellis
                                 55 East 52nd Street
                                 16th Floor
                                 New York, NY 10055

                                  ARTICLE SIX
                                  -----------
 
     The directors shall have the power to adopt, amend or repeal By-Laws,
except as may otherwise be provided in the By-Laws.

 
                                 ARTICLE SEVEN
                                 -------------

     The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by Paragraph (7) of Subsection (b) of
Section 102 of the General Corporation Law of the State of Delaware, as the same
may be amended or supplemented.

                                 ARTICLE EIGHT
                                 -------------

     The Corporation expressly elects not to be governed by Section 203 of the
General Corporation Law of the State of Delaware.

                                 ARTICLE NINE
                                 ------------

     The Corporation reserves the right to amend or repeal any provisions
contained in this Certificate of Incorporation from time to time and at any time
in the manner now or hereafter prescribed by the laws of the State of Delaware,
and all rights conferred upon stockholders and directors are granted subject to
such reservation.


     I, the undersigned, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation in pursuance of the General Corporation Law of
the State of Delaware, do make and file this Certificate, hereby declaring and
certifying that the facts herein stated are true, and accordingly have hereunto
set my hand this 2nd day of November, 1992.


                                               /s/ Eileen C. McNamara
                                               ------------------------------
                                               Eileen C. NcNamara
                                               Sole Incorporator

 
                               State of Delaware
                        Office of the Secretary of State               PAGE 1

                        --------------------------------


     I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF CHANGE OF
REGISTERED AGENT OF "PHOENIX LAND COMPANY", FILED IN THIS OFFICE ON THE TWELFTH
DAY OF OCTOBER, A.D. 1993, AT 10 O'CLOCK A.M.




          [SEAL APPEARS HERE]          /s/ Edward J. Freel
                                       --------------------------------------
                                       Edward J. Freel, Secretary of State


                                       AUTHENTICATION:
                                                          9429642
                                                 DATE:
                                                          11--30--98

 
                   CERTIFICATE OF CHANGE OF REGISTERED AGENT

                                      AND

                               REGISTERED OFFICE

                                   * * * * *
          
                     PHOENIX LAND COMPANY, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware, 
DOES HEREBY CERTIFY:

          The present registered agent of the corporation is Corporation Service
                                Company and the present registered office of the

corporation is in the county of New Castle

          The Board of Directors of PHOENIX LAND COMPANY

 adopted the following resolution on the 1st day of October, 1993 

              Resolved, that the registered office of PHOENIX LAND COMPANY

          in the state of Delaware be and it hereby is changed to Corporation
          Trust Center, 1209 Orange Street, in the City of Wilmington, County
          of New Castle, and the authorization of the present registered agent
          of this corporation be and the same is hereby withdrawn, and THE
          CORPORATION TRUST COMPANY, shall be and is hereby constituted and
          appointed the registered agent of this corporation at the address of
          its registered office. 

          IN WITNESS WHEREOF, Phoenix Land Company                   has caused
this statement to be signed by Michael B. Nowobilski                      , its
                   President and attested by Kevin L. Yocum 
- -------------------
its                    Secretary this 1st day of  October   , 1993
    ------------------

                                             By /s/ Michael B. Nowabilski
                                               -------------------------------
                                                                 President
                                                    -------------

ATTEST:

By /s/ Kevin L. Yocum
   -----------------------------
                   Secretary
      ------------

EX-3.38(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                             PHOENIX LAND COMPANY


     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Director of PHOENIX LAND COMPANY (the "Corporation") by a
Written Action by Sole Director in Lieu of Meeting, dated ________________,
1998.


                              /s/ JOHN LYNCH
                              ______________________________________
                              John Lynch, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                             PHOENIX LAND COMPANY



                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2
          
                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or per  sonally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3
          
                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

     3.3  The Secretary shall

          (a) Issue notices of all meetings for which notice is required to be
given,

                                      -2-

 
          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                   Amendments
                                   ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.


                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.39(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF 

                           PREMIUM PROCESSING, INC.

     I certify that the following Amended and Restated Bylaws, consisting of 
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of PERMIUM PROCESSING, INC (the "Corporation")
by a Written Action by Sole Shareholder in Lieu of Meeting, dated
__________________, 1998.



                                             /s/ JOHN LYNCH
                                             ___________________________________
                                             John Lynch, Secretary  


 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                     MOUNTAINEER COAL DEVELOPMENT COMPANY

                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be 
held at the time and date to be set by the Board of Directors of the 
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors. If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors 
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.


 
     2.2  Meetings of the Board of Directors may be called by the President or 
by any director.

     2.3  Unless waived as permitted by the West Virginia Code, notice of the 
time, place and purpose of each meeting of the directors shall be either (i) 
telephoned or personally delivered to each director at least forty-eight hours 
before the time of the meeting or (ii) mailed to each director at his last known
address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary 
and a Treasurer, all of whom shall be elected by the Board of Directors. The 
Corporation may also have such assistant officers as the Board of Directors may 
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the 
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c) Have authority acting alone, except as otherwise directed by the 
Board of Directors, to sign and deliver any document on behalf of the 
Corporation, and 

          (d) Have such other powers and duties as the Board of Directors may 
assign to him.

     3.3  The Secretary shall

                                      -2-


 

          (a)  Issue notices of all meetings for which notice is required to be 
given.

          (b)  Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.4  The Treasurer shall

          (a)  Have the custody of all funds and securities of the Corporation,

          (b)  Keep adequate and correct accounts of the Corporation's affairs 
and transactions, and 

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of 
the Corporation.

                                      -3-


 

                                   SECTION 5

                                  Amendments
                                  ----------


     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.


                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                           Lexington, Kentucky 40507

                                      -4-

EX-3.40(A)

 
                                                                 EXHIBIT 3.40(A)

                                                           STATE OF DELAWARE
                                                           SECRETARY OF STATE
                                                        DIVISION OF CORPORATIONS
                                                       FILED 09:00 AM 10/08/1997
                                                          971339430 -- 2805778


                         CERTIFICATE OF INCORPORATION

                                      OF

                       PREMIUM COAL DEVELOPMENT COMPANY


                                  ARTICLE ONE
                                  -----------

     The name of the corporation is Premium Coal Development Company
(hereinafter called the "Corporation").
 
                                  ARTICLE TWO
                                  -----------

     The address of the Corporation's registered office in the state Delaware is
1013 Centre Road, Wilmington, Delaware 19805, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is Corporation
Service Company.

                                 ARTICLE THREE
                                 -------------

     The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.

                                  ARTICLE FOUR
                                  ------------

     The total number of shares which the Corporation shall have the authority
to issue is One Thousand (1,000) shares, all of which shall be shares of Common
Stock, par value $.01 per share.

                                 ARTICLE FIVE
                                 ------------

     The name and mailing address of the incorporator are as follows:


     Name                            Address
     ----                            ------- 

     Eileen M. Carrig                c/o Kirkland & Ellis
                                     153 East 53rd Street
                                     39th Floor
                                     New York, NY 10022

                                  ARTICLE SIX
                                  -----------

     The directors shall have the power to adopt, amend or repeal By-Laws,
except as may otherwise be provided in the By-Laws.

 
                                 ARTICLE SEVEN
                                 -------------

     The personal liability of the directors of the Corporation is hereby
eliminated to the permitted by Paragraph (7) of Subsection (b) of Section 102 of
the General Corporation Law of the State of Delaware, as the same may be amended
or supplemented.

                                 ARTICLE EIGHT
                                 -------------

     The Corporation expressly elects not to be governed by Section 203 of the
General Corporation Law of the State of Delaware.

                                 ARTICLE NINE
                                 ------------

     The Corporation reserves the right to amend or repeal any provisions
contained in this Certificate of Incorporation from time to time and at any time
in the manner now or hereafter prescribed by the laws of the State of Delaware,
and all rights conferred upon stockholders and directors are granted subject to
such reservation.


     I, the undersigned, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation in pursuance of the General Corporation Law of
the State of Delaware, do make and file this Certificate, hereby declaring and
certifying that the facts herein stated are true, and accordingly have hereunto
set my hand this 8th day of October, 1997.


                                                 /s/ Eileen M. Carrig
                                                 -----------------------------
                                                 Eileen M. Carrig
                                                 Sole Incorporator

EX-3.40(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                       PREMIUM COAL DEVELOPMENT COMPANY



     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Director of PREMIUM COAL DEVELOPMENT COMPANY (the
"Corporation") by a Written Action by Sole Director in Lieu of Meeting, dated
________________, 1998.


                              /s/ JOHN LYNCH
                              ______________________________________
                              John Lynch, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                       PREMIUM COAL DEVELOPMENT COMPANY



                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or per  sonally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3
          
                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a)  Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b)  Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c)  Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d)  Have such other powers and duties as the Board of Directors may
assign to him.

                                      -2-

 
     3.3  The Secretary shall

          (a) Issue notices of all meetings for which notice is required to be
given,

          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------
     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.


                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.43(B)

 

                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF 

                     SHIPYARD RIVER COAL TERMINAL COMPANY

     I certify that the following Amended and Restated Bylaws, consisting of 
four pages each of which I have initialed for identification, are the Bylaws 
adopted by, the sole Director of SHIPYARD RIVER COAL TERMINAL COMPANY (the 
"Corporation) by a Written Action by Sole Director in Lieu of Meeting, dated 
__________________, 1998.


                                                     /s/ JOHN LYNCH
                                                     ___________________________
                                                     John Lynch, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                     SHIPYARD RIVER COAL TERMINAL COMPANY


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be 
held at the time and date to be set by the Board of Directors of the 
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place 
designated by the Board of Directors or, if the Board of Directors does not 
designate a place, then at a place designated by the Secretary or, if the 
Secretary does not designate a place, at the Corporation's principal business 
office.

     1.3  Special meetings of the shareholders shall be held at a place 
designated by the Board of Directors if the special meeting is called by the 
Board of Directors. If the special meeting is not called by the Board of 
Directors, the meeting shall be held at the Corporation's principal business 
office.


                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased 
from time to time by a resolution adopted by the vote of the shareholders who 
(I) are present in person or by proxy at a meeting held to elect directors and 
(ii) have a majority of the voting power of the shares represented at such 
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the South Carolina Business Corporation 
Act of 1988, notice of the time, place and purpose of each meeting of the 
directors shall be either (I) telephoned or personally delivered to each 
director at least forty-eight hours before the time of the meeting or (ii) 
mailed to each director at his last known address at least ninety-six hours 
before the time of the meeting.


                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice president, a Secretary 
and a Treasurer, all of whom shall be elected by the Board of Directors. The 
Corporation may also have such assistant officers as the Board of Directors may 
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a)  Have general charge and authority over the business of the 
Corporation subject to the direction of the Board of Directors,

          (b)  Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c)  Have authority acting alone, except as otherwise directed by the 
Board of Directors, to sign and deliver any document on behalf of the 
Corporation, and 

          (d)  Have such other powers and duties as the Board of Directors may 
assign to him.

                                      -2-

 
     3.3  The Secretary shall

          (a)  Issue notices of all meetings for which notice is required to be 
given, 

          (b)  Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.4  The Treasurer shall

          (a)  Have the custody of all funds and securities of the Corporation,

          (b)  Keep adequate and correct accounts of the Corporation's affairs 
and transactions, and

          (c)  have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of 
Directors or the President may assign to them.


                                   SECTION 4

                           Certificates and Transfer
                           -------------------------
                                       
     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of 
the Corporation.


                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.


                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                           Lexington, Kentucky 40507

                                      -4-

EX-3.44(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                     STRAIGHT CREEK COAL RESOURCES COMPANY


     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of STRAIGHT CREEK COAL RESOURCES COMPANY (the
"Corporation") by a Written Action by Sole Shareholder in Lieu of Meeting, dated
_________________, 1998.


                              /s/ JOHN LYNCH
                              _________________________________________
                              John Lynch, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                     STRAIGHT CREEK COAL RESOURCES COMPANY


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                               Board of Directors
                               ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or per  sonally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

                                      -2-

 
     3.3  The Secretary shall

          (a) Issue notices of all meetings for which notice is required to be
given,

          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.


                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.45(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF 

                              TURRIS COAL COMPANY


     I certify that the following Amended and Restated Bylaws, consisting of 
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Director of TURRIS COAL COMPANY (the "Corporation") by a
Written Action by Sole Director in Lieu of Meeting, dated __________________,
1998.



                                             /s/ JOHN LYNCH
                                             ___________________________________
                                             John Lynch, Secretary 


 

                          AMENDED AND RESTATED BYLAWS

                                      OF

                              TURRIS COAL COMPANY



                                   SECTION 1


                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors. If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.






 
     2.2  Meetings of the Board of Directors may be called by the President or 
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law, 
notice of the time, place and purpose of each meeting of the directors shall be 
either (i) telephoned or personally delivered to each director at least 
forty-eight hours before the time of the meeting or (ii) mailed to each director
at his last known address at least ninety-six hours before the time of the 
meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary 
and a Treasurer, all of whom shall be elected by the Board of Directors. The 
Corporation may also have such assistant officers as the Board of Directors may 
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a)  Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b)  Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c)  Have authority acting alone, except as otherwise directed by the 
Board of Directors, to sign and deliver any document on behalf of the 
Corporation, and

          (d)  Have such other powers and duties as the Board of Directors may 
assign to him.

     3.3  The Secretary shall

          (a)  Issue notices of all meetings for which notice is required to be
given,

                                      -2-



         



    

 
          (b)  Keep the minutes of all meetings and have charge of the corporate
record books, and 

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.4  The Treasurer shall

          (a)  Have the custody of all funds and securities of the Corporation,

          (b)  Keep adequate and correct accounts of the Corporation's affairs 
and transactions, and

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of 
Directors or the President may assign to them.


                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of 
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------


     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.



                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                           Lexington, Kentucky 40507

                                      -4-

EX-3.46(A)

 
                                                                 Exhibit 3.46(a)
                                                            
                                                                     FILED
                            ARTICLES OF INCORPORATION     ??? 23 98 3 3 9 4 9 5
                                                                    WYOMING
                                       OF                     SECRETARY OF STATE

                          WYOMING COAL TECHNOLOGY, INC.


          The undersigned person, acting as incorporator of a corporation under
the Wyoming Business Corporation Act (the "Act"), adopts the following Articles
of Incorporation for such corporation:


                                                                 RECEIVED     
                                    ARTICLE I                     WYOMING      
                                                            SECRETARY OF STATE 
                                      NAME                                     
                                                             98 NOV 23 PM 3:40
          The name of the corporation is: Wyoming Coal Technology, Inc.



                                   ARTICLE II

                                     SHARES

          Authorized Shares and Class. The corporation is authorized to issue
1,000 common shares with no par value, that together have unlimited voting
rights.

          The number and class of shares which are entitled to receive the net
assets of the corporation upon dissolution is 1,000 common, no par value.



                                   ARTICLE III

                                     PURPOSE

          The corporation is formed for the purpose of engaging in all lawful
things necessary or convenient to carry out its business and affairs.

                                   ARTICLE IV

                           REGISTERED OFFICE AND AGENT

          The address of the initial registered office of the corporation is 
1720 Carey Avenue, Suite 200, Cheyenne, Wyoming 82001. The name of the
corporations initial registered agent at such address is CT Corporation.


 
                                    ARTICLE V

                                  INCORPORATOR

          The name and address of the incorporator is:

                      Teresa B. Buffington
                      Holland & Hart
                      2515 Warren Avenue, Suite 450
                      Cheyenne, WY 82001


          IN WITNESS WHEREOF, the undersigned has executed these Articles of
Incorporation on November 23, 1998.
                                                  

                                          /s/ Teresa B. Buffington
                                         ------------------------------------- 
                                         Teresa B. Buffington, as Incorporator

 
                                   CONSENT TO

                         APPOINTMENT BY REGISTERED AGENT



TO THE SECRETARY OF STATE
OF THE STATE OF WYOMING



          Pursuant to the provisions of the Wyoming Business Corporation Act, C
T Corporation System submits the following consent to appointment by registered
agent:

          1.    C T Corporation System, 1720 Carey Avenue, Cheyenne, WY 82001,
voluntarily consents to serve as the registered agent for Wyoming Coal
Technology, Inc. on the date shown below.

          2.    The registered agent certifies that he (it) is: (circle one)

                (a)      An individual who resides in this state and whose
                         business office is identical with the registered 
                         office, or

                (b)      A domestic corporation or not-for-profit domestic
                         corporation whose business office is identical with
                         the registered office; or

                (c)      A foreign corporation or not-for-profit foreign
                         corporation authorized to transact business in this
                         state whose business office is identical with the
                         registered office.

          3.    I know and understand the duties of a registered agent as set
forth in the Wyoming Business Corporation Act.


          Dated this 23rd day of November, 1998.


                                               [SIGNATURE APPEARS HERE]
                                               ------------------------------
                                               Signature of Registered Agent

EX-3.46(B)

 
                                    BYLAWS



                                      OF



                         WYOMING COAL TECHNOLOGY, INC.



     I certify that the following Bylaws, consisting of three pages, each of
which I have initialed for identification, are the Bylaws adopted by the Board
of Directors of WYOMING COAL TECHNOLOGY, INC. (the "Corporation") by a Written
Action by Director in Lieu of Organization Meeting, dated November 23, 1998.




                                        /s/ JOHN LYNCH
                                        ______________________________________ 
                                        John Lynch, Secretary

 
                                    BYLAWS

                                      OF

                         WYOMING COAL TECHNOLOGY, INC.



                         1.  Meetings of Shareholders
                             ------------------------

     1.1  Except as the Board of Directors may otherwise designate, the annual
meeting of the shareholders of the Corporation shall be held at the time and
date to be set by the Board of Directors of the Corporation

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal office.

                            2.  Board of Directors
                                ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the majority vote of a quorum of
shareholders who are present in person or by proxy at a meeting held to elect
directors.

     2.2  Meetings of the Board of Directors may be called by the
President/Chief Executive Officer or by any director.

     2.3  Unless waived as permitted by the Wyoming Corporation Act, notice of
the time and place of each meeting of the directors shall be either (a)
telephoned or personally delivered to each director at least forty-eight hours
before the time of the meeting, or (b) mailed to each director at his last known
address at least ninety-six hours before the time of the  meeting.

                                 3.  Officers
                                     --------

     3.1  The Corporation shall have a Presi-dent/Chief Executive Officer, a
Secretary and a Treasurer, and may have one or more Vice Presidents, all of whom
shall be appointed by the Board of Directors.  The Corporation may also have
such assistant officers as the Board of Directors may deem necessary, all of
whom shall be appointed by the Board of Directors or appointed by an officer or
officers authorized by it.

     3.2  The President shall have:

 
          (a) General charge and authority over the business of the Corporation,
subject to the direction of the Board of Directors;

          (b) Authority to preside at all meetings of the shareholders and of
the Board of Directors;

          (c) Authority acting alone, except as otherwise directed by the Board
of Directors, to sign and deliver any document on behalf of the Corporation,
including, without limitation, any deed conveying title to any real estate owned
by the Corporation and any contract for the sale or other disposition of any
such real estate, and;

          (d) Such other powers and duties as the Board of Directors may assign.

     3.3  The Vice President, or if there be more than one Vice President, the
Vice Presidents in the order of their seniority by designation (or, if not
designated, in the order of their seniority of election), shall perform the
duties of the President/Chief Executive Officer in his absence.  The Vice
Presidents shall have such other powers and duties as the Board of Directors or
the President/Chief Executive Officer may assign to them.

     3.4  The Secretary shall:

          (a) Issue notices of all meetings for which notice is required to be
given;

          (b) Have responsibility for preparing minutes of the directors' and
shareholders' meetings and for authenticating records of the Corporation;

          (c) Have charge of the corporate record books; and

          (d) Have such other duties and powers as the Board of Directors or the
President/Chief Executive Officer may assign.

     3.5  The Treasurer shall:

          (a) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (b) Have such other duties and powers as the Board of Directors or the
President/Chief Executive Officer may assign.

     3.6  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President/Chief Executive Officer may assign.

 
                         4.  Certificates and Transfer
                             -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President/Chief Executive
Officer.

     4.2  Certificates representing shares of the Corporation shall be signed
(either manually or in facsimile) by the President/Chief Executive Officer and
by the Secretary or Treasurer.

     4.3  Transfer of shares shall be made only on the stock transfer books of
the Corporation.






                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

EX-3.48(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF 

                    ZEIGLER ENVIRONMENTAL SERVICES COMPANY

     I certify that the following Amended and Restated Bylaws, consisting of 
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Director of ZEIGLER ENVIRONMENTAL SERVICES COMPANY (the
"Corporation") by a Written Action by Sole Director in Lieu of Meeting, dated
__________________, 1998.



                                             /s/ JOHN LYNCH
                                             ___________________________________
                                             John Lynch, Secretary 

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                    ZEIGLER ENVIRONMENTAL SERVICES COMPANY


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be 
held at the time and date to be set by the Board of Directors of the 
Corporation.

     1.2  The annual meeting of the shareholdes shall be held at a place 
designated by the Board of Directors or, if the Board of Directors does not 
designate a place, then at a place designated by the Secretary or, if the 
Secretary does not designate a place, at the Corporation's principal business 
office.

     1.3  Special meetings of the shareholders shall be held at a place 
designated by the Board of Directors if the special meeting is called by the 
Board of Directors. If the special meeting is not called by the Board of 
Directors, the meeting shall be held at the Corporation's principal business 
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased 
from time to time by a resolution adopted by the vote of the shareholders who 
(I) are present in person or by proxy at a meeting held to elect directors and 
(ii) have a majority of the voting power of the shares represented at such 
meeting and entitled to vote in the election.



 
     2.2  Meetings of the Board of Directors may be called by the President or 
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law, 
notice of the time, place and purpose of each meeting of the directors shall be 
either (I) telephoned or personally delivered to each director at least 
forty-eight hours before the time of the meeting or (ii) mailed to each director
at his last known address at least ninety-six hours before the time of the 
meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary 
and a Treasurer, all of whom shall be elected by the Board of Directors. The 
Corporation may also have such assistant officers as the Board of Directors may 
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a)  Have general charge and authority over the business of the 
Corporation subject to the direction of the Board of Directors,

          (b)  Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c)  Have authority acting alone, except as otherwise directed by the 
Board of Directors, to sign and deliver any document on behalf of the 
Corporation, and 

          (d)  Have such other powers and duties as the Board of Directors may 
assign to him.

     3.3  The Secretary shall 

          (a)  Issue notices of all meetings for which notice is required to be 
given,

                                      -2-

 
          (b)  Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c)  Have such other duties and powers as the Board of Directors or
the President may assign to him.

     3.1  The Treasurer shall 

          (a)  Have the custody of all funds and securities of the Corporation,

          (b)  Keep adequate and correct accounts of the Corporation's affairs 
and transactions, and

          (c)  Have such other duties and powers as the Board of Directors or 
the President may asign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of 
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------


     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of 
the Corporation.

                                      -3-


 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.





                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                           Lexington, Kentucky 40507

                                      -4-

EX-3.49(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                                 ZENERGY, INC.



     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Director of ZENERGY, INC.  (the "Corporation") by a Written
Action by Sole Director in Lieu of Meeting, dated ________________, 1998.


                              /s/ JOHN LYNCH
                              ____________________________________
                              John Lynch, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                                 ZENERGY, INC.



                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(I) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law,
notice of the time, place and purpose of each meeting of the directors shall be
either (I) telephoned or per  sonally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3
          
                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (C)  Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

     3.3  The Secretary shall

          (a) Issue notices of all meetings for which notice is required to be
given,

                                      -2-

 
          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (C) Have such other duties and powers as the Board of Directors or
the President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (C) Have such other duties and powers as the Board of Directors or
the President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.


                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.50(A)

 
                                                                 Exhibit 3.50(a)

                         CERTIFICATE OF INCORPORATION

                                      OF

                            EEL RIVER COAL COMPANY

                                --------------


                   FIRST. The name of the Corporation is Eel River Coal Company.

                   SECOND. Its registered office in the State of Delaware is
located at 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.

                   THIRD. The nature of the business or purposes to be conducted
or promoted are:

                   (a) To engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.

                   (b) In general, to carry on all businesses in connection with
the foregoing, and do all things necessary, proper, advisable, convenient for,
or incidental to the accomplishment of the foregoing purposes.

                   The Corporation, its directors and stockholders, shall have
and may exercise all of the powers now or hereafter conferred by the laws of the
State of Delaware and acts amendatory thereof or supplemental thereto upon
corporations formed under the General Corporation Law of the State of Delaware.

 
                   FOURTH. The total number of shares of stock which the
Corporation shall have authority to issue is one hundred thousand (100,000) and
the par value of each of such shares is One ($1.00) Dollar amounting in the
aggregate to One Hundred Thousand ($100,000) Dollars.

                   FIFTH. The name and mailing address of the incorporator is as
follows:
                   NAME                             MAILING ADDRESS
                   ----                             ---------------
                   Raymond J. Cooke                 AMAX Center
                                                    Greenwich, CT 06830

                   SIXTH.  The board of directors is expressly authorized to
make, alter or repeal the by-laws of the Corporation.

                   SEVENTH. To the fullest extent permitted by the General
Corporation Law of the State of Delaware, as the same exists or may hereafter be
amended, a director of the Corporation shall not be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director. Any repeal or modification of this Article shall not adversely affect
any right or protection of an existing director at the time of such repeal or
modification.

                   EIGHTH.  Whenever a compromise or arrangement is proposed  
between this Corporation and its creditors or any class of them and/or between 
this Corporation and its stockholders or any class of them, any court of

 
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or any creditor or stockholder thereof, or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.

 
                   NINTH.  Elections of directors need not be by ballot unless
the by-laws of the Corporation shall so provide.

                   I, THE UNDERSIGNED, being the incorporator hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, do make this certificate, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have hereunto set my hand and seal this 14th day of October, A.D. 1986.



                                             [SIGNATURE APPEARS HERE]   (Seal)
                                             -------------------------


STATE OF CONNECTICUT )
                     )    ss.:
COUNTY OF FAIRFIELD  )


                   BE IT REMEMBERED that on this 14th day of October, A.D. 1986,
personally came before me, a Notary Public for the State of Connecticut, Raymond
J. Cooke, the party to the foregoing Certificate of Incorporation, known to me
personally to be such, and acknowledged the said Certificate of Incorporation to
be his act and deed and that the facts therein stated are truly set forth.

                   GIVEN under my hand and seal of office the day and year
aforesaid.


                                                   [SIGNATURE APPEARS HERE]    
                                                 ---------------------------   
                                                        Notary Public         
                                                     [NAME APPEARS HERE]       
                                            My Commission expires March 31, 1987

 

                                                              FILED
                                                              NOV. 12, 1996

                                                        [SIGNATURE APPEARS HERE]
                                                           SECRETARY OF STATE

                            CERTIFICATE OF AMENDMENT

                                       OF

                          CERTIFICATE OF INCORPORATION

                                       OF

                             EEL RIVER COAL COMPANY





               Eel River Coal Company, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:

               FIRST: That the sole Director of said corporation, by written
consent, filed with the minutes of the Board, adopted a resolution proposing and
declaring advisable the following amendment to the Certificate of Incorporation
of said Corporation:

                  RESOLVED: That this Board proposes and declares advisable that
          the Corporation's Certificate of Incorporation be amended by adding an
          Article numbered "TENTH.."  which Article shall be and read as
          follows:

                  "TENTH. To the fullest extent permitted by the General
         Corporation Law of the State of Delaware, as the same exists or may
         hereafter be amended, a director of the Corporation shall not be liable
         to the Corporation or its stockholders for monetary damages for breach
         of fiduciary duty as a director. Any repeal or modification of this
         Article shall not result in any

 
          liability for a director with respect to any action or omission
          occurring prior to such repeal or modification."

                  SECOND: That in lieu of a meeting and the vote of the sole
stockholder, the stockholder has given written consent to said amendment in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.

                  THIRD: That the aforesaid amendment was duly adopted in 
accordance with the applicable provisions of Sections 242 and 228 of the General
Corporation Law of the State of Delaware.


                  IN WITNESS WHEREOF, the Corporation has caused this 
Certificate to be signed by David George Ball, as Vice President, and attested
by Raymond J. Cooke, its Assistant Secretary, this 30th day of October, 1986.



                                              Eel River Coal Company

                                              /s/ David George Ball
                                              ------------------------------
                                              David George Ball
                                              Vice President

ATTEST:

[SEAL APPEARS HERE]

       /s/ Raymond J. Cooke
       -------------------------
       Raymond J. Cooke
       Assistant Secretary

 

                            CERTIFICATE OF AMENDMENT

                                       OF

                          CERTIFICATE OF INCORPORATION

                                       OF

                             EEL RIVER COAL COMPANY



                  EEL RIVER COAL COMPANY, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:


                   FIRST: That the sole Director of said corporation, by written
consent, filed with the minutes of the Board, adopted a resolution proposing and
declaring advisable the following amendment to the Certificate of Incorporation
of said corporation:

                            RESOLVED: That this Board proposes and declares
          advisable that the Certificate of Incorporation of Eel River Coal
          Company be amended by changing the Article thereof numbered "FIRST" so
          that, as amended, said Article shall be and read as follows:

                   "FIRST. The name of the Corporation is BEECH COAL COMPANY."

                   SECOND: That in lieu of a meeting and the vote of the sole
stockholder, the stockholder has given written consent to said amendment in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.

 
                   THIRD: That the aforesaid amendment was duly adopted in
accordance with the applicable provisions of Section 242 and 228 of the General
Corporation Law of the State of Delaware.

                   IN WITNESS WHEREOF, Eel River Coal Company has caused this 
Certificate to be signed by J. L. Lautenschlager, as President, and attested by
Wayne E. Gresham, its Secretary, this 2nd day of February, 1987.




                                       EEL RIVER COAL COMPANY
                                 
                                       By: /s/ J. L. Lautenschlager
                                          --------------------------
                                          J. L. Lautenschlager 
                                          President
ATTEST:


By: /s/ Wayne E. Gresham 
   ------------------------
    Wayne E. Gresham 
    Secretary

 
                                                                          3-9-90


                            CERTIFICATE OF AMENDMENT
                                       OF
                          CERTIFICATE OF INCORPORATION
                                       OF
                               BEECH COAL COMPANY


                   BEECH COAL COMPANY, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:

                   FIRST: That the sole Director of said corporation, by written
consent, filed with the minutes of the Board, adopted a resolution proposing and
declaring advisable the following amendment to the Certificate of Incorporation
of said corporation:

                   RESOLVED: That this Board proposes and declares advisable
          that the Certificate of Incorporation of Beech Coal Company be amended
          by changing the Article thereof numbered "FOURTH" so that, as amended,
          said Article shall be and read as follows:

                   "FOURTH: The total number of shares of stock which the
          corporation shall have authority to issue is One Thousand (1,000) and
          the par value of each of such shares shall be One Dollar ($1.00)
          amounting in the aggregate to One Thousand Dollars ($1,000.00).

                   SECOND: That in lieu of a meeting and the vote of the sole
stockholder, the stockholder has given written consent to said amendment in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.

                   THIRD: That the aforesaid amendment was duly adopted in 
accordance with the applicable provisions of Section 242 and 228 of the General
Corporation Law of the State of Delaware.

                   IN WITNESS WhEREOF, Beech Coal Company has caused this
Certificate to be signed by Wayne E. Gresham, as Vice President, and attested by
Marilyn Lou Gardner, its Assistant Secretary, this 15th day of February, 1990.

                                       BEECH COAL COMPANY
Attest:

 /s/ Marilyn Lou Gardner               By: /s/  Wayne E. Gresham 
- ------------------------------           -----------------------------       
Marilyn Lou Gardner                      Wayne E. Gresham
Assistant Secretary                      Vice President

EX-3.50(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                              BEECH COAL COMPANY



     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of BEECH COAL COMPANY (the "Corporation") by a
Written Action by Sole Shareholder in Lieu of Meeting, dated _________________,
1998.



                              _________________________________________
                              Ken Meadows, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                              BEECH COAL COMPANY


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or per  sonally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

     3.3  The Secretary shall

                                      -2-

 
          (a) Issue notices of all meetings for which notice is required to be
given,
          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.



                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.51(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                                CANNELTON, INC.


     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of CANNELTON, INC. (the "Corporation") by a
Written Action by Sole Shareholder in Lieu of Meeting, dated _________________,
1998.


                              /s/ KEN MEADOWS
                              _________________________________________
                              Ken Meadows, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                                CANNELTON, INC.


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or personally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a)  Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b)  Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c)  Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d)  Have such other powers and duties as the Board of Directors may
assign to him.

                                      -2-

 
     3.3  The Secretary shall

          (a)  Issue notices of all meetings for which notice is required to be
given,

          (b)  Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c)  Have such other duties and powers as the Board of Directors or
the President may assign to him.

     3.4  The Treasurer shall

          (a)  Have the custody of all funds and securities of the Corporation,

          (b)  Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c)  Have such other duties and powers as the Board of Directors or
the President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------
     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.


                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.52(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                          CANNELTON INDUSTRIES, INC.


     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of CANNELTON INDUSTRIES, INC. (the
"Corporation") by a Written Action by Sole Shareholder in Lieu of Meeting, dated
_________________, 1998.


                              /s/ KEN MEADOWS
                              _________________________________________
                              Ken Meadows, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                          CANNELTON INDUSTRIES, INC.


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the West Virginia Code, notice of the
time, place and purpose of each meeting of the directors shall be either (i)
telephoned or personally delivered to each director at least forty-eight hours
before the time of the meeting or (ii) mailed to each director at his last known
address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

     3.3  The Secretary shall

                                      -2-

 
          (a) Issue notices of all meetings for which notice is required to be
given,

          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.



                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.53(A)

 
                                                                 Exhibit 3.53(a)

                                                                 4-23-92



                          CERTIFICATE OF INCORPORATION

                                       OF

                             CANNELTON LAND COMPANY

          l.   The name of the corporation is:

                             Cannelton Land Company

         2.    The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.

         3.    The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.

         4.    The total number of shares of stock which the corporation shall
have authority to issue is One Thousand (1,000) and the par value of each of
such shares shall be One Hundred Dollars ($100) amounting in the aggregate to
One Hundred Thousand Dollars ($100,000.00).

         5.    The board of directors is authorized to make, alter or repeal the
by-laws of the corporation. Election of directors need not be by written ballot.

         6.    To the fullest extent permitted by the General Corporation Law 
of the State of Delaware, as the same exists or may hereafter be amended, a
director of the corporation shall not be liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as director. Any
repeal or modification of this Article shall not adversely affect any right or
protection of an existing director at the time of such repeal or modification.

         7.    The name and mailing address of the incorporator is:


                                Raymond J. Cooke
                                    AMAX Inc.
                                 200 Park Avenue
                                   33rd Floor
                               New York, NY 10166

      I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of
Delaware, do make this certificate, hereby declaring and certifying that this is
my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this 22nd day of April, 1992.



                                                  /s/ Raymond J. Cooke
                                                  -----------------------------
                                                  Raymond J. Cooke

EX-3.53(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                            CANNELTON LAND COMPANY



     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of CANNELTON LAND COMPANY (the "Corporation") by
a Written Action by Sole Shareholder in Lieu of Meeting, dated
_________________, 1998.


                              /s/ KEN MEADOWS
                              _________________________________________
                              Ken Meadows, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                            CANNELTON LAND COMPANY


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or per  sonally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

                                      -2-

 
     3.3  The Secretary shall

          (a) Issue notices of all meetings for which notice is required to be
given,

          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.


                                  Prepared by
                           BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                           Lexington, Kentucky  40507

                                      -4-

EX-3.54(A)

 
                                                                 Exhibit 3.54(a)

                                                                  FILED
                         CERTIFICATE OF INCORPORATION   
                                                               SEP 29 1987 9 AM
                                      OF
                                                                [SIGNATURE 
                         CANNELTON COAL SALES COMPANY          APPEARS HERE]

                                                              SECRETARY OF STATE


          FIRST:  The name of the Corporation is CANNELTON COAL SALES COMPANY.

          SECOND: It's registered office in the State of Delaware is to be 
located at 1207 King Street, Wilmington, Delaware 19801, located in New Castle 
County.
The registered agent in charge thereof is WILLIAM L. GARRETT, JR.

          THIRD:  The nature of the business or purposes to be conducted or 
promoted is: To engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.

          FOURTH: The amount of total authorized capital stock in this
corporation is One Hundred (100) shares, no par value.

          FIFTH: The name and address of the incorporator is as follows:



                             WILLIAM L. GARRETT, JR., ESQUIRE
                             O'Donnell & Garrett, P.A.
                             1207 King Street
                             Wilmington, Delaware 19899

 
          SIXTH:    In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized:

                    To make, alter or repeal the by-laws of the corporation; To
                    authorize and cause to be executed mortgages and liens upon
                    the real and personal property of the corporation; To set
                    apart out of any of the funds of the corporation available
                    for dividends a reserve or reserves for any proper purpose
                    and to abolish any such reserve in the manner in which it
                    was created.


          By a majority of the whole Board, to designate one or more committees,
each committee to consist of two or more of the directors of the corporation.
The Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. Any such committee, to the extent provided in the resolution or
in the by-laws of the corporation, shall have and may exercise the powers of the
Board of Directors in the

                                       2

 
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it;
provided, however, the by-laws may provide that in the absence or
disqualification of any member of such committee or committees, the number of
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member.

          When and as authorized by the affirmative vote of the holders of a
majority of the stock issued and outstanding, having voting power given at a
stockholder's meeting duly called upon such vote as in required by statute, or
when authorized by the written consent of the holders of a majority of the
voting stock issued and outstanding to sell, lease, or exchange all or
substantially all of the property and assets of the corporation, including its
good will and its corporate franchises, upon such terms and conditions and for
such consideration, which may consist in whole or in part of money or property,
including shares of stock in and/or other securities of, any other corporation
or corporations, as its Board of Directors shall deem expedient and for the best
interests of the corporation.

                                       3

 
          SEVENTH: The corporation is to have perpetual existence.

          EIGHTH:  Meeting of stockholders may be held within or without the
State of Delaware, as the by-laws may provide. The books of the corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the by-laws of the corporation. Election of
Directors need not be written ballot unless the by-laws of the corporation shall
so provide.

          NINTH:   The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation or in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.


          I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true and
accordingly have hereunto set my Hand and Seal this 28th day of September, A.D.
                                                    ----  
1987.

                                        /s/ William L. Garrett, Jr.      (SEAL)
                                       ----------------------------------
                                        WILLIAM L. GARRETT, JR.

                                       4

 
STATE OF DELAWARE )
                  ) SS:
NEW CASTLE COUNTY )


         BE IT REMEMBERED, that on this 28th day of September, A.D. 1987,
                                        ----
personally came before me, a Notary Public for the State of Delaware, WILLIAM L.
GARRETT, JR., ESQ., the party of the foregoing Certificate of Incorporation,
known to me personally to be such, and acknowledged the said Certificate to be
the act and deed of the signer and that the facts herein stated are true.



                                       [UNKNOWN SIGNATURE APPEARS HERE]
                                       -----------------------------------------
                                                      Notary Public


                                       5

EX-3.54(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                            CANNELTON SALES COMPANY



     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of CANNELTON SALES COMPANY (the "Corporation")
by a Written Action by Sole Shareholder in Lieu of Meeting, dated
_________________, 1998.


                              /s/ KEN MEADOWS
                              _________________________________________
                              Ken Meadows, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                            CANNELTON SALES COMPANY


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or personally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

                                      -2-

 
     3.3  The Secretary shall

          (a) Issue notices of all meetings for which notice is required to be
given,

          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c) Have such other duties and powers as the Board of Directors or
the President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.



                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.55(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                           DUNN COAL & DOCK COMPANY



     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of DUNN COAL & DOCK COMPANY (the "Corporation")
by a Written Action by Sole Shareholder in Lieu of Meeting, dated
_________________, 1998.


                              /s/ KEN MEADOWS
                              _________________________________________
                              Ken Meadows, Secretary

 
                                                             EXHIBIT NO.3.55 (b)


                          AMENDED AND RESTATED BYLAWS

                                      OF

                           DUNN COAL & DOCK COMPANY


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the West Virginia Code, notice of the
time, place and purpose of each meeting of the directors shall be either (i)
telephoned or personally delivered to each director at least forty-eight hours
before the time of the meeting or (ii) mailed to each director at his last known
address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

     3.3  The Secretary shall

                                      -2-

 
          (a) Issue notices of all meetings for which notice is required to be
given,

          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.



                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.56(B)

 
                             AMENDED AND RESTATED 

                                    BYLAWS 

                                      OF

                             HAYMAN HOLDINGS, INC.

     I certify that the following Amended and Restated Bylaws, consisting of 
four pages, each of which I have initialed for identification, are the Bylaws 
adopted by the sole Shareholder of HAYMAN HOLDINGS, INC. (the "Corporation") by
a Written Action by Sole Shareholder in Lieu of Meeting, dated _______________,
1998.


                                                 /s/ KEN MEADOWS
                                                 _______________________________
                                                 Ken Meadows, Secretary




 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                             HAYMAN HOLDINGS, INC.

                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place 
designated by the Board of Directors or, if the Board of Directors does not 
designate a place, then at a place designated by the Secretary or, if the 
Secretary does not designate a place, at the Corporation's principal business 
office.

     1.3  Special meetings of the shareholders shall be held at a place 
designated by the Board of Directors if the special meeting is called by the 
Board of Directors. If the special meeting is not called by the Board of 
Directors, the meeting shall be held at the Corporation's principal business 
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased 
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.


 
     2.2  Meetings of the Board of Directors may be called by the President or 
by any director.

     2.3  Unless waived as permitted by the Kentucky Business Corporation Act, 
notice of the time, place and purpose of each meeting of the directors shall be 
either (i) telephoned or personally delivered to each director at least 
forty-eight hours before the time of the meeting or (ii) mailed to each director
at his last known address at least ninety-six hours before the time of the 
meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary 
and a Treasurer, all of whom shall be elected by the Board of Directors. The 
Corporation may also have such assistant officers as the Board of Directors may 
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall 

          (a)  Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b)  Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c)  Have authority acting alone, except as otherwise directed by the 
Board of Directors, to sign and deliver any document on behalf of the 
Corporation, and 

          (d)  Have such other powers and duties as the Board of Directors may 
assign to him.

                                      -2-

 
     3.3  The Secretary shall

          (a)  Issue notices of all meetings for which notice is required to be
given, 

          (b)  Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.4  The Treasurer shall

          (a)  Have the custody of all funds and securities of the Corporation, 

          (b)  Keep adequate and correct accounts of the Corporation's affairs 
and transactions, and

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of 
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of 
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.



                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                           Lexington, Kentucky 40507

                                      -4-

EX-3.57(A)

 
                           CERTIFICATE OF AMENDMENT

                                      OF

                           ARTICLES OF INCORPORATION

                                      OF

                          CYPRUS KANAWHA CORPORATION

     It is hereby certified that:

     1.   The name of the Corporation (hereinafter called the "Corporation") is
Cyprus Kanawha Corporation.

     2.   The Articles of Incorporation of the Corporation are hereby amended by
changing the first Article thereof so that, as amended, said Article shall read
as follows:

          "1.  The name of the corporation is: Kanawha Corporation."

     3.   The Amendment of the Certificate of Incorporation herein certified has
been duly adopted in accordance with the provisions of Section 228 and 242 of
the General Corporation Law of the State of Delaware.

     4.   The effective date of the Amendment herein certified shall be the date
of filing.

     Signed and attested this the 29th day of June, 1998.


                                    CYPRUS KANAWHA CORPORATION



                                    BY: /s/ Scott Dyer
                                       _________________________________________


                                    TITLE: Vice President
                                          ______________________________________

EX-3.57(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                              KANAWHA CORPORATION



     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of KANAWHA CORPORATION (the "Corporation") by a
Written Action by Sole Shareholder in Lieu of Meeting, dated _________________,
1998.


                              /s/ KEN MEADOWS
                              _________________________________________
                              Ken Meadows, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                              KANAWHA CORPORATION


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or personally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

                                      -2-

 
     3.3  The Secretary shall

          (a) Issue notices of all meetings for which notice is required to be
given,

          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.



                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.59(A)

 
                                                                 Exhibit 3.59(a)

                                                                APPROVED     
                            ARTICLES OF INCORPORATION              AND      
                            -------------------------             FILED      

                                       OF
                                       --
                                                         IND. SECRETARY OF STATE
                              KINDILL MINING, INC.
                              --------------------


          The undersigned incorporator of KINDILL MINING, INC., desiring to form
a corporation (hereinafter referred to as the "Corporation") pursuant to the
provisions of the Indiana Business Corporation Law, as amended (hereinafter
sometimes referred to as the "Act"), hereby executes the following Articles of
Incorporation:


                                    ARTICLE I
                                    ---------

                                      Name
                                      ----

          The name of the Corporation is Kindill Mining, Inc.


                                   ARTICLE II
                                   ----------

                                    Purposes
                                    --------

          The purposes for which the Corporation is formed are:

          1. To engage in every lawful business of whatsover nature
including, but not limited to, buying, selling, managing and otherwise dealing
in property of all kinds, both real and personal, tangible and intangible, and
the manufacturing, processing, mining and otherwise extracting properties of all
kinds; excepting, however, any business denied to a corporation by the Indiana
Business Corporation Law.

          2. To do any and all things permitted by the Indiana Business
Corporation Law and any and all acts amendatory and supplemental thereto.

The above powers granted to this Corporation are in furtherance and not in
limitation of any rights, powers or privileges conferred upon this Corporation
now or hereafter by law.


                                   ARTICLE III
                                   -----------

                               Period of Existence
                               -------------------

          The period during which the Corporation shall continue is perpetual.

 
                                   ARTICLE IV
                                   ----------

                           Registered Office and Agent
                           ---------------------------

          The street address of the Corporation's initial registered office in
Indiana and the name of its initial registered agent at that office is Randall
K. Craig, Reed Building, Suite 5, 2709 Washington Avenue, Evansville, Indiana,
47714.


                                    ARTICLE V
                                    ---------

                                Number of Shares
                                ----------------

          1. The total number of shares which the Corporation is authorized to
issue is 10,000, which shares shall consist of one class of shares having
unlimited voting rights and which shall be entitled to receive the net assets of
the Corporation upon dissolution.

                                 Terms of Shares
                                 ---------------

          2. The following provisions shall be applicable in regard to the
issuance of shares:

             (a) Shares of the stock of the Corporation may be issued by the
             Corporation for such an amount of consideration as may be fixed
             from time to time by the consent in writing of, or by the vote of,
             the holders of a majority of the number of shares of each class
             of shares then outstanding and entitled by the Articles of
             Incorporation to vote with respect thereto.

             (b) The holders from time to time of the shares of the capital
             stock of the Corporation shall have the pre-emptive right to
             purchase for such consideration as may be fixed by the consent in
             writing of, or by the vote, of the holders of a majority of shares
             of each class of shares then outstanding and entitled by the
             Articles of Incorporation to vote with respect thereto, and upon
             such other terms and conditions as shall be fixed by the Board of
             Directors, such of the shares of the capital stock of the
             Corporation of any class as may be issued or sold by the
             Corporation from time to time, which pre-emptive rights shall be
             in the respective ratio which the number of shares held by each
             shareholder at the time of such issue or sale bears to the total
             number of full shares outstanding in the name of all shareholders
             at such time. Such pre-emptive rights may be exercised by each
             shareholder as to all or any part of the shares subject to that
             shareholder's pre-emptive right. The pre-emptive right shall not
             require the issuance or sale of any 

                                       2

 
             fractional shares and the pre-emptive right shall be limited to the
             total number of full shares called for by the application of the
             above-mentioned ratio. Any shares remaining in an issue or sale
             shall then be offered to those shareholders desiring to purchase
             additional shares and each shareholder may purchase as many of such
             remaining shares as such shareholder desires, provided that so long
             as there is more than one shareholder who desires to purchase any
             of such remaining shares, each of such shareholders shall have the
             opportunity to participate equally in the purchase of such
             remaining shares. If there are any shares then remaining in an
             issue or sale, such shares may be issued or sold as determined by
             the Board of Directors. The pre-emptive rights set forth herein
             shall apply to all shares, whether such shares constitute a part of
             the shares of the capital stock of the Corporation of any class
             presently or subsequently authorized, and to all shares of capital
             stock of the Corporation of any class purchased or acquired by the
             Corporation.

             (c) In elections for the Board of Directors, each shareholder shall
             have a number of votes equal to the number of directors to be
             elected multiplied by the number of shares he, she or it holds, and
             each shareholder may accumulate his, her or its votes and give one
             candidate all of them, or the shareholder may distribute them among
             as many candidates as such shareholder sees fit. The candidates
             that receive the highest number of votes, up to the number of
             directors to be elected, shall thereupon be elected.


                                   ARTICLE VI
                                   ----------

                                    Directors
                                    ---------

          The initial Board of Directors is composed of one (1) member. The
number of directors may be from time to time fixed by the By-Laws of the
Corporation at any number. In the absence of a By-Law fixing the number of
directors, the number shall be one (1). When the By-Laws of the Corporation
shall provide that the Board of Directors shall consist of nine (9) or more
members, the By-Laws of the Corporation may provide that the directors shall be
divided into two (2) or three (3) groups, with each group containing one-half
(1/2) or one-third (1/3) of the total, as near as may be, whose terms of office
shall expire at different times; provided, however, no term of any class of
directors shall continue longer than three (3) years; and provided further,
however, that the staggered terms of directors shall in all respects comply with
the requirements of the Act.

                                       3

 
                                   ARTICLE VII
                                   -----------

                                  Incorporator
                                  ------------

          The name and post office address of the incorporator of the
Corporation is Randall K. Craig, Reed Building, Suite 5, 2709 Washington Avenue,
Evansville, Indiana, 47714.

                                  ARTICLE VIII
                                  ------------

                      Provisions For Regulation of Business
                      -------------------------------------
                      and Conduct of Affairs of Corporation
                      -------------------------------------

          Subject to the requirements of the Act and all amendments and
supplements thereto, all matters relating to the regulation of business and the
conduct of the affairs of the Corporation shall be as set forth in the By-Laws
of the Corporation.

          Randall K. Craig hereby verify subject to penalties of perjury that
the facts contained herein are true.



                                             /s/ Randall K. Craig
                                             ----------------------------------
                                             Randall K. Craig




THIS INSTRUMENT PREPARED BY:

Randall K. Craig
Attorney at Law
Reed Building, Suite 5
2709 Washington Avenue
Evansville, IN  47714
Telephone:  (812) 477-3337
Facsimile:  (812) 477-3658

                                       4

EX-3.61(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF 

                     MOUNTAINEER COAL DEVELOPMENT COMPANY

     I certify that the following Amended and Restated Bylaws, consisting of 
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of MOUNTAINEER COAL DEVELOPMENT COMPANY (the
"Corporation") by a Written Action by Sole Shareholder in Lieu of Meeting, dated
__________________, 1998.



                                             /s/ KEN MEADOWS
                                             ___________________________________
                                             Ken Meadows, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                     MOUNTAINEER COAL DEVELOPMENT COMPANY

                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  the annual meeting of the shareholders of the Corporation shall be 
held at the time and date to be set by the Board of Directors of the 
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be at a place designated by
the Board of Directors if the special meeting is called by the Board of
Directors. If the special meeting is not called by the Board of Directors, the
meeting shall be held at the Corporation's principal business office.

                                   SECTION 2

                              Board of Directors 
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

     2.2  Meetings of the Board of directors may be called by the President or 
by any director.


 
     2.3  Unless waived as permitted by the West Virginia Code, notice of the 
time, place and purpose of each meeting of the directors shall be either (i) 
telephoned or personally delivered to each director at least forty-eight hours 
before the time of the meeting or (ii) mailed to each director at his last known
address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary 
and a Treasurer, all of whom shall be elected by the Board of Directors.  The 
Corporation may also have such assistant officers as the Board of Directors may 
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall 

          (a)  Have general charge and authority over the business of the 
Corporation subject to the direction of the Board of Directors,

          (b)  Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c)  Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d)  Have such other powers and duties as the Board of Directors may 
assign to him.

                                      -2-

 
     3.3  The Secretary shall

          (a)  Issue notices of all meetings for which notice is required to be 
given,

          (b)  Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c)  Have such other duties and powers as the Board of Directors or 
the President may assign to him.

     3.4  The Treasurer shall

          (a)  Have the custody of all funds and securities of the Corporation,

          (b)  Keep adequate and correct accounts of the Corporation's affairs 
and transactions, and

          (c)  Have such other duties and powers as the Board of Directors or
the President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of 
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of 
the Corporation.

                                      -3-


 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.




                                 Prepared by 
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                           Lexington, Kentucky 40507

                                      -4-

EX-3.62(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                          MOUNTAIN COALS CORPORATION


     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of MOUNTAIN COALS CORPORATION (the
"Corporation") by a Written Action by Sole Shareholder in Lieu of Meeting, dated
_________________, 1998.


                              /s/ KEN MEADOWS
                              _________________________________________
                              Ken Meadows, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                          MOUNTAIN COALS CORPORATION


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or per  sonally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

                                      -2-

 
     3.3  The Secretary shall

          (a) Issue notices of all meetings for which notice is required to be
given,

          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.



                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.63(A)

 
                                                                 Exhibit 3.63(a)

                              OCT. 25, 1979 12 NOON




                          CERTIFICATE OF INCORPORATION

                                       OF

                              OLD BEN COAL COMPANY


          FIRST:   The name of the corporation is 
                   OLD BEN COAL COMPANY



          SECOND:  The address of the corporation' s registered office in the
State of Delaware is 100 West Tenth Street, in the City of Wilmington, County of
New Castle, and the name of its registered agent at such address is The
Corporation Trust Company.

          THIRD:   The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.

          FOURTH:  The total number of shares or capital stock which the
corporation shall have authority to issue is 100 shares of Common Stock with a
par value of $100 per share.

          FIFTH:   The name and mailing address of the incorporator is

                   C. R. Arrington                     1725 Midland Building
                                                       Cleveland, Ohio 44115

          SIXTH:   For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation and regulation
of the powers of the corporation and of its directors and stockholders, it is
further provided:

 
          1.       The election of directors of the corporation need not be by
written ballot unless the by-laws so require.


          2.       In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware, the Board of Directors is expressly
authorized and empowered to make, alter, amend or repeal the by-laws of the
corporation, in any manner not inconsistent with the laws of the State of
Delaware or the Certificate of Incorporation of the corporation.


          3.       Any director or officer elected or appointed by the
stockholders of the corporation or by its Board of Directors may be removed at
any time in such manner as shall be provided in the by-laws of the corporation.


          IN WITNESS WHEREOF, I have signed this certificate this 24th day of
                                                                  ----
October, 1979.


                                             /s/ C. R. Arrington
                                             -----------------------

 
                                                         STATE OF DELAWARE
                                                         SECRETARY OF STATE
                                                     DIVISION OF CORPORATIONS
                                                     FILED 09:00 AM 12/13/1994
                                                       944242939 - 831101

                              CERTIFICATE OF MERGER
                                     MERGING
                                PIKE COAL COMPANY
                             a Delaware corporation
                                      INTO
                              OLD BEN COAL COMPANY
                             a Delaware corporation

          In accordance with Section 251 of the General Corporation Law
                            of the State of Delaware

        Old Ben Coal Company, a corporation duly organized and existing under
and by virtue of the laws of the State of Delaware (the "Corporation"), desiring
to merge Pike Coal Company, a Delaware corporation, with and into itself,
pursuant to the provisions of Section 252 of the General Corporation Law of the
State of Delaware, DOES HEREBY CERTIFY as follows:

        FIRST:   The name and the state of incorporation of each of the
constituent corporation of the merger (the "Merger") are as follows:

     Name                               State of Incorporation
     ----                               ----------------------
     Pike Coal Company                  Delaware
     Old Ben Coal Company               Delaware

        SECOND:  An Agreement and Plan of Merger between the parties to the
Merger has been approved, adopted, certified, executed and acknowledged by each
of the constituent corporations in accordance with the requirements of
subsection (c) of Section 251 of the General Corporation Law of the State of
Delaware.

        THIRD:   The name of the surviving corporation of the Merger is Old Ben
Coal Company (the "Surviving Corporation").

        FOURTH:  Anything herein or elsewhere to the contrary notwithstanding,
this Merger may be amended or terminated and abandoned by the Board of Directors
of the Surviving Corporation at any time prior to the date of filing the
Certificate of Merger with the Secretary of State of Delaware.

        FIFTH:   The Certificate of Incorporation of the Surviving Corporation
shall be the Certificate of Incorporation.

        SIXTH:   The executed Agreement and Plan of Merger is on file at the
principal place of business of the Surviving Corporation. The address of the
principal place of business of the Surviving Corporation is: 50 Jerome Lane,
Fairview Heights, Illinois 62208.

        SEVENTH: A copy of the Agreement and Plan of Merger will be furnished by
the Surviving Corporation, on request and without cost to any stockholder of any
constituent corporation.

        EIGHTH:  The Merger shall be effective upon the filing with the
Secretary of State of Delaware.

 
                 IN WITNESS WHEREOF, the undersigned, for the purpose of
effectuating the Merger of the constituent corporations, pursuant to the General
Corporation Law of the State of Delaware, under penalties of perjury do hereby
declare and certify that this is the act and deed of the Corporation and the
facts contained herein are true and accordingly have hereunto signed this
Certificate of Merger as of this 28th day of October, 1994
                                 ----   


                                       OLD BEN COAL COMPANY



                                       By: /s/ W. Douglas Blackburn, Jr.
                                          --------------------------------
                                       Name:   W. Douglas Blackburn, Jr.
                                            ------------------------------
                                       Title:  President
                                             -----------------------------



ATTEST:

By: /s/ Brent L. Motchan
   ----------------------
Name:  Brent L. Motchan
     --------------------
Title: Secretary
      -------------------

 
                                                         STATE OF DELAWARE
                                                         SECRETARY OF STATE
                                                     DIVISION OF CORPORATIONS
                                                     FILED 09:00 AM 11/23/1992
                                                       923285549 - 831101

                              CERTIFICATE OF MERGER

                                       OF

                              ZEIGLER COAL COMPANY
                            (an Illinois corporation)

                                  WITH AND INTO

                              OLD BEN COAL COMPANY
                            (a Delaware corporation)

                             * * * * * * * * * * 

                      In accordance with Section 252 of the
                         General Corporation Law of the
                               State of Delaware

                             * * * * * * * * * * 


                   Old Ben Coal company, a corporation duly organized and
existing under and by virtue of the laws of the State of Delaware (the
"Corporation"), desiring to merge Zeigler Coal Company an Illinois corporation,
with and into itself, pursuant to the provisions of Section 252 of the
General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY as
follows:

                   FIRST:   The name and state of incorporation of each
constituent corporation of the merger (the "merger") are as follows:

                NAME                             STATE OF INCORPORATION
                ----                             ----------------------
         Zeigler Coal Company                            Illinois
         Old Ben Coal Company                            Delaware

                   SECOND:  An Agreement and Plan of Merger (the "Merger
Agreement") has been approved, adopted, certified, executed and acknowledged by
each constituent corporation, in accordance with

 
the requirements of Section 252 of the General Corporation Law of the State of
Delaware.

                   THIRD:   The name of the surviving corporation of the Merger 
is Old Ben Coal Company (the "Surviving Corporation"). The Certificate of
Incorporation of the Corporation as in effect at the effective time of the
Merger shall be the Certificate of Incorporation of the Surviving Corporation.

                   FOURTH:  Anything herein or elsewhere to the contrary
notwithstanding, the Merger Agreement may be amended or terminated and abandoned
by the Boards of Directors of the constituent corporations at any time prior to
the date of filing the Certificate of Merger with the Secretary of State of the
State of Delaware.

                   FIFTH:   An executed copy of the Merger Agreement is on file 
at the principal place of business of the Surviving Corporation, 50 Jerome Lane
Fairview Heights, Illinois 62208, and a copy of the Merger Agreement will be
furnished by the Surviving Corporation, upon request and without cost, to any
stockholders of any constituent corporation.

                   SIXTH:   The Merger shall be effective at the close of
business on November 23, 1992.
                     --

                               *    *     *     *

EX-3.63(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                             OLD BEN COAL COMPANY


     I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Director of OLD BEN COAL COMPANY (the "Corporation") by a
Written Action by Sole Director in Lieu of Meeting, dated ________________,
1998.


                              /s/ KEN MEADOWS
                              _______________________________________
                              Ken Meadows, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                             OLD BEN COAL COMPANY



                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or personally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

     3.3  The Secretary shall

          (a) Issue notices of all meetings for which notice is required to be
given,

                                      -2-

 
          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.


                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.64(B)

 
                                    BYLAWS

                                      OF

               WEST VIRGINIA-INDIANA COAL HOLDING COMPANY, INC.



     I certify that the following Bylaws, consisting of four pages, each of
which I have initialed for identification, are the Bylaws adopted by the sole
Director of West Virginia-Indiana Coal Holding Company, Inc. (the "Corporation")
by a Written Action by Sole Director in Lieu of Meeting, dated June ___, 1998.


                              /s/ KEN MEADOWS
                              _________________________________________
                              Ken Meadows, Secretary

 
                                    BYLAWS

                                      OF

               WEST VIRGINIA-INDIANA COAL HOLDING COMPANY, INC.


                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.

     1.3  Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors.  If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.

 
     2.2  Meetings of the Board of Directors may be called by the President or
by any director.

     2.3  Unless waived as permitted by the Delaware General Corporation Law,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or per  sonally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1  The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors.  The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.

     3.2  The President shall

          (a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,

          (b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,

          (c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and

          (d) Have such other powers and duties as the Board of Directors may
assign to him.

                                      -2-

 
     3.3  The Secretary shall

          (a) Issue notices of all meetings for which notice is required to be
given,

          (b) Keep the minutes of all meetings and have charge of the corporate
record books, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.4  The Treasurer shall

          (a) Have the custody of all funds and securities of the Corporation,

          (b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and

          (c) Have such other duties and powers as the Board of Directors or the
President may assign to him.

     3.5  Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1  Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.

     4.2  Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.



                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                          Lexington, Kentucky  40507

                                      -4-

EX-3.65(A)

 
                         CERTIFICATE OF INCORPORATION

                                      OF

                           AEI HOLDING COMPANY, INC.


     1.   Name.  The name of the Corporation shall be AEI Holding Company, Inc.
          ----                                                                 

     2.   Registered Office and Agent. The Corporation's registered office in
          ---------------------------                                        
the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of Newcastle.  The name of its registered agent at
such address is The Corporation Trust Company.

     3.   Purpose. The nature of the business or purposes to be conducted or
          -------                                                           
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.

     4.   Capital Stock.  The total number of shares of stock which the
          -------------                                                
Corporation shall have authority to issue is One Thousand (1,000) and the par
value of each such shares is Zero Dollars and One Cent ($0.01) amounting in the
aggregate to Ten Dollars and No Cents ($10.00).

     5.   Bylaws.  The board of directors is authorized to make, alter or repeal
          ------                                                                
the bylaws of the Corporation.

     6.   Cumulative Voting.  Cumulative voting shall not be allowed in the
          -----------------                                                
election of directors.

     7.   Incorporator.  The name and mailing address of the sole incorporator
          ------------                                                        
is:

          L. J. Vitalo
          The Corporation Trust Company
          Corporation Trust Center
          1209 Orange Street
          Wilmington, Delaware  19801

     8.   Director Liability. No director shall be personally liable to the
          ------------------                                               
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty by such director as a director.  Notwithstanding the foregoing sentence, a
director shall be liable, to the extent provided by applicable law, (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) as provided in Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal 

 
benefit. No amendment to or repeal of this provision shall apply to or have any
effect on the liability of any director of the Corporation for or with respect
to any acts or omissions of such director occurring before such amendment.

     9. Indemnification.  Each person who is or becomes an executive officer or
        ---------------                                                        
director of the Corporation shall be indemnified and advanced expenses by the
Corporation with respect to all threatened, pending or completed actions, suits
or proceedings in which that person was, is, or is threatened to be made a named
defendant or respondent because he is or was a director or executive officer of
the Corporation.  This Article obligates the Corporation to indemnify and
advance expenses to its executive officers or directors only in connection with
proceedings arising from that person's conduct in his official capacity with the
Corporation to the extent permitted by the General Corporation Law of the State
of Delaware, as amended from time to time.  The indemnification and advancement
of expenses provided by this Article shall not be deemed exclusive of any other
rights to which directors and executive officers may be entitled under any
agreement, vote of shareholders or disinterested directors, or otherwise.

     I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this ___th day of September, 1997.


                                    /s/ L. J. VITALO
                                    _______________________________________
                                    Sole Incorporator
                                    L. J. Vitalo

                                      -2-

EX-3.65(B)

 
                                                                 EXHIBIT 3.65(B)


                              ------------------
                                  ANNEX  "A"
                              ------------------



                          AMENDED AND RESTATED BYLAWS


                                      OF


                           AEI HOLDING COMPANY, INC.



     I certify that the following Bylaws, consisting of fifteen (15) pages, each
of which I have initialed for identification, are the Amended and Restated
Bylaws adopted by the Shareholders of AEI Holding Company, Inc. (the
"Corporation") by a Written Action by Shareholders in Lieu of Meeting, dated
June ____, 1998.


                                        /s/ JOHN LYNCH
                                        ________________________________________
                                        John Lynch, Secretary

 
                          AMENDED AND RESTATED BYLAWS
                                      OF
                           AEI HOLDING COMPANY, INC.

                                   ARTICLE I
                                   ---------
                                    Offices
                                    -------

     1.   Business Offices.  The Corporation may have one or more offices at
          ----------------                                                  
such place or places as the Board of Directors may from time to time determine
or as the business of the Corporation may require.

     2.   Principal Office.  The initial principal office of the Corporation
          ----------------                                                  
shall be as set forth in the Articles of Incorporation.  The Board of Directors,
from time to time, may change the principal office of the Corporation.

     3.   Registered Office.  The registered office of the Corporation shall be
          -----------------                                                    
as set forth in the Articles of Incorporation, unless changed as provided by the
provisions of the Delaware General Corporation Law, as it may be amended from
time to time (the "DGCL").

                                  ARTICLE II
                                  ----------
                            Shareholders' Meetings
                            ----------------------

     1.   Annual Meetings.  The annual meeting of shareholders for the election
          ---------------                                                      
of directors to succeed those whose terms expire and for the transaction of such
other business as may come before the meeting shall be held each year on March
15, at 10:00 a.m., local time at the place of the meeting fixed by the Board of
Directors, or, if not so fixed, at the principal office designated in the
Articles of Incorporation. If the day so fixed for such annual meeting shall not
be a business day or shall be a legal holiday at the place of the meeting, then
such meeting shall be held on the next succeeding business day at the same hour.

     2.   Special Meetings.  Special meetings of shareholders for any purpose or
          ----------------                                                      
purposes, unless otherwise prescribed by statute or by the Articles of
Incorporation, may be called at any time by the President or by the Board of
Directors and shall be called by the President or the Secretary upon the request
(which shall state the purpose or purposes therefor) of a majority of the Board
of Directors or of the holders of shares representing not less than twenty
percent (20%) of all votes entitled to be cast on any issue proposed to be
considered at the meeting.  The record date for determining the shareholders
entitled to demand a special meeting is the date of the earliest of any of the
demands pursuant to which the meeting is called, or the date that is 60 days
before the date the first of which demands is received, whichever is later.
Business transacted at any special meeting of shareholders shall be limited to
the purpose or purposes stated in the notice.

     3.   Place of Special Meetings.  Special meetings of shareholders shall be
          -------------------------                                            
held at such place or places, as may be determined by the Board of Directors and
designated in the notice of the 

                                       1

 
meeting, or, if no place is so determined and designated in the notice, the
place of the shareholders' meetings shall be the principal office of the
Corporation.

     4.   Notice of Meetings.  Not less than 14 nor more than 60 days prior to
          ------------------                                                  
each annual or special meeting of shareholders, written notice of the meeting
shall be delivered to each shareholder entitled to vote at such meeting;
provided, however, that if the authorized shares of the Corporation are proposed
to be increased, at least 30 days' notice in like manner shall be given; and
provided, further, that if other or different notice is required by the DGCL,
the provisions of the DGCL shall govern. Notices shall be delivered by i)
personal delivery, ii) facsimile transmission, iii) registered or certified
mail, postage prepaid, return receipt requested; or (iv) nationally recognized
overnight or other express courier services. All notices shall be effective and
shall be deemed delivered (i) if by personal delivery, on the date of delivery
if delivered during normal business hours of the recipient, and if not delivered
during such normal business hours, on the next Business Day following delivery;
(ii) if by facsimile transmission, on the next Business Day following dispatch
of such facsimile; (iii) if by courier service, on the third Business Day after
dispatch of a notice addressed to the shareholder at the address of such
shareholder appearing in the stock transfer books of the Corporation and (iv) if
by mail, on the date of receipt. If three (3) successive letters mailed to the
last known address of any shareholder of record are returned as undeliverable,
no further notices to such shareholder shall be necessary until another address
for such shareholder is made known to the Corporation. The notice of any meeting
shall state the place, day and hour of the meeting. The notice of a special
meeting shall, in addition, state the meeting's purposes.

     5.   Shareholders List.  A complete record of the shareholders entitled to
          -----------------                                                    
vote at such meeting (or an adjourned meeting described in Section 9 of this
Article II) arranged by voting groups and, within each voting group, in
alphabetical order, showing the address of each shareholder and the number of
shares registered in the name of each, shall be prepared by the officer or agent
of the Corporation who has charge of the stock transfer books of the
Corporation. The shareholders list shall be available for inspection by any
shareholder beginning on the earlier of ten (10) days before the meeting or two
(2) days after notice is given and continuing through the meeting and any
adjournment thereof, subject to the requirements of the DGCL. Such record shall
also be produced and kept at the time and place of the meeting during the whole
time thereof and subject to inspection for any purpose germane to the meeting by
any shareholder who may be present.

     6.   Organization.  The President or, in the President's absence, any Vice
          ------------                                                         
President shall call meetings of shareholders to order and act as chairperson of
such meetings. In the absence of said officers, any shareholder entitled to vote
at the meeting, or any proxy of any such shareholder, may call the meeting to
order and a chairperson shall be elected by a majority of the shareholders
present and entitled to vote at the meeting. The Secretary or any Assistant
Secretary of the Corporation or any person appointed by the chairperson may act
as secretary of such meetings.

     7.   Agenda and Procedure.  The Board of Directors shall have the
          --------------------                                        
responsibility of establishing an agenda for each meeting of shareholders,
subject to the rights of shareholders to raise matters for consideration which
may otherwise properly be brought before the meeting although not 

                                       2

 
included within the agenda. The chairperson shall be charged with the orderly
conduct of all meetings of shareholders.

     8.   Quorum.  Shares entitled to vote as a separate voting group may take
          ------                                                              
action on a matter at a meeting only if a quorum of those shares exists with
respect to that matter. A majority of the votes entitled to be cast on the
matter by the voting group constitutes a quorum of that voting group for action
on that matter. In the absence of a quorum at any shareholder's meeting, a
majority of the shareholders present in person or represented by proxy and
entitled to vote at the meeting may adjourn the meeting from time to time for a
period not to exceed 120 days from the original date of the meeting without
further notice (except as provided in Section 9 of this Article II) until a
quorum shall be present or represented.

     9.   Adjournment.  When a meeting is for any reason adjourned to another
          -----------                                                        
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting, any business may be transacted which might have been
transacted at the original meeting. If the adjournment is for more than 120 days
from the date of the original meeting, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each shareholder of record entitled to vote at the meeting.

     10.  Voting.
          ------ 

          a.   Except as provided in the Articles of Incorporation or the DGCL,
at every meeting of shareholders, or with respect to corporate action which may
be taken without a meeting, every shareholder shall be entitled to one vote for
each share of stock having voting power held of record by such shareholder on
the record date designated therefor pursuant to Section 3 of Article X of these
Bylaws (or for the record date established pursuant to statute in the absence of
such designation); provided, however, that the cumulative system of voting for
the election of directors shall not be allowed.

          b.   A shareholder may vote the shareholder's shares in person or by
proxy.  A person may appoint a proxy in person or through an attorney-in-fact
and such appointment may be transmitted by telegram, teletype, or other written
statement of appointment permitted by the DGCL. The appointment is effective for
eleven months unless a different period is expressly provided in the appointment
form. An appointment shall be revocable unless coupled with an interest
including the appointment of any of the following: (1) a pledgee; (2) a person
who purchased or agreed to purchase the shares; (3) a creditor of the
Corporation who extended credit to the Corporation under terms requiring the
appointment; (4) an employee of the Corporation whose employment contract
requires the appointment; or (5) a party to a voting trust agreement.

          c.   The voting rights of fiduciaries, beneficiaries, pledgors,
pledgees and joint, common and other multiple owners of shares of stock shall be
as provided from time to time by the DGCL and any other applicable law.

                                       3

 
          d.   Shares of the Corporation held of record by another corporation
that are entitled to vote may be voted by such officer, agent or proxy as the
bylaws of such other corporation may prescribe, or, in the absence of such
provision, as the Board of Directors of such corporation may determine.

          e.   When a quorum is present at any meeting of shareholders, action
on a matter by a voting group shall be approved if the shares entitled to vote
are cast so that the votes cast within the voting group favoring the action
exceed the votes cast opposing the action, unless the question is one upon which
by express provision of a statute, or the Articles of Incorporation, or these
Bylaws, a different vote is required, in which case such express provision shall
govern and control the decision on such question.

     11.  Inspectors.  The chairperson of the meeting may at any time appoint
          ----------                                                         
two or more inspectors to serve at a meeting of the shareholders. Such
inspectors shall decide upon the qualifications of voters, including the
validity of proxies, accept and count the votes for and against the questions
presented, report the results of such votes, and subscribe and deliver to the
secretary of the meeting a certificate stating the number of shares of stock
issued and outstanding and entitled to vote thereon and the number of shares
voted for and against the questions presented. The voting inspectors need not be
shareholders of the Corporation, and any director or officer of the Corporation
may be an inspector on any question other than a vote for or against such
director's or officer's election to any position with the Corporation or on any
other question in which such officer or director may be directly interested.

     12.  Meeting by Telecommunication.  Any or all of the shareholders may
          ----------------------------                                     
participate in any annual or special shareholders' meeting by, or the meeting
may be conducted through the use of, any means of communication by which all
persons participating in the meeting may hear each other during the meeting.
Any shareholder participating in a meeting by any such means of communication is
deemed to be present in person at the meeting.

                                  ARTICLE III
                                  -----------
                              Board of Directors
                              ------------------

     1.   Election and Tenure.  The business and affairs of the Corporation
          -------------------                                              
shall be managed by a Board of Directors who shall be elected at the annual
meetings of shareholders or special meetings called for that purpose. In an
election of directors, the number of candidates equaling the number of directors
to be elected having the highest number of votes cast in favor of their election
shall be elected to the Board of Directors. Each director shall be elected to
serve and to hold office until the next succeeding annual meeting and until such
director's successor shall be elected and shall qualify, or until such
director's earlier death, resignation or removal.

     2.   Number and Qualification.  The exact number of Directors may be fixed,
          ------------------------                                              
increased or decreased from time to time by a resolution adopted by the majority
vote of a quorum of shareholders who are present in person or by proxy at a
meeting held to elect Directors. Directors must be natural persons at least
eighteen years of age but need not be shareholders.

                                       4

 
      3.  Ex-officio Directors.  The Board of Directors may, from time to time,
          ---------------------                                                
appoint additional persons to serve as ex-officio directors of the Corporation.
Such ex-officio directors may be present at, and participate in, meetings of the
Board of Directors, but shall have no voting rights, shall not be entitled to
serve on any executive or other committee of the Board of Directors, and shall
not be considered in the calculation of a quorum pursuant to Section 9 of this
Article III. Failure to give notice to any ex-officio director pursuant to
Section 8 of this Article III shall not affect the validity of any action taken
by the Board of Directors.

     4.   Annual Meetings.  On the same day each year as, and immediately
          ---------------                                                
following, the annual shareholders' meeting, the Board of Directors shall meet
for the purpose of organization, election of officers and the transaction of any
other business.

     5.   Regular Meetings.  Regular meetings of the Board of Directors shall be
          ----------------                                                      
held on the 15th day of February, May, August and November, or the first
business day following each such date, at such time or times as may be
determined by the Board of Directors and specified in the notice of such
meetings.

     6.   Special Meetings.  Special meetings may be called by the President or
          ----------------                                                     
any shareholder owning greater than twenty-five percent (25%) of the total
outstanding shares of the Corporation, and shall be called by the President or
the Secretary on the written request of any two directors.

     7.   Place of Meetings.  Except as specifically set forth otherwise herein,
          -----------------                                                     
any meeting of the Board of Directors may be held at such place or places either
as shall from time to time be determined by the Board of Directors and as shall
be designated in the notice of the meeting.

     8.   Notice of Meetings.  Notice of each meeting of directors, whether
          ------------------                                               
annual, regular or special, shall be given to each director. If such notice is
given either (a) by personally delivering written notice to a director or (b) by
personally telephoning such director, it shall be so given at least ten (10)
days prior to the meeting. If such notice is given either (1) by depositing a
written notice by overnight courier service, postage prepaid, or (2) by
facsimile transmission, in all cases directed to such director at that person's
residence or place of business, it shall be so given at least fourteen (14) days
prior to the meeting. The notice shall state the place, date and hour thereof,
but need not, unless otherwise required by the DGCL, state the purposes of the
meeting.

     9.   Quorum.  A majority of the number of directors fixed by or in
          ------                                                       
accordance with Section 2 of this Article III that are entitled to vote shall
constitute a quorum at all meetings of the Board of Directors. The vote of a
majority of the directors present and entitled to vote at a meeting at which a
quorum is present shall be the act of the Board of Directors, unless the express
provision of a statute, the Articles of Incorporation, or these Bylaws requires
a different vote, in which case such express provision shall govern and control.
In the absence of a quorum at any such meeting, a majority of the directors
present and entitled to vote may adjourn the meeting from time to time without
further notice, other than announcement at the meeting, until a quorum shall be
present.

                                       5

 
     10.  Organization, Agenda and Procedure.  The directors shall choose a
          ----------------------------------                               
Chairman of the Board to preside over the meetings of the Board of Directors.
The Secretary, any Assistant Secretary, or any other person appointed by the
Chairman of the Board shall act as secretary of each meeting of the Board of
Directors. The agenda of and procedure for such meetings shall be as determined
by the Board of Directors. All proposed agenda topics and documents to be
reviewed at the annual meetings and the regular meetings shall be delivered to
each director at least fourteen (14) days prior to any such meeting.

     11.  Resignation.  Any director of the Corporation may resign at any time
          -----------                                                         
by giving written notice of such director's resignation to the Board of
Directors, the President, any Vice President or the Secretary of the
Corporation. Such resignation shall take effect at the date of receipt of such
notice or at any later time specified therein and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective, unless it so provides. A director who resigns may deliver to the
Secretary of State for filing a statement to that effect.

     12.  Removal.  Except as otherwise provided in the Articles of
          -------                                                  
Incorporation or in these Bylaws, any director may be removed, either with or
without cause, at any time, by the affirmative vote of the holders of a majority
of the issued and outstanding shares of stock entitled to vote for the election
of directors of the Corporation at a special meeting of the shareholders called
and held for such purpose; provided, however, that if less than the entire Board
of Directors is to be removed, and if cumulative voting of shares in the
election of directors is allowed, a director may not be removed if the votes
entitled to be cast against such director's removal would be sufficient to elect
such director if such votes were cumulatively voted for such director at an
election of the entire Board of Directors.  A vacancy in the Board of Directors
caused by any such removal may be filled by the Corporation's shareholders at
such meeting or, if the shareholders at such meeting shall fail to fill such
vacancy, by the Board of Directors as provided in Section 12 of this Article
III.

     13.  Vacancies.  Except as provided in Section 11 of this Article III, any
          ---------                                                            
vacancy occurring for any reason in the Board of Directors may be filled by the
affirmative vote of a majority of the directors then in office, though less than
a quorum of the Board of Directors, or by an election by the shareholders.  Any
directorship to be filled by reason of an increase in the number of directors
shall be filled by the affirmative vote of a majority of the directors then in
office or by an election by the shareholders. A director elected to fill a
vacancy shall be elected for the unexpired term of such director's predecessor
in office and shall hold office until the expiration of such term and until a
successor shall be elected and shall qualify or until such director's earlier
death, resignation or removal. A director chosen to fill a position resulting
from an increase in the number of directors shall hold office until the next
annual meeting of shareholders and until a successor shall be elected and shall
qualify, or until such director's earlier death, resignation or removal. If the
vacant directorship was held by a director elected by a voting group of
shareholders, the vacancy shall be filled by either the vote of the holders of
shares of that voting group entitled to fill such vacancy or the majority vote
of any remaining Directors elected by that voting group.

                                       6

 
     14.  Executive and Other Committees.  The Board of Directors, by
          ------------------------------                              
resolution adopted by a majority of the number of directors fixed by or in
accordance with Section 2 of this Article III, may designate from among its
members an executive committee and one or more other committees each of which,
to the extent provided in the resolution and except as otherwise prescribed by
statute, shall have and may exercise all of the authority of the Board of
Directors in the management of the Corporation. Rules governing the procedures
for meetings of executive or other committees shall be as established by the
Board of Directors or by such committee. Notwithstanding the foregoing, no
committee shall: (a) authorize distributions; (b) approve or propose to
shareholders action that the DGCL requires to be approved by shareholders; (c)
fill vacancies on the Board of Directors or on any of its committees; (d) amend
the Articles of Incorporation; (e) adopt, amend, or repeal these Bylaws; (f)
approve a plan of merger not requiring shareholder approval; (g) authorize or
approve reacquisition of shares, except according to a formula or method
prescribed by the Board of Directors; or (h) authorize or approve the issuance
or sale of shares, or a contract for the sale of shares, or determine the
designation and relative rights, preferences, and limitations of a class or
series of shares; except that the Board of Directors may authorize a committee
or an officer to do so within limits specifically prescribed by the Board of
Directors.

     15.  Compensation of Directors.  Each director shall be allowed such amount
          -------------------------                                             
per annum or such fixed sum for attendance at meetings of the Board of
Directors, executive or other committees, as may be from time to time fixed by
resolution of the Board of Directors, together with reimbursement for the
reasonable and necessary expenses incurred by such director in connection with
the performance of such director's duties (including, but not limited to,
expenses incurred in attending meetings of the Board of Directors).  Nothing
herein contained shall be construed to preclude any director from serving the
Corporation in any other capacity or any of its subsidiaries in any other
capacity and receiving proper compensation therefor.

                                       7

 
                                  ARTICLE IV
                                  ----------
           Waiver of Notice by Shareholders and Directors and Action
                   of Shareholders and Directors by Consent
                   ----------------------------------------

     1.   Waiver of Notice.  A shareholder may waive any notice required by the
          ----------------                                                     
DGCL or by the Articles of Incorporation or these Bylaws, and a director may
waive any notice of a directors meeting, whether before or after the date or
time stated in the notice as the date or time when any action will occur or has
occurred.  The waiver shall be in writing, be signed by the shareholder or
director entitled to the notice, and be delivered to the Corporation for
inclusion in the minutes or filing with the corporate records, but such delivery
and filing shall not be conditions of the effectiveness of the waiver.
Attendance of a shareholder or the attendance or participation by a director at
a meeting (a) waives objection to lack of required notice or defective notice of
the meeting, unless the shareholder at the beginning of the meeting, or the
director, at the beginning of the meeting or promptly upon his or her later
arrival, objects to holding the meeting or transacting business at the meeting
because of lack of notice or defective notice, and, in the case of a director,
does not thereafter vote for or assent to action taken at the meeting, and (b)
waives objection to consideration of a particular matter at the meeting that is
not within the purpose or purposes described in the meeting notice, or of a
matter without special notice required by the DGCL, the Articles of
Incorporation, or these Bylaws, unless the shareholder or director objects to
considering the matter when it is presented and, in the case of a director, does
not thereafter vote for or assent to action taken at the meeting with respect to
such purpose.

     2.   Action Without a Meeting.
          ------------------------ 

          a.   Unless the Corporation's Certificate of Incorporation requires
that such action be taken at a shareholders' meeting, any action required or
allowed to be taken at an annual or special meeting of the shareholders of the
Corporation may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which at which all shares entitled to vote thereon were present
and voted and shall be delivered to the Corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of shareholders are recorded.  Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.  Such action shall be effective as of the time the last
writing necessary to effect the action is received by the Corporation, unless
all writings necessary to effect the action specify a later time, in which case
the later time shall be the time of the action.  The record date for determining
shareholders entitled to take action without a meeting is the date upon which a
writing upon which the action is to be taken is first received by the
Corporation.  Prompt notice of the taking of corporate action without a meeting
by less than unanimous written consent shall be given to those shareholders who
have not consented in writing.

          b.   Unless otherwise restricted by the Corporation's Certificate of
Incorporation, any action required or permitted to be taken at any meeting of
the board of directors, or any committee thereof may be taken without a meeting
if all members of the board or committee, as the 

                                       8

 
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee. Such action shall be
effective as of the time the last director signs a writing describing the action
taken unless before such time the Secretary has received a written revocation of
the consent of any other director, and any action so taken shall be effective at
the time taken unless the directors specify a different effective time.


     3.   Meetings by Telecommunication.  One or more members of the Board of
          -----------------------------                                      
Directors or any committee designated by the Board of Directors may hold or
participate in a meeting of the Board of Directors or such committee through the
use of any means of communication by which all persons participating can hear
each other at the same time.  Any director participating in a meeting by any
such means of communication is deemed to be present in person at the meeting.

                                   ARTICLE V
                                   ---------
                                   Officers
                                   --------

     1.   Election and Tenure.  The officers of the Corporation shall consist of
          -------------------                                                   
a President, a Secretary and Treasurer, each of whom shall be appointed annually
by the Board of Directors.  The Board of Directors may also designate and
appoint such other officers and assistant officers as may be deemed necessary.
The Board of Directors may delegate to any such officer the power to appoint or
remove subordinate officers, agents or employees.  Any two or more offices may
be held by the same person.  Each officer so appointed shall continue in office
until a successor shall be appointed and shall qualify, or until the officer's
earlier death, resignation or removal.  Each officer shall be a natural person
who is eighteen years of age or older.

     2.   Resignation, Removal and Vacancies.  Any officer may resign at any
          ----------------------------------                                
time by giving written notice of resignation to the Board of Directors or the
President. Such resignation shall take effect when the notice is received by the
Corporation unless the notice specifies a later date, and acceptance of the
resignation shall not be necessary to render such resignation effective. Any
officer may at any time be removed by the affirmative vote of a majority of the
number of directors fixed by or in accordance with Section 2 of Article III of
these Bylaws, or by an executive committee of the Board of Directors. If any
office becomes vacant for any reason, the vacancy may be filled by the Board of
Directors. An officer appointed to fill a vacancy shall be appointed for the
unexpired term of such officer's predecessor in office and shall continue in
office until a successor shall be elected or appointed and shall qualify, or
until such officer's earlier death, resignation or removal. The appointment of
an officer shall not itself create contract rights in favor of the officer, and
the removal of an officer does not affect the officer's contract rights, if any,
with the Corporation and the resignation of an officer does not affect the
Corporation's contract rights, if any, with the officer.

     3.   Chairman of the Board.  The Chairman of the Board shall preside over
          ---------------------                                               
the meetings of the Board of Directors and have such powers and responsibilities
as are incident thereto. However, the Chairman of the Board shall not have
responsibility for the day-to-day business operations of the Corporation.

                                       9

 
     4.   President.  The President shall be the chief executive officer of the
          ---------                                                            
Corporation.  The President shall (i) preside at meetings of the shareholders;
(ii) have general and active management of the business of the Corporation, and
preside over the day-to-day business operations of the Corporation; (iii) see
that all orders and resolutions of the Board of Directors are carried into
effect; and (iv) perform all duties as may from time to time be assigned by the
Board of Directors.

     5.   Chief Financial Officer.  The Chief Financial Officer shall perform
          -----------------------                                            
such duties and shall have such powers as may from time to time be assigned by
the Board of Directors or the President, and shall perform such duties and have
such powers and responsibilities as are incident to the office of Chief
Financial Officer.  In addition, the Chief Financial Officer shall have, along
with the President, responsibility for the day-to-day business operations of the
Corporation.

     6.   Vice Presidents.  The Vice Presidents, if any, shall perform such
          ---------------                                                  
duties and possess such powers as from time to time may be assigned to them by
the Board of Directors or the President.  In the absence of the President or in
the event of the inability or refusal of the President to act, the Vice
President (or in the event there be more than one Vice President, the Vice
Presidents in the order designated by the Board of Directors, or in the absence
of any designation, then in the order of the election or appointment of the Vice
Presidents) shall perform the duties of the President and when so performing
shall have all the powers of and be subject to all the restrictions upon the
President.

     7.   Secretary.  The Secretary shall perform such duties and shall have
          ---------                                                         
such powers as may from time to time be assigned by the Board of Directors or
the President.  In addition, the Secretary shall perform such duties and have
such powers as are incident to the office of Secretary including, without
limitation, the duty and power to give notice of all meetings of shareholders
and the Board of Directors, the preparation and maintenance of minutes of the
directors' and shareholders' meetings and other records and information required
to be kept by the Corporation under Article XI and for authenticating records of
the Corporation, and to be custodian of the corporate seal and to affix and
attest to the same on documents, the execution of which on behalf of the
Corporation is authorized by these Bylaws or by the action of the Board of
Directors.

     8.   Treasurer.  The Treasurer shall perform such duties and shall have
          ---------                                                         
such powers as may from time to time be assigned by the Board of Directors or
the President.  In addition, the Treasurer shall perform such duties and have
such powers as are incident to the office of Treasurer including, without
limitation, the duty and power to keep and be responsible for all funds and
securities of the Corporation, to deposit funds of the Corporation in
depositories selected in accordance with these Bylaws, to disburse such funds as
ordered by the Board of Directors, making proper accounts thereof, and to render
as required by the Board of Directors statements of all such transactions as
Treasurer and of the financial condition of the Corporation.

     9.   Assistant Secretaries and Assistant Treasurers.  The Assistant
          ----------------------------------------------                
Secretaries and Assistant Treasurers, if any, shall perform such duties as shall
be assigned to them by the Secretary or the Treasurer, respectively, or by the
President or the Board of Directors.  In the absence, inability or refusal to
act of the Secretary or the Treasurer, the Assistant Secretaries or Assistant
Treasurers, 

                                       10

 
respectively, in the order designated by the Board of Directors, or in the
absence of any designation, then in the order of their election or appointment,
shall perform the duties and exercise the powers of the Secretary or Treasurer,
as the case may be.

     10.  Bond of Officers.  The Board of Directors may require any officer to
          ----------------                                                    
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for such terms and conditions as
the Board of Directors may specify, including without limitation for the
faithful performance of such officer's duties and for the restoration to the
Corporation of any property belonging to the Corporation in such officer's
possession or under the control of such officer.

     11.  Salaries.  Officers of the Corporation shall be entitled to such
          --------                                                        
salaries, emoluments, compensation or reimbursement as shall be fixed or allowed
from time to time by the Board of Directors.

                                  ARTICLE VI
                                  ----------
                                Indemnification
                                ---------------

     1.   Indemnification.  To the extent permitted or required by the DGCL and
          ---------------                                                      
any other applicable law, if any director or officer of the Corporation is made
a party to or is involved in any proceeding because such person is or was a
director or officer of the Corporation, the Corporation shall (a) indemnify such
person from and against any liability, including but not limited to expenses of
investigation and preparation, expenses in connection with appearance as a
witness and fees and disbursements of counsel, accountants or other experts,
incurred by such person in such proceeding, and (b) advance to such person
expenses incurred in such proceeding.  The Corporation may in its discretion,
but is not obligated in any way to, indemnify and advance expenses to an
employee or agent of the Corporation to the same extent as to a director or
officer, and the Corporation may indemnify an employee, fiduciary, or agent of
the Corporation to a greater extent than expressly permitted herein for officers
and directors, provided such indemnification is not in violation of public
policy.

     2.   Provisions Not Exclusive.  The foregoing provisions for
          ------------------------                               
indemnification and advancement of expenses are not exclusive, and the
Corporation may at its discretion provide for indemnification or advancement of
expenses in a resolution of its shareholders or directors, in a contract or in
its Articles of Incorporation.

     3.   Effect of Modification of DGCL.  Any repeal or modification of the
          ------------------------------                                    
foregoing provisions of this Article for indemnification or advancement of
expenses shall not affect adversely any right or protection stated in such
provisions with respect to any act or omission occurring prior to the time of
such repeal or modification.  If any provision of this Article or any part
thereof shall be held to be prohibited by or invalid under applicable law, such
provision or part thereof shall be deemed amended to accomplish the objectives
of the provision or part thereof as originally written to the fullest extent
permitted by law and all other provisions or parts shall remain in full force
and effect.

                                       11

 
     4.   Definitions.  As used in this Article, the following terms have the
          -----------                                                        
following meanings:

          (a)  DGCL.  When used with reference to an act or omission occurring
               ----                                                           
prior to the effectiveness of any amendment to the DGCL after the effectiveness
of the adoption of this Article, the  term "DGCL" shall include such amendment
only to the extent that the amendment permits a Corporation to provide broader
indemnification rights than the DGCL permitted prior to the amendment.

          (b)  Corporation.  The term "Corporation" includes any domestic or
               -----------                                                  
foreign entity that is a predecessor of the Corporation by reason of a merger or
other transaction in which the predecessor's existence ceased upon consummation
of the transaction.

          (c)  Director or Officer.  A "director" or "officer" is an individual
               -------------------                                             
who is or was a director or officer of the Corporation or an individual who,
while a director or officer of the Corporation, is or was serving at the
Corporation's request as a director, officer, partner, trustee, employee,
fiduciary, or agent of another domestic or foreign corporation or other person
or of an employee benefit plan.  A director or officer is considered to be
serving an employee benefit plan at the Corporation's request if his or her
duties to the Corporation also impose duties on, or otherwise involve services
by, the director or officer to the plan or to participants in or beneficiaries
of the plan.  The terms "director" and "officer" include, unless the context
requires otherwise, the estate or personal representative of a director, of
officer, as applicable.

          (d)  Liability.  The term "liability" means the obligation incurred
               ---------                                                     
with respect to a proceeding to pay a judgment, settlement, penalty, fine
(including any excise tax assessed with respect to an employee benefit plan), or
reasonable expenses.

          (e)  Proceeding.  The term "proceeding" means any threatened, pending
               ----------                                                      
or completed action, suit, or proceeding whether civil, criminal, administrative
or investigative, and whether formal or informal.

     5.   Insurance.  The Corporation may purchase and maintain insurance on
          ---------                                                         
behalf of a person who is or was a director, officer, employee, fiduciary, or
agent of the Corporation, or who, while a director, officer, employee,
fiduciary, or agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, fiduciary, or
agent of another domestic or foreign corporation or other person or of an
employee benefit plan, against liability asserted against or incurred by the
person in that capacity or arising from his or her status as a director,
officer, employee, fiduciary, or agent, whether or not the Corporation would
have power to indemnify the person against the same liability under the DGCL.
Any such insurance may be procured from any insurance company designated by the
Board of Directors, whether such insurance company is formed under the laws of
the state of Delaware or any other jurisdiction of the United States or
elsewhere, including any insurance company in which the Corporation has an
equity or any other interest through stock ownership or otherwise.

                                       12

 
     6.   Expenses as a Witness.  The Corporation may pay or reimburse expenses
          ---------------------                                                
incurred by a director, officer, employee, fiduciary, or agent in connection
with an appearance as a witness in a proceeding at a time when he or she has not
been made a named defendant or respondent in the proceeding.

     7.   Notice to Shareholders.  If the Corporation indemnifies or advances
          ----------------------                                             
expenses to a director under this Article in connection with a proceeding by or
in the right of the Corporation, the Corporation shall give written notice of
the indemnification or advance to the shareholders with or before the notice of
the next shareholders' meeting.  If the next shareholder action is taken without
a meeting at the instigation of the Board of Directors, such notice shall be
given to the shareholders at or before the time the first shareholder signs a
writing consenting to such action.

                                  ARTICLE VII
                                  -----------
                  Execution of Instruments; Loans; Checks and
                        Endorsements; Deposits; Proxies
                        -------------------------------

     1.   Execution of Instruments.  The President or any Vice President shall
          ------------------------                                            
have the power to execute and deliver on behalf of and in the name of the
Corporation any instrument requiring the signature of an officer of the
Corporation, except as otherwise provided in these Bylaws or when the execution
and delivery of the instrument shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.  Unless authorized
to do so by these Bylaws or by the Board of Directors, no officer, agent or
employee shall have any power or authority to bind the Corporation in any way,
to pledge its credit or to render it liable pecuniarily for any purpose or in
any amount.

     2.   Borrowing.  No loan shall be contracted on behalf of the Corporation,
          ---------                                                            
and no evidence of indebtedness shall be issued, endorsed or accepted in its
name, unless authorized by the Board of Directors or a committee designated by
the Board of Directors so to act.  Such authority may be general or confined to
specific instances.  When so authorized, an officer may (a) effect loans at any
time for the Corporation from any bank or other entity and for such loans may
execute and deliver promissory notes or other evidences of indebtedness of the
Corporation; and (b) mortgage, pledge or otherwise encumber any real or personal
property, or any interest therein, owned or held by the Corporation as security
for the payment of any loans or obligation of this Corporation, and to that end
may execute and deliver for the Corporation such instruments as may be necessary
or proper in connection with such transaction.

     3.   Loans to Directors, Officers and Employees.  The Corporation may lend
          ------------------------------------------                           
money to, guarantee the obligations of and otherwise assist directors, officers
and employees of the Corporation, or directors of another corporation of which
the Corporation owns a majority of the voting stock, only upon compliance with
the requirements of the DGCL.

     4.   Checks and Endorsements.  All checks, drafts or other orders for the
          -----------------------                                             
payment of money, obligations, notes or other evidences of indebtedness, bills
of lading, warehouse receipts, 

                                       13

 
trade acceptances and other such instruments shall be signed or endorsed for the
Corporation by such officers or agents of the Corporation as shall from time to
time be determined by resolution of the Board of Directors, which resolution may
provide for the use of facsimile signatures.

     5.   Deposits.  All funds of the Corporation not otherwise employed shall
          --------                                                            
be deposited from time to time to the Corporation's credit in such banks or
other depositories as shall from time to time be determined by resolution of the
Board of Directors, which resolution may specify the officers or agents of the
Corporation who shall have the power, and the manner in which such power shall
be exercised, to make such deposits and to endorse, assign and deliver for
collection and deposit checks, drafts and other orders for the payment of money
payable to the Corporation or its order.

     6.   Proxies.  Unless otherwise provided by resolution adopted by the Board
          -------                                                               
of Directors, the President or any Vice President:  (a) may from time to time
appoint one or more agents of the Corporation, in the name and on behalf of the
Corporation, (i) to cast the votes which the Corporation may be entitled to cast
as the holder of stock or other securities in any other corporation, association
or other entity whose stock or other securities may be held by the Corporation,
at meetings of the holders of the stock or other securities of such other
corporation, association or other entity, or (ii) to consent in writing to any
action by such other corporation, association or other entity; (b) may instruct
the person so appointed as to the manner of casting such votes or giving such
consent; and (c) may execute or cause to be executed in the name and on behalf
of the Corporation and under its corporate seal, or otherwise, all such written
proxies or other instruments as may be deemed necessary or proper.

                                 ARTICLE VIII
                                 ------------
                                Shares of Stock
                                ---------------

     1.   Certificates of Stock.  The shares of the Corporation may, but need
          ---------------------                                              
not, be represented by certificates.  Unless the DGCL or another law expressly
provides otherwise, the fact that the shares are not represented by certificates
shall have no effect on the rights and obligations of shareholders.  If the
shares are represented by certificates, such certificates shall be signed by the
President and the Secretary or Treasurer or such other representatives of the
Corporation as are designated by the Board of Directors; provided, however, that
where such certificate is signed or countersigned by a transfer agent or
registrar (both of which may be the Corporation itself or any employee of the
Corporation) the signatures of such officers of the Corporation may be in
facsimile form.  In case any officer of the Corporation who shall have signed,
or whose facsimile signature shall have been placed on, any certificate shall
cease for any reason to be such officer before such certificate shall have been
issued or delivered by the Corporation, such certificate may nevertheless be
issued and delivered by the Corporation as though the person who signed such
certificate, or whose facsimile signature shall have been placed thereon, had
not ceased to be such officer of the Corporation.  Every certificate
representing shares issued by the Corporation shall state the number of shares
owned by the holder in the Corporation, shall designate the class of stock to
which such shares belong, and shall otherwise be in such form as is required by
law and as the Board of Directors shall prescribe.

                                       14

 
     2.   Shares Without Certificates.  The Board of Directors may authorize the
          ---------------------------                                           
issuance of any class or series of shares of the Corporation without
certificates.  Such authorization shall not affect shares already represented by
certificates until they are surrendered to the Corporation. Within a reasonable
time following the issue or transfer of shares without certificates, the
Corporation shall send the shareholder a complete written statement of the
information required on certificates by the DGCL.

     3.   Record.  A record shall be kept of the name of each person or entity
          ------                                                              
holding the stock represented by each certificate for shares of the Corporation
issued, the number of shares represented by each such certificate, the date
thereof and, in the case of cancellation, the date of cancellation. The person
or other entity in whose name shares of stock stand on the books of the
Corporation shall be deemed the owner thereof, and thus a holder of record of
such shares of stock, for all purposes as regards the Corporation.

     4.   Transfer of Stock.  Transfers of shares of the stock of the
          -----------------                                          
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by such registered holder's attorney thereunto authorized,
and on the surrender of the certificate or certificates for such shares properly
endorsed.

     5.   Transfer Agents and Registrars; Regulations.  The Board of Directors
          -------------------------------------------                         
may appoint one or more transfer agents or registrars with respect to shares of
the stock of the Corporation.  The Board of Directors may make such rules and
regulations as it may deem expedient and as are not inconsistent with these
Bylaws, concerning the issue, transfer and registration of certificates for
shares of the stock of the Corporation.

     6.   Lost, Destroyed or Mutilated Certificates.  In case of the alleged
          -----------------------------------------                         
loss, destruction or mutilation of a certificate representing stock of the
Corporation, a new certificate may be issued in place thereof, in such manner
and upon such terms and conditions as the Board of Directors may prescribe, and
shall be issued in such situations as required by the DGCL.

                                  ARTICLE IX
                                  ----------
                                  Fiscal Year
                                  -----------

     The fiscal year of the Corporation shall be the year established by the
Board of Directors.

                                   ARTICLE X
                                   ---------
                          Corporate Books and Records
                          ---------------------------

     1.   Corporate Books.  The books and records of the Corporation may be kept
          ---------------  
at such place or places as may be from time to time designated by the Board of
Directors.

     2.   Addresses of Shareholders.  Each shareholder shall furnish to the
          -------------------------                                        
Secretary of the Corporation or the Corporation's transfer agent an address to
which notices from the Corporation, including notices of meetings, may be
directed and if any shareholder shall fail so to designate such 

                                       15

 
an address, it shall be sufficient for any such notice to be directed to such
shareholder at such shareholder's address last known to the Secretary or
transfer agent.

     3.   Fixing Record Date.  The Board of Directors may fix in advance a date
          ------------------                                                   
as a record date for the determination of the shareholders entitled to a notice
of or to vote at any meeting of shareholders or any adjournment thereof, or to
express consent (or dissent) to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action.  Such record date shall not be
more than 50 nor less than 10 days before the date of such meeting, nor more
than 10 days prior to any other action to which the same relates. Only such
shareholders as shall be shareholders of record on the date so fixed shall be so
entitled with respect to the matter to which the same relates.  If the Board of
Directors shall not fix a record date as above provided, and if the Board of
Directors shall not for such purpose close the stock transfer books as provided
by statute, then the record date shall be established by statute in such cases
made and provided.

     4.   Inspection of Books and Records.  Any person who has been a holder of
          -------------------------------                                      
record of shares of the Corporation (or of voting trust certificates
representing such shares) for at least three months immediately preceding such
holder's demand or who is the holder of record of, or the holder of record of
voting trust certificates representing, at least five percent (5%) of all
outstanding shares of the Corporation, has the right, upon written demand
stating the purpose thereof, to examine, in person or by agent or attorney, at
any reasonable time and for any proper purpose, the Corporation's books and
records of account, minutes and record of holders of shares (and of voting trust
certificates therefor) and to make extracts therefrom.

     5.   Distribution of Financial Statements.  Upon the written request of any
          ------------------------------------                                  
shareholder of the Corporation, the Corporation shall mail to such shareholder
its last annual and most recently published financial statement.

     6.   Audits of Books and Accounts.  The Corporation's books and accounts
          ----------------------------                                       
shall be audited at such times and by such auditors as shall be specified and
designated by unanimous resolution of the Board of Directors.

                                  ARTICLE XI
                                  ----------
                         Emergency Bylaws and Actions
                         ----------------------------

     Subject to repeal or change by action of the shareholders, the Board of
Directors may adopt emergency bylaws and exercise other powers in accordance
with and pursuant to the provisions of the DGCL.

                                       16

 
                                  ARTICLE XII
                                  -----------
                                  Amendments
                                  ----------

     Unless the Articles of Incorporation or a particular Bylaw reserves the
right to amend the Bylaw to the shareholders, and subject to repeal or change by
action of the shareholders, either the Board of Directors or the Shareholders
shall have the power to alter, amend or repeal these Bylaws or adopt new bylaws.

                                       17

EX-3.66(B)

 
                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                     ZEIGLER PROPERTY DEVELOPMENT COMPANY


     I certify that the following Amended and Restated Bylaws, consisting of 
four pages, each of which I have initialed for identification, are the Bylaws 
adopted by the sole Director of ZEIGLER PROPERTY DEVELOPMENT COMPANY (the 
"Corporation") by a Written Action by Sole Director in Lieu of Meeting, dated 
__________________, 1998.



                                      /s/ JOHN LYNCH
                                      __________________________________________
                                      John Lynch, Secretary

 
                          AMENDED AND RESTATED BYLAWS

                                      OF

                     ZEIGLER PROPERTY DEVELOPMENT COMPANY

                                   SECTION 1

                           Meetings of Shareholders
                           ------------------------

     1.1  The annual meeting of the shareholders of the Corporation shall be 
held at the time and date to be set by the Board of Directors of the 
Corporation.

     1.2  The annual meeting of the shareholders shall be held at a place 
designated by the Board of Directors or, if the Board of Directors does not 
designate a place, then at a place designated by the Secretary or, if the 
Secretary does not designate a place, at the Corporation's principal business 
office.

     1.3  Special meetings of the shareholders shall be held at a place 
designated by the Board of Directors if the special meeting is called by the 
Board of Directors. If the special meeting is not called by the Board of 
Directors, the meeting shall be held at the Corporation's principal business 
office.

                                   SECTION 2

                              Board of Directors
                              ------------------

     2.1  The exact number of directors may be fixed, increased or decreased 
from time to time by a resolution adopted by the vote of the shareholders who 
(I) are present in person or by proxy at a meeting held to elect directors and 
(ii) have a majority of the voting power of the shares represented at such 
meeting and entitled to vote in the election.

 
     2.2    Meetings of the Board of Directors may be called by the President or
by any director. 

     2.3    Unless waived as permitted by the Delaware General Corporation Law, 
notice of the time, place and purpose of each meeting of the directors shall be 
either (I) telephoned or personally delivered to each director at least 
forty-eight hours before the time of the meeting or (ii) mailed to each director
at his last known address at least ninety-six hours before the time of the 
meeting.

                                   SECTION 3

                                   Officers
                                   --------

     3.1    The Corporation shall have a President, a Vice President, a 
Secretary and a Treasurer, all of whom shall be elected by the Board of 
Directors. The Corporation may also have such assistant officers as the Board of
Directors may deem necessary, all of whom shall be elected by the Board of 
Directors or chosen by an officer or officers designated by it.

     3.2    The President shall

            (a)    Have general charge and authority over the business of the 
Corporation subject to the direction of the Board of Directors,

            (b)    Have authority to preside at all meetings of the shareholders
and of the Board of Directors,

            (C)    Have authority acting alone, except as otherwise directed by 
the Board of Directors, to sign and deliver any document on behalf of the 
Corporation, and

            (d)    Have such other powers and duties as the Board of Directors 
may assign to him.

     3.3    The Secretary shall 

            (a)    Issue notices of all meetings for which notice is required to
be given,

                                      -2-

 
            (b)    Keep the minutes of all meetings and have charge of the
corporate record books, and

            (c)    Have such other duties and powers as the Board of Directors
or the President may assign to him.

     3.4    The Treasurer shall

            (a)    Have the custody of all funds and securities of the
Corporation,

            (b)    Keep adequate and correct accounts of the Corporation's
affairs and transactions, and

            (c)    Have such other duties and powers as the Board of Directors
or the President may assign to him.

     3.5    Other officers and agents of the Corporation shall have such
authority and perform such duties in the management of the Corporation as the
Board of Directors or the President may assign to them.

                                   SECTION 4

                           Certificates and Transfer
                           -------------------------

     4.1    Shares of the Corporation shall be represented by certificates in
such form as shall from time to time be prescribed by the President.

     4.2    Transfer of shares shall be made only on the stock transfer books of
the Corporation.

                                      -3-

 
                                   SECTION 5

                                  Amendments
                                  ----------

     These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.





                                  Prepared by
                          BROWN, TODD & HEYBURN PLLC
                        2700 Lexington Financial Center
                           Lexington, Kentucky 40507

                                      -4-

EX-4.1(A)

 
- --------------------------------------------------------------------------------


                         REGISTRATION RIGHTS AGREEMENT

                         Dated as of December 14, 1998

                                 by and among

                             AEI RESOURCES, INC.,
                                      AND
                          AEI HOLDING COMPANY, INC.,

                                  AS ISSUERS

                                      AND

                          AEI RESOURCES HOLDING, INC.

                                      AND

                    THE SUBSIDIARY GUARANTORS NAMED HEREIN,
                                 AS GUARANTORS

                                      AND

                            WARBURG DILLON READ LLC
                               AS DEALER MANAGER

                          $200,000,000 10 1/2% SENIOR
                                NOTES DUE 2005


- --------------------------------------------------------------------------------

 
          This Registration Rights Agreement (the "Agreement") is made and
                                                   ---------              
entered into as of December 14, 1998 by and among AEI RESOURCES, INC., a
Delaware corporation (the "Company"), and AEI Holding Company, Inc. ("Old AEI"
                           -------                                            
and, together with the Company, the "Issuers"), AEI RESOURCES HOLDING, INC., a
                                     -------                                  
Delaware corporation ("Holdings"), and the SUBSIDIARY GUARANTORS (as defined
                       --------                                             
herein) and WARBURG DILLON READ LLC (the "Dealer Manager").  The execution and
                                          --------------                      
delivery of this Agreement is a condition to the obligations of Warburg Dillon
Read LLC to act as dealer manager, in connection with the exchange of the 10
1/2% Senior Notes due 2005 of the Issuers for up to $200,000,000 of the 10%
Senior Notes due 2007 of Old AEI, under the Dealer Manager Agreement, dated as
of November 9, 1998 (the "Dealer Manager Agreement"), by and among the Issuers,
                          ------------------------                             
the Guarantors and the Dealer Manager.

          The Issuers, the Guarantors and the Dealer Manager hereby agree as
follows:

SECTION 1.  DEFINITIONS

          As used in this Agreement, the following capitalized terms shall have
the following meanings:

          Act:  The Securities Act of 1933, as amended, and the rules and
          ---                                                            
regulations promulgated by the Commission pursuant thereto.

          Broker-Dealer:  Any broker or dealer registered under the Exchange
          -------------                                                     
Act.

          Closing Date:  The date of consummation for the exchange of the Fixed
          ------------                                                         
Rate Senior Notes due 2005 of the Issuers for up to $200,000,000 of the 10%
Senior Notes due 2007 of Old AEI.

          Commission:  The Securities and Exchange Commission.
          ----------                                          

          Consummate:  A Registered Exchange Offer shall be deemed "Consummated"
          ----------                                                            
for purposes of this Agreement upon the occurrence of (i) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Notes to be issued in the Exchange Offer, (ii) the maintenance
of such Registration Statement continuously effective and the keeping of the
Exchange Offer open for a period not less than the minimum period required
pursuant to Section 3(b) of this Agreement and (iii) the delivery by the Issuers
to the Registrar under the Indenture of New Notes in the same aggregate
principal amount as the aggregate principal amount of Old Notes that were so
tendered.

          Damages Payment Date:  With respect to the Notes, each Interest
          --------------------                                           
Payment Date.

 
                                      -2-

          Effectiveness Target Date:  As defined in Section 5 of this Agreement.
          -------------------------                                             

          Exchange Act:  The Securities Exchange Act of 1934, as amended, and
          ------------                                                       
the rules and regulations promulgated by the Commission pursuant thereto.

          Exchange Offer:  The registration under the Act by the Issuers and the
          --------------                                                        
Guarantors of the New Notes pursuant to a Registration Statement pursuant to
which the Issuers and the Guarantors offer the Holders of all outstanding
Transfer Restricted Securities the opportunity to exchange all such outstanding
Old Notes that are Transfer Restricted Securities held by such Holders for New
Notes in an aggregate principal amount equal to the aggregate principal amount
of the Old Notes that are Transfer Restricted Securities tendered in such
exchange offer by such Holders.

          Exchange Offer Effective Date:  The date on which the Exchange Offer
          -----------------------------                                       
Registration Statement is declared effective by the Commission.

          Exchange Offer Registration Statement:  The Registration Statement
          -------------------------------------                             
relating to the Exchange Offer, including the related Prospectus.

          Guarantors:  Holdings together with the Subsidiary Guarantors.
          ----------                                                    

          Holders:  As defined in Section 2(b) of this Agreement.
          -------                                                

          Indenture:  The Indenture, dated as of December 14, 1998, by and among
          ---------                                                             
the Issuers, the Guarantors and IBJ Schroder Bank & Trust Company, as trustee
(the "Trustee"), pursuant to which the Notes are to be issued, as such Indenture
      -------                                                                   
is amended or supplemented from time to time in accordance with its terms.

          Interest Payment Date:  As defined in the Notes.
          ---------------------                           

          NASD:  National Association of Securities Dealers, Inc.
          ----                                                   

          New Notes:  The Issuers' 10 1/2% Senior Notes due 2005 to be issued
          ---------                                                          
pursuant to the Indenture in connection with the Exchange Offer and evidencing
the same debt as the Old Notes, including the guarantees by the Guarantors.

          Notes:  Old Notes and New Notes.
          -----                           

          Old Notes:  The  Issuers' 10 1/2% Senior Notes due 2005 to be issued
          ---------                                                           
pursuant to the Indenture on the Closing Date, including the guarantees by the
Guarantors.

          Participating Broker Dealer:  As defined in Section 6(a)(iii) of this
          ---------------------------                                          
Agreement.

 
                                      -3-

          Person:  An individual, partnership, corporation, trust or
          ------                                                    
unincorporated organization, or a government or agency or political subdivision
thereof.

          Prospectus:  The prospectus included in a Registration Statement, as
          ----------                                                          
amended or supplemented by any prospectus supplement and by all other amendments
and supplements thereto, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference, if any, in
such Prospectus.

          Registration Default:  As defined in Section 5 of this Agreement.
          --------------------                                             

          Registration Statement:  Any registration statement of the Issuers and
          ----------------------                                                
the Guarantors relating to (a) an offering of New Notes pursuant to an Exchange
Offer or (b) the registration for resale of Transfer Restricted Securities
pursuant to the Shelf Registration Statement that is filed pursuant to the
provisions of this Agreement, in each case, including the Prospectus included
therein, all amendments and supplements thereto (including pre- and post-
effective amendments) and all exhibits and material incorporated by reference or
deemed to be incorporated by reference, if any, therein.

          Shelf Filing Deadline:  As defined in Section 4(a) of this Agreement.
          ---------------------                                                

          Shelf Registration Statement:  As defined in Section 4(a) of this
          ----------------------------                                     
Agreement.

          Subsidiary:  With respect to any Person, any other Person of which a
          ----------                                                          
majority of the equity ownership or the voting securities is at the time owned,
directly or indirectly, by such Person or by one or more other subsidiaries of
such Person or a combination thereof.

          Subsidiary Guarantors:  Each Subsidiary of the Issuers that, pursuant
          ---------------------                                                
to the Indenture, is, or is required to become, a guarantor of the obligations
of the Issuers under the Notes and the Indenture.

          TIA:  The Trust Indenture Act of 1939, as amended  (15 U.S.C. Section
          ---                                                                  
77aaa-77bbbb), as in effect on the date of the Indenture.

          Transfer Restricted Securities:  Each Note until the earliest to occur
          ------------------------------                                        
of (i) the date on which each such Old Note has been exchanged by a person other
than a Broker-Dealer for a New Note in the Exchange Offer, (ii) following the
exchange by a Broker-Dealer in the Exchange Offer of an Old Note for a New Note,
the date on which such New Note is sold to a purchaser who receives from such
Broker-Dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Note has been effectively registered under the Act and disposed of in
accordance with the Shelf Registration Statement or (iv) the date on which such
Note is distributed to the public pursuant to Rule 144 under the Act.

 
                                      -4-

          Underwritten Registration or Underwritten Offering:  A registration in
          --------------------------------------------------                    
which securities of the Issuers are sold to an underwriter for reoffering to the
public pursuant to an effective Registration Statement.

SECTION 2.  SECURITIES SUBJECT TO THIS AGREEMENT

          (a)  Transfer Restricted Securities.  The securities entitled to the
               ------------------------------                                 
benefits of this Agreement are the Transfer Restricted Securities.

          (b)  Holders of Transfer Restricted Securities.  A Person is deemed to
               -----------------------------------------                        
be a holder of Transfer Restricted Securities (each, a "Holder") whenever such
                                                        ------                
Person beneficially owns Transfer Restricted Securities.

SECTION 3.  REGISTERED EXCHANGE OFFER

          (a)  Unless, due to a change in law or Commission policy after the
date hereof, the Exchange Offer shall not be permissible under applicable
federal law or Commission policy, the Issuers and the Guarantors shall (i) use
their reasonable best efforts to cause to be filed with the Commission as soon
as practicable after the Closing Date, a Registration Statement under the Act
relating to the New Notes and the Exchange Offer and (ii) use their reasonable
best efforts to cause such Registration Statement to be declared effective by
the Commission as soon as practicable after the Closing Date.  In connection
with the foregoing, the Issuers and the Guarantors shall (A) file all pre-
effective amendments to such Registration Statement as may be necessary to cause
such Registration Statement to become effective, (B) if applicable, file a post-
effective amendment to such Registration Statement pursuant to Rule 430A under
the Act, (C) cause all necessary filings in connection with the registration and
qualification of the New Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer
(provided, however, that the Issuers and the Guarantors shall not be obligated
to qualify as foreign corporations in any jurisdiction in which they are not so
qualified or to take any action that would subject them to general service of
process or taxation in any jurisdiction where they are not so subject, except
service of process with respect to the offering and sale of the Notes and
Exchange Notes) and (D) upon the effectiveness of such Registration Statement,
commence the Exchange Offer and use their reasonable best efforts to issue on or
prior to 30 business days after the Exchange Offer Effective Date, New Notes in
exchange for all Old Notes tendered in the Exchange Offer.  The Exchange Offer
shall be on the appropriate form permitting registration of the New Notes to be
offered in exchange for the Transfer Restricted Securities and to permit resales
of New Notes held by Broker-Dealers as contemplated by Section 3(c) below.  If,
after such Exchange Offer Registration Statement initially is declared effective
by the Commission, the Exchange Offer or the issuance of New Notes under the
Exchange Offer or the resale of New Notes received by Broker-Dealers in the
Exchange Offer as contemplated by Section 3(c) be-

 
                                      -5-

low is interfered with by any stop order, injunction or other order or
requirement of the Commission or any other governmental agency or court, such
Registration Statement shall be deemed not to have become effective for purposes
of this Agreement during the period that such stop order, injunction or other
similar order or requirement shall remain in effect.

          (b)  The Issuers shall cause the Exchange Offer Registration Statement
to be effective continuously and shall keep the Exchange Offer open for a period
of not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; provided, however, that in no
                                                  --------  -------            
event shall such period be less than 20 business days.  The Issuers and the
Guarantors shall cause the Exchange Offer to comply with all applicable federal
and state securities laws.  The Issuers and the Guarantors shall only offer to
exchange New Notes for Old Notes in the Exchange Offer, and only the New Notes
shall be registered under the Exchange Offer Registration Statement.

          (c)  The Issuers shall indicate in a "Plan of Distribution" section
contained in the Prospectus included in the Exchange Offer Registration
Statement that any Broker-Dealer that holds Old Notes that are Transfer
Restricted Securities and that were acquired for its own account as a result of
market-making activities or other trading activities (other than Transfer
Restricted Securities acquired directly from the Issuers), may exchange such Old
Notes pursuant to the Exchange Offer; provided, however, that such Broker-Dealer
                                      --------  -------                         
may be deemed to be an "underwriter" within the meaning of the Act and must,
therefore, deliver a prospectus meeting the requirements of the Act in
connection with any resales of the New Notes received by such Broker-Dealer in
the Exchange Offer.  Such "Plan of Distribution" section shall allow the use of
the Prospectus by all Persons subject to the prospectus delivery requirements of
the Act, including Participating Broker-Dealers, and shall also contain all
other information with respect to such resales by Broker-Dealers that the
Commission may require to permit such resales pursuant thereto, but such "Plan
of Distribution" shall not name any such Broker-Dealer or disclose the amount of
Notes held by any such Broker-Dealer except to the extent required by the
Commission as a result of a change in policy after the date of this Agreement.

          The Issuers and the Guarantors shall use their reasonable best efforts
to keep the Exchange Offer Registration Statement continuously effective,
supplemented and amended as required by the provisions of Section 6(c) below to
the extent necessary to ensure that it is available for resales of Notes
acquired by Broker-Dealers for their own accounts as a result of market-making
activities or other trading activities, and to ensure that it conforms with the
requirements of this Agreement, the Act and the policies, rules and regulations
of the Commission as announced from time to time.  The Issuers shall provide
sufficient copies of the latest version of such Prospectus to Broker-Dealers
promptly upon request at any time during such period in order to facilitate such
resales.

 
                                      -6-

SECTION 4.  SHELF REGISTRATION

          (a)  Shelf Registration.  If (i) the Issuers and the Guarantors are
               ------------------                                            
not required to file an Exchange Offer Registration Statement or to consummate
the Exchange Offer because the Exchange Offer is not permitted by applicable law
or Commission policy or (ii) any Holder of Transfer Restricted Securities shall
notify the Issuers within 20 business days of the commencement of the Exchange
Offer that such Holder (A) is prohibited by applicable law or Commission policy
from participating in the Exchange Offer, or (B) may not resell the New Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the Prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such Holder or (C)
is a Broker-Dealer and holds Old Notes (including the Dealer Manager who holds
Old Notes as part of an unsold allotment from the original offering of the
Notes) acquired directly from the Issuer or one of its affiliates or (iii) the
Issuers and the Guarantors do not consummate the Exchange Offer within 45 days
following the effectiveness date of the Exchange Offer Registration Statement,
then the Issuers and the Guarantors shall (x) use their reasonable best efforts
to file a shelf registration statement pursuant to Rule 415 under the Act, which
may be an amendment to the Exchange Offer Registration Statement (in either
event, the "Shelf Registration Statement") and have it declared effective by the
            ----------------------------                                        
Commission as soon as practicable, (such date being the Shelf Filing Deadline"),
                                                        ---------------------   
which the Shelf Registration Statement shall provide for resales of all Transfer
Restricted Securities the Holders  of which shall have provided the information
required pursuant to Section 4(b) of this Agreement, and (y) use their
reasonable best efforts to cause such Shelf Registration Statement to be
declared effective by the Commission as soon as practicable.  The Issuers and
the Guarantors shall use their reasonable best efforts to keep such Shelf
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Sections 6(b) and (c) of this Agreement to the
extent necessary to ensure that it is available for resales of Notes by the
Holders of Transfer Restricted Securities entitled to the benefit of this
Section 4(a) and to ensure that it conforms with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a continuous period of two years following the
date on which such Shelf Registration Statement becomes effective under the Act
or such shorter period that will terminate when all the Notes covered by the
Shelf Registration Statement have been sold pursuant to such Shelf Registration
Statement.

          (b)  Provision by Holders of Certain Information in Connection with
               --------------------------------------------------------------
the Shelf Registration Statement.  No Holder of Transfer Restricted Securities
- --------------------------------                                              
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Issuers in writing, within 10 business days after receipt of a request
therefor, such information regarding such Holder as the Issuers may reasonably
request for use in connection with any Shelf Registration Statement or
Prospectus or 

 
                                      -7-

preliminary Prospectus included in such Shelf Registration Statement. Each
Holder as to which any Shelf Registration Statement is being effected agrees to
furnish promptly to the Issuers all information required to be disclosed to make
the information previously furnished to the Issuers by such Holder not
materially misleading.

SECTION 5.  LIQUIDATED DAMAGES

          Until the Issuers complete the Exchange Offer, the Issuers and the
Guarantors will pay liquidated damages to each Holder of Transfer Restricted
Securities in an amount equal to $.15 per week per $1,000 principal amount of
Notes constituting Transfer Restricted Securities held by such Holder, such
amount of liquidated damages to increase by an additional $.05 per week per
$1,000 principal amount of Notes constituting Transfer Restricted Securities for
the 90-day period commencing December 8, 1998 and with respect to each
subsequent 90-day period until the Issuers complete the Exchange Offer.  In
addition, if (i) any of the Registration Statements required by this Agreement
is not filed with the Commission on or prior to the date specified for such
filing in this Agreement, (ii) any of such Registration Statements has not been
declared effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement (the "Effectiveness Target Date") or (iii) any
                                      -------------------------               
Registration Statement required by this Agreement is filed and declared
effective but shall thereafter cease to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods required by
this Agreement (each such event referred to in clauses (i) through (iii), a
"Registration Default"), the Issuers and the Guarantors will pay liquidated
- ---------------------                                                      
damages to each Holder of Transfer Restricted Securities, in an amount equal to
$.05 per week per $1,000 principal amount of Notes constituting Transfer
Restricted Securities held by such Holder.  The amount of the liquidated damages
shall increase by an additional $.05 per week per $1,000 principal amount of
Notes constituting Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, if any
and the consummation of the Exchange Offer has occurred up to a maximum amount
of liquidated damages of $.50 per week per $1,000 in principal amount of Notes
constituting Transfer Restricted Securities.  Notwithstanding the foregoing, the
Issuers and the Guarantors shall not be required to pay liquidated damages to
each Holder of Transfer Restricted Securities if the Registration Default arises
from the failure of the Issuers or the Guarantors to file, or cause to become
effective, a Shelf Registration Statement within the time period required by
Section 4 of this Agreement and such Registration Default is by reason of the
failure of the Holders to provide the information regarding the Holder
reasonably requested by the Issuers, the NASD or any other regulatory agency
having jurisdiction over any of the Holders at least 10 business days prior to
such Registration Default or consummation of the Exchange Offer.

          All accrued liquidated damages shall be paid by the Issuers and the
Guarantors on each Damages Payment Date to the Holders by wire transfer of
immediately available funds or by federal funds check and to the Holders of
Certificated Securities by mailing a 

 
                                      -8-

check to such Holders' registered addresses. Following the cure of all
Registration Defaults if any and the Consummation of the Exchange Offer relating
to any particular Transfer Restricted Securities, the accrual of liquidated
damages with respect to such Transfer Restricted Securities will cease.

          All obligations of the Issuers and the Guarantors set forth in the
preceding paragraph that are outstanding with respect to any Transfer Restricted
Security at the time such security ceases to be a Transfer Restricted Security
shall survive until such time as all such obligations with respect to such
Transfer Restricted Security shall have been satisfied in full.

SECTION 6.  REGISTRATION PROCEDURES

          (a)  Exchange Offer Registration Statement.  In connection with the
               -------------------------------------                         
Exchange Offer, the Issuers and the Guarantors shall comply with all of the
provisions of Section 6(c) below, shall use their reasonable best efforts to
effect such exchange to permit the sale of Transfer Restricted Securities being
sold in accordance with the intended method or methods of distribution thereof,
and shall comply with all of the following provisions:

             (i)  If, due to a change in law or Commission policy after the date
     hereof, in the reasonable opinion of counsel to the Issuers there is a
     question as to whether the Exchange Offer is permitted by applicable
     federal law or Commission policy, the Issuers hereby agree to seek a no-
     action letter or other favorable decision from the Commission allowing the
     Issuers and the Guarantors to Consummate an Exchange Offer for such Old
     Notes. The Issuers hereby agrees to pursue the issuance of such a no-action
     letter or favorable decision to the Commission staff level but shall not be
     required to take commercially unreasonable action to effect a change of
     Commission policy. The Issuers hereby agree, however, to (A) participate in
     telephonic conferences with the Commission, (B) deliver to the Commission
     an analysis prepared by counsel to the Issuers setting forth the legal
     bases, if any, upon which such counsel has concluded that such an Exchange
     Offer should be permitted and (C) diligently pursue a resolution (which
     need not be favorable) by the Commission of such submission. The Dealer
     Manager shall be given prior notice of any action taken by the Issuers
     under this clause (i).

             (ii) As a condition to its participation in the Exchange Offer
     pursuant to the terms of this Agreement, each Holder of Transfer Restricted
     Securities shall furnish, upon the request of the Issuers, prior to the
     Consummation of the Exchange Offer, a written representation to the Issuers
     (which may be contained in the letter of transmittal contemplated by the
     Exchange Offer Registration Statement) to the effect that (A) it is not an
     affiliate of the Issuers or any of the Guarantors, (B) it is not engaged
     in, 

 
                                      -9-

     and does not intend to engage in, and has no arrangement or understanding
     with any person to participate in, a distribution of the New Notes to be
     issued in the Exchange Offer and (C) it is acquiring the New Notes in its
     ordinary course of business. In addition, all such Holders of Transfer
     Restricted Securities shall otherwise cooperate in the Issuers'
     preparations for the Exchange Offer.

             (iii) The Issuers, the Guarantors and the Dealer Manager
     acknowledge that the staff of the Commission has taken the position that
     any broker-dealer that owns New Notes that were received by such broker-
     dealer for its own account in the Exchange Offer (a "Participating Broker-
                                                          --------------------
     Dealer") may be deemed to be an "underwriter" within the meaning of the Act
     ------                                                                     
     and must deliver a prospectus meeting the requirements of the Act in
     connection with any resale of such New Notes (other than a resale of an
     unsold allotment resulting from the original offering of the Notes).

          The Issuers, the Guarantors and the Dealer Manager also acknowledge
     that it is the Commission staff's position that if the Prospectus contained
     in the Exchange Offer Registration Statement includes a plan of
     distribution containing a statement to the above effect and the means by
     which Participating Broker-Dealers may resell the New Notes, without naming
     the Participating Broker-Dealers or specifying the amount of New Notes
     owned by them, such Prospectus may be delivered by Participating Broker-
     Dealers to satisfy their prospectus delivery obligations under the Act in
     connection with resales of New Notes for their own accounts, so long as the
     Prospectus otherwise meets the requirements of the Act.

          (b)  Shelf Registration Statement.  In the event that a Shelf
               ----------------------------                            
Registration Statement is required by this Agreement, the Issuers and the
Guarantors shall comply with all the provisions of Section 6(c) of this
Agreement and shall use their reasonable best efforts to effect such
registration to permit the sale of the Transfer Restricted Securities being sold
in accordance with the intended method or methods of distribution of such
Transfer Restricted Securities and, in connection therewith, the Issuers and the
Guarantors will as expeditiously as possible prepare and file with the
Commission a Shelf Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution of such Transfer Restricted Securities.

          (c)  General Provisions.  In connection with any Registration
               ------------------                                      
Statement and any Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Registration Statement and the related Prospectus, to the extent that the same
are required to be available to permit resales of Notes by Broker-Dealers), the
Issuers and the Guarantors shall:

 
                                     -10-

             (i)   use their reasonable best efforts to keep such Registration
     Statement continuously effective for the applicable time period required
     hereunder and provide all requisite financial statements (including, if
     required by the Act or any regulation thereunder, financial statements of
     the Guarantors) for the period specified in Section 3 or 4 of this
     Agreement, as applicable; upon the occurrence of any event that would cause
     any such Registration Statement or the Prospectus contained therein (A) to
     contain a material misstatement or omission or (B) not to be effective and
     usable for resale of Transfer Restricted Securities during the period
     required by this Agreement, the Issuers shall promptly notify the Holders
     to suspend use of the Prospectus, and the Holders shall suspend use of the
     Prospectus, and such Holders shall not communicate non-public information
     to any third party, in violation of the securities laws, until the Issuers
     and the Guarantors have made an appropriate amendment to such Registration
     Statement, in the case of clause (A), correcting any such misstatement or
     omission, and, in the case of either clause (A) or (B), the Issuers and the
     Guarantors shall use their reasonable best efforts to cause such amendment
     to be declared effective and such Registration Statement and the related
     Prospectus to become usable for their intended purpose(s) as soon as
     practicable thereafter;

             (ii)  prepare and file with the Commission such amendments and 
     post-effective amendments to such Registration Statement as may be
     necessary to keep the Registration Statement effective for the applicable
     period set forth in Section 3 or 4 of this Agreement, as applicable, or
     such shorter period as will terminate when all Transfer Restricted
     Securities covered by such Registration Statement have been sold; cause the
     Prospectus to be supplemented by any required Prospectus supplement, and as
     so supplemented to be filed pursuant to Rule 424 under the Act during the
     applicable time period required hereunder and to comply fully with the
     applicable provisions of Rules 424 and 430A under the Act in a timely
     manner; and comply with the provisions of the Act and the Exchange Act with
     respect to the disposition of all Transfer Restricted Securities covered by
     such Registration Statement during such period in accordance with the
     intended method or methods of distribution by the sellers of such
     securities set forth in such Registration Statement as so amended or in
     such Prospectus as so supplemented;

             (iii) advise the underwriter(s), if any, the Dealer Manager, and,
     in the case of a Shelf Registration Statement, each of the selling Holders
     promptly and, if requested by such Persons, to confirm such advice in
     writing, (A) when the Prospectus or any prospectus supplement or post-
     effective amendment has been filed and, with respect to any Registration
     Statement or any post-effective amendment thereto, when the same has become
     effective, (B) of any request by the Commission for amendments to the
     Registration Statement or amendments or supplements to the Prospectus or
     for ad-

 
                                     -11-

     ditional information relating to such Registration Statement or Prospectus,
     (C) of the issuance by the Commission of any stop order suspending the
     effectiveness of the Registration Statement under the Act or of the
     suspension by any state securities commission of the qualification of the
     Transfer Restricted Securities for offering or sale in any jurisdiction, or
     the initiation of any proceeding for any of the preceding purposes, (D) of
     the existence of any fact or the happening of any event that makes any
     statement of a material fact made in the Registration Statement, the
     Prospectus, any amendment or supplement to such Registration Statement or
     Prospectus, as the case may be, or any document incorporated by reference
     in such Registration Statement or Prospectus untrue in any material
     respect, or that requires the making of any additions to or changes in the
     Registration Statement or the Prospectus in order to make the statements in
     such Registration Statement or Prospectus not misleading and that in the
     case of the Prospectus, it will not contain any untrue statement of a
     material fact or omit to state any material fact required to be stated
     therein or necessary to make the statements therein, in the light of the
     circumstances under which they were made, not misleading. If at any time
     the Commission shall issue any stop order suspending the effectiveness of
     the Registration Statement, or any state securities commission or other
     regulatory authority shall issue an order suspending the qualification or
     exemption from qualification of the Transfer Restricted Securities under
     state securities or Blue Sky laws, the Issuers and the Guarantors shall use
     their best efforts to obtain the withdrawal or lifting of such order at the
     earliest possible time;

             (iv) furnish to each of the underwriter(s), if any, the Dealer
     Manager, and, in the case of a Shelf Registration Statement, each of the
     selling Holders before filing with the Commission, copies of any
     Registration Statement or any Prospectus included in such Registration
     Statement or Prospectus or any amendments or supplements to any such
     Registration Statement or Prospectus (including all documents incorporated
     by reference after the initial filing of such Registration Statement),
     which documents will be subject to the reasonable review of such
     underwriter(s), if any, the Dealer Manager, and such Holders for a period
     of at least three business days, and the Issuers and the Guarantors will
     not file any such Registration Statement or Prospectus or any amendment or
     supplement to any such Registration Statement or Prospectus, as the case
     may be, (including all such documents incorporated by reference) to which
     any underwriter, the Dealer Manager or any selling Holder shall reasonably
     object within three business days after the receipt of such Registration
     Statement or Prospectus;

             (v)  promptly prior to the filing of any document that is to be
     incorporated by reference into a Registration Statement or Prospectus, (A)
     provide copies of such document to the selling Holders and to the
     underwriter(s), if any, (B) make the Issuers' 

 
                                     -12-

     and the Guarantors' representatives available for discussion of such
     document and other customary due diligence matters; provided that such
                                                         --------
     discussion and due diligence shall be coordinated on behalf of the selling
     Holders by one counsel designated by and on behalf of such selling Holders
     and (C) include such information in such document prior to the filing of
     such document as such selling Holders or underwriter(s), if any, may
     reasonably request;

             (vi)  make available at reasonable times for inspection by the
     selling Holders, any underwriter participating in any disposition pursuant
     to such Registration Statement and any attorney or accountant retained by
     such selling Holders or any of the underwriter(s), if any, at the offices
     where normally kept, during reasonable business hours, all relevant
     financial and other records, pertinent corporate documents and properties
     of the Issuers and the Guarantors and cause the Issuers' and the
     Guarantors' officers, directors and employees to supply all information
     reasonably requested by any such Holder, underwriter, attorney or
     accountant in connection with such Registration Statement subsequent to the
     filing thereof and prior to its effectiveness; provided, however, that such
                                                    --------  -------           
     persons shall first agree in writing with the Issuers that any information
     that is reasonably and in good faith designated by the Issuers in writing
     as confidential at the time of delivery of such information shall be kept
     confidential by such persons, unless and to the extent that (A) disclosure
     of such information is required by court or administrative order or is
     necessary to respond to inquiries of regulatory authorities, (B) disclosure
     of such information is required by law (including any disclosure
     requirements pursuant to federal securities laws in connection with the
     filing of the Shelf Registration Statement or the use of any Prospectus),
     (C) such information becomes generally available to the public other than
     as a result of a disclosure or failure to safeguard such information by
     such person or (D) such information becomes available to such person from a
     source other than the Issuers and their Subsidiaries and such source is not
     bound by a confidentiality agreement;

             (vii) if requested by any selling Holders or the underwriter(s),
     if any, promptly incorporate in any Registration Statement or Prospectus,
     pursuant to a supplement or post-effective amendment if necessary, such
     information as such selling Holders and underwriter(s), if any, may
     reasonably request to have included therein, including, without limitation,
     information relating to the "Plan of Distribution" of the Transfer
     Restricted Securities, information with respect to the principal amount of
     Transfer Restricted Securities being sold to such underwriter(s), the
     purchase price being paid for Transfer Restricted Securities and any other
     terms of the offering of the Transfer Restricted Securities to be sold in
     such offering; and make all required filings of such Prospectus supplement
     or post-effective amendment as soon as practicable after the Issuers are
     notified of the matters to be incorporated in such Prospectus sup-

 
                                     -13-

     plement or post-effective amendment; provided, however, that the Issuers
                                          --------  -------
     shall not be required to take any action pursuant to this Section 6(c)(vii)
     that would, in the opinion of counsel for the Issuers, violate applicable
     law;

             (viii) furnish to each underwriter, if any, the Dealer Manager and
     upon request to the Issuers to a selling Holder without charge, at least
     one conformed copy of the Registration Statement, as first filed with the
     Commission, and of each amendment thereto, including, upon the request of
     such Person, all documents incorporated by reference therein and all
     exhibits to the extent requested (including exhibits incorporated therein
     by reference);

             (ix)   deliver to each selling Holder, each of the underwriter(s),
     if any, and the Dealer Manager, without charge, as many copies of the
     Prospectus (including each preliminary prospectus) and any amendment or
     supplement thereto as such Persons may reasonably request; the Issuer and
     the Guarantors hereby consent to the use of the Prospectus and any
     amendment or supplement to the Prospectus by each of the selling Holders
     and each of the underwriter(s), if any, in connection with the offering and
     the sale of the Transfer Restricted Securities in accordance with the terms
     thereof and with U.S. Federal securities laws and Blue Sky laws covered by
     the Prospectus or any amendment or supplement thereto;

             (x)    enter into such agreements (including an underwriting
     agreement in form, scope and substance as is customary in underwritten
     offerings of securities of this type) and take all such other reasonable
     actions in connection therewith in order to expedite or facilitate the
     disposition of the Transfer Restricted Securities pursuant to any
     Registration Statement contemplated by this Agreement, all as may be
     reasonably requested by any Holder of Transfer Restricted Securities or the
     underwriter(s), if any, in connection with any sale or resale of Transfer
     Restricted Securities pursuant to any Registration Statement contemplated
     by this Agreement; and whether or not an underwriting agreement is entered
     into and whether or not the registration is an Underwritten Registration,
     the Issuers and the Guarantors shall (A) make such representations and
     warranties to the Holders of such Transfer Restricted Securities and the
     underwriters, if any, with respect to the business of the Issuers and its
     Subsidiaries (including with respect to businesses or assets acquired or to
     be acquired by any of them), and the Shelf Registration Statement,
     Prospectus and documents, if any, incorporated or deemed to be incorporated
     by reference therein, in each case, in form, substance and scope as are
     customarily made by issuers to underwriters in underwritten offerings, and
     confirm the same if and when customarily requested; (B) obtain opinions of
     counsel to the Issuers and the Guarantors and updates thereof (which
     counsel and opinions (in form, scope and substance) shall be reasonably
     satisfactory to the underwriters, if any, and special counsel to the
     Holders of the Transfer Restricted Secu-

 
                                     -14-

     rities being sold), addressed to each selling Holder of Transfer Restricted
     Securities and each of the underwriters, if any, covering the matters
     customarily covered in opinions requested in underwritten offerings and
     such other matters as may be reasonably requested by such underwriters, if
     any, and special counsel to Holders of Transfer Restricted Securities; (C)
     use their reasonable best efforts to obtain customary "cold comfort"
     letters and updates thereof from the independent certified public
     accountants of the Issuers (and, if necessary, any other independent
     certified public accountants of any subsidiary of the Issuers or of any
     business acquired by the Issuers or any such subsidiary for which financial
     statements and financial data is, or is required to be, included in the
     Registration Statement), addressed (where reasonably possible) to each
     selling Holder of Transfer Restricted Securities and each of the
     underwriters, if any, such letters to be in customary form and covering
     matters of the type customarily covered in "cold comfort" letters in
     connection with underwritten offerings; (D) if an underwriting agreement is
     entered into, the same shall contain indemnification provisions and
     procedures no less favorable to the selling Holders and the underwriters,
     if any, than those set forth in Section 8 hereof (or such other provisions
     and procedures acceptable to Holders of a majority in aggregate principal
     amount of Transfer Restricted Securities covered by such Shelf Registration
     Statement and the underwriters, if any); and (E) deliver such documents and
     certificates as may be reasonably requested by the Holders of a majority in
     aggregate principal amount of the Transfer Restricted Securities being sold
     and the underwriters, if any, to evidence the continued validity of the
     representations and warranties made pursuant to clause (A) above and to
     evidence compliance with any customary conditions contained in the
     underwriting agreement or other agreement entered into by the Issuers.

          If at any time the representations and warranties of the Issuers and
     the Guarantors contemplated in clause (A) above cease to be true and
     correct, the Issuers shall so advise the Dealer Manager and the
     underwriter(s), if any, and each selling Holder promptly and, if requested
     by any of them, shall confirm such advice in writing;

             (xi) prior to any public offering of Transfer Restricted
     Securities, cooperate with and cause the Guarantors to cooperate with the
     selling Holders, the underwriter(s), if any, and their respective counsel
     in connection with the registration and qualification (or exemption from
     such registration or qualification) of the Transfer Restricted Securities
     for offer and sale under the securities or Blue Sky laws of such
     jurisdictions as the selling Holders and underwriter(s), if any, may
     reasonably request in writing and do any and all other acts or things
     necessary or advisable to enable the disposition in such jurisdictions of
     the Transfer Restricted Securities covered by the Registration Statement;
     provided, however, that neither the Issuers nor the Guarantors shall be
     --------  -------                                                      
     required to register or qualify as a foreign corporation where it is not
     now so 

 
                                     -15-

     qualified or to take any action that would subject it to the service of
     process or to taxation, other than as to matters and transactions relating
     to the Registration Statement, in any jurisdiction where it is not now so
     subject;

             (xii)  if a Shelf Registration is filed pursuant to Section 4(a),
     cooperate with the selling Holders of Registrable Securities and the
     managing Underwriters, if any, to facilitate the timely preparation and
     delivery of certificates representing Transfer Restricted Securities to be
     sold, which certificates shall not bear any restrictive legends and shall
     be in a form eligible for deposit with The Depository Trust Company; and
     enable such Transfer Restricted Securities to be in such denominations and
     registered in such names as the managing Underwriters, if any, or Holders
     may reasonably request;

             (xiii) in connection with any sale or transfer of Transfer
     Restricted Securities that will result in such securities no longer being
     Transfer Restricted Securities, cooperate with and cause the Guarantors to
     cooperate with the selling Holders and the underwriter(s), if any, to
     facilitate the timely preparation and delivery of certificates representing
     Transfer Restricted Securities to be sold and not bearing any restrictive
     legends; and enable such Transfer Restricted Securities to be in such
     denominations and registered in such names as the Holders or the
     underwriter(s), if any, may request at least two business days prior to any
     sale of Transfer Restricted Securities made by such underwriter(s);

             (xiv)  use their reasonable best efforts to cause the Transfer
     Restricted Securities covered by the Registration Statement to be
     registered with or approved by such other governmental agencies or
     authorities as may be necessary to enable the seller or sellers of such
     Transfer Restricted Securities or the underwriter(s), if any, to consummate
     the disposition of such Transfer Restricted Securities, subject to the
     proviso contained in clause (xi) above;

             (xv)   if any fact or event contemplated by Section 6(c)(iii)(D) of
     this Agreement shall exist or have occurred, prepare a supplement or post-
     effective amendment to the Registration Statement or related Prospectus or
     any document incorporated in such Registration Statement or Prospectus by
     reference or file any other required document so that, as thereafter
     delivered to the purchasers of Transfer Restricted Securities, the
     Registration Statement will not contain an untrue statement of a material
     fact or omit to state any material fact necessary to make the statements
     therein not misleading and the Prospectus will not contain an untrue
     statement of a material fact or omit to state any material fact required to
     be stated therein or necessary to make the statements contained therein, in
     the light of the circumstances under which they were made, not misleading;

 
                                     -16-

             (xvi)   provide a CUSIP number for all Transfer Restricted
     Securities not later than the effective date of the Registration Statement
     and provide the Trustee under the Indenture with printed certificates for
     the Transfer Restricted Securities that are in a form eligible for deposit
     with The Depository Trust Issuers;

             (xvii)  cooperate and assist in any filings required to be made
     with the NASD and in the performance of any due diligence investigation by
     any underwriter (including any "qualified independent underwriter" that is
     required to be retained in accordance with the rules and regulations of the
     NASD);

             (xviii) otherwise use their reasonable best efforts to comply with
     all applicable rules and regulations of the Commission in regards to any
     Registration Statement, and make generally available to its
     securityholders, as soon as practicable, a consolidated earning statement
     of the Issuers meeting the requirements of Rule 158 (which need not be
     audited) for the twelve-month period (A) commencing at the end of any
     fiscal quarter in which Transfer Restricted Securities are sold to
     underwriters in a firm commitment or reasonable best efforts Underwritten
     Offering or (B) if not sold to underwriters in such an offering, beginning
     with the first month of the Issuers' first fiscal quarter commencing after
     the effective date of the Registration Statement;

             (xix)   cause the Indenture to be qualified under the TIA not later
     than the effective date of the first Registration Statement required by
     this Agreement, and, in connection therewith, cooperate with the Trustee
     and the Holders to effect such changes to the Indenture, if any, as may be
     required for such Indenture to be so qualified in accordance with the terms
     of the TIA; and execute, and use their best efforts to cause the Trustee to
     execute, all customary documents that may be required to effect such
     changes and all other forms and documents required to be filed with the
     Commission to enable such Indenture to be so qualified in a timely manner.

             Each Holder agrees by acquisition of a Transfer Restricted Security
that, upon receipt of any notice from the Issuers of the existence of any fact
of the kind described in Section 6(c)(iii)(D) of this Agreement, such Holder
will forthwith discontinue disposition of Transfer Restricted Securities
pursuant to the applicable Registration Statement until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
6(c)(xv) of this Agreement, or until it is advised in writing (the "Advice") by
                                                                    ------     
the Issuers that the use of the Prospectus may be resumed, and has received
copies of any additional or supplemental filings that are incorporated by
reference in the Prospectus.  If so directed by the Issuers, each Holder will
deliver to the Issuers (at the Issuers' expense) all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Transfer Restricted Securities that was current at the time of
receipt of such notice.  In the event that the Issuers shall give any such
notice, the time period regarding the effectiveness of

 
                                     -17-

such Registration Statement set forth in Section 3 or 4 of this Agreement, as
applicable, shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to Section 6(c)(iii)(D)
of this Agreement to and including the date when each selling Holder covered by
such Registration Statement shall have received the copies of the supplemented
or amended Prospectus contemplated by Section 6(c)(xv) of this Agreement or
shall have received the Advice.

SECTION 7. REGISTRATION EXPENSES

          (a)  All fees and expenses incident to the Issuers' and the
Guarantors' performance of or compliance with this Agreement will be borne by
the Issuers regardless of whether a Registration Statement becomes effective,
including without limitation: (i) all registration and filing fees and expenses
(including filings made with the NASD (and, if applicable, the fees and expenses
of any "qualified independent underwriter" and its counsel that may be required
by the rules and regulations of the NASD)); (ii) all fees and expenses of
compliance with federal securities and state Blue Sky or securities laws; (iii)
all expenses of printing (including printing certificates for the New Notes to
be issued in the Exchange Offer and printing of Prospectuses); (iv) all fees and
disbursements of counsel for the Issuers, the Guarantors and, subject to Section
7(b) below, the Holders of Transfer Restricted Securities; and (v) all fees and
disbursements of independent certified public accountants of the Issuers and the
Guarantors (including the expenses of any special audit and comfort letters
required by or incident to such performance).

          The Issuers and the Guarantors will, in any event, bear their internal
expenses (including, without limitation, all salaries and expenses of their
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by them.

          Notwithstanding the foregoing or anything in this Agreement to the
contrary, each Holder of Transfer Restricted  Notes shall pay all underwriting
discounts and commissions of any underwriters with respect to any Notes sold by
or on behalf of it.

          (b)  In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Issuers will reimburse the
Dealer Manager and the Holders of Transfer Restricted Securities being tendered
in the Exchange Offer and/or resold pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or registered pursuant to
the Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel as may be chosen by the Holders of a
majority in principal amount of the Transfer Restricted Securities for whose
benefit such Registration Statement is being prepared.

 
                                     -18-

SECTION 8. INDEMNIFICATION

          (a)  Each of the Issuers and the Guarantors, on a joint and several
basis, agrees to indemnify and hold harmless (i) the Dealer Manager, each Holder
of Transfer Restricted Securities and each Participating Broker Dealer, (ii)
each person, if any, who controls any of the foregoing within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act (any of the persons
referred to in this clause (ii) being hereinafter referred to as a "controlling
                                                                    -----------
person") and (iii) its agents, employees, officers and directors and the agents,
- ------                                                                          
employees, officers and directors of any such controlling person (collectively,
the "Indemnified Persons") from and against any and all losses, liabilities,
     -------------------                                                    
claims, damages and expenses whatsoever (including but not limited to reasonable
fees of not more than one separate law firm (in addition to local counsel) and
any and all reasonable expenses whatsoever incurred in investigating, preparing
or defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all reasonable amounts paid in settlement of any claim
or litigation) to which they or any of them may become subject under the Act,
the Exchange Act or otherwise, insofar as such losses, liabilities, claims,
damages or expenses (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or Prospectus, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the Issuers
                                            --------  -------                  
and the Guarantors will not be liable in any such case to the extent, but only
to the extent, that any such loss, liability, claim, damage or expense arises
out of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Issuers by or on behalf of any
Indemnified Person relating to such Indemnified Person expressly for use
therein.  This indemnity agreement will be in addition to any liability that the
Issuers and the Guarantors may otherwise have, including, but not limited to,
liability under this Agreement.

          If any action is brought against any Indemnified Persons or any such
person in respect of which indemnity may be sought against the Issuers and the
Guarantors pursuant to the foregoing paragraph, such Indemnified Persons or such
person shall promptly notify the indemnifying party in writing of the
institution of such action and the indemnifying party shall assume the defense
of such action, including the employment of counsel reasonably satisfactory to
such indemnified party and payment of all fees and expenses, provided, however,
that the omission to so notify the indemnifying party shall not relieve the
indemnifying party from any liability which they may have to the Indemnified
Persons or any such person or otherwise.  Such Indemnified Persons shall have
the right to employ its own counsel in any such case, but the reasonable fees
and expenses of such counsel shall be at the expense of such In-

 
                                     -19-

demnified Persons unless the employment of such counsel shall have been
authorized in writing by the indemnifying party in connection with the defense
of such action or the indemnifying party shall not have employed counsel to have
charge of the defense of such action or such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to the indemnifying
party (in which case the indemnifying party shall not have the right to direct
the defense of such action on behalf of the indemnified party or parties), in
any of which events such reasonable fees and expenses shall be borne by the
indemnifying party and paid as incurred (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) in any one action or
series of related actions in the same jurisdiction representing the indemnified
parties who are parties to such action). The indemnifying party shall not be
liable for any settlement of any such claim or action effected without its
written consent but if settled with the written consent of the indemnifying
party, the indemnifying party agrees to indemnify and hold harmless any
Indemnified Persons and any such person from and against any loss or liability
by reason of such settlement. Notwithstanding the foregoing sentence, if at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as contemplated
by the second sentence of this paragraph, then the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 60 business
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement and (iii) such
indemnified party shall have given the indemnifying party at least 30 days'
prior notice of its intention to settle. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.

          (b)  In connection with any Registration Statement pursuant to which a
Holder of Transfer Restricted Securities offers or sells Transfer Restricted
Securities, such Holder agrees, severally and not jointly, to indemnify and hold
harmless the Issuers and the Guarantors, their respective directors and officers
and any person controlling either of the Issuers or a Guarantor within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, and each of
their agents, employees, officers and directors and the agents, employees,
officers and directors of such controlling person from and against any losses,
liabilities, claims, damages and expenses (including but not limited to
reasonable fees of not more than one separate law firm (in addition to local
counsel) and any and all reasonable expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any

 
                                     -20-

claim whatsoever and any and all reasonable amounts paid in settlement of any
claim or litigation) to which they or any of them may become subject under the
Act, the Exchange Act or otherwise insofar as such losses, liabilities, claims,
damages or expenses (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, in each case to the extent, but only
to the extent, that any such loss, liability, claim, damage or expense arises
out of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information relating to such Holder furnished to the Issuers by
such Holder in writing expressly for use therein.

          If any action is brought against either of the Issuers or a Guarantor
or any such person in respect of which indemnity may be sought against any
Holder of Transfer Restricted Securities pursuant to the foregoing paragraph,
the Issuers, the Guarantors or such person shall promptly notify such Holder in
writing of the institution of such action and such Holder shall assume the
defense of such action, including the employment of counsel reasonably
satisfactory to such indemnified party and payment of all fees and expenses,
provided, however, that the omission to so notify such Holder shall not relieve
such Holder from any liability which they may have to the Issuers, the
Guarantors or any such person or otherwise.  The Issuers, the Guarantors or such
person shall have the right to employ its own counsel in any such case, but the
fees and expenses of such counsel shall be at the expense of the Issuers or such
person unless the employment of such counsel shall have been authorized in
writing by such Holder of Transfer Restricted Securities in connection with the
defense of such action or such Holder shall not have employed counsel to have
charge of the defense of such action or such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to such Holder (in
which case such Holder shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties, but such Holder may employ
counsel and participate in the defense thereof but the fees and expenses of such
counsel shall be at the expense of such Holder), in any of which events such
fees and expenses shall be borne by such Holder and paid as incurred (it being
understood, however, that such Holder shall not be liable for the expenses of
more than one separate counsel in any one action or series of related actions in
the same jurisdiction representing the indemnified parties who are parties to
such action).  Anything in this paragraph to the contrary notwithstanding, any
Holder of Transfer Restricted Securities shall not be liable for any settlement
of any such claim or action effected without the written consent of such Holder
but if settled with the written consent of such Holder, such Holder agrees to
indemnify and hold harmless the Issuers, the Guarantors and any such person

 
                                     -21-

from and against any loss or liability by reason of such settlement.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second sentence of this
paragraph, then the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 60 business days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
not have reimbursed the indemnified party in accordance with such request prior
to the date of such settlement and (iii) such indemnified party shall have given
the indemnifying party at least 30 days' prior notice of its intention to
settle. No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened proceeding
in respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding.

          (c)  In order to provide for contribution in circumstances in which
the indemnification provided for in paragraphs (a) and (b) of this Section 8 is
for any reason held to be unavailable from the indemnifying party, or is
insufficient to hold harmless a party indemnified under this Section 8, the
Issuers, the Guarantors and the Indemnified Persons shall contribute to the
amount paid or payable by such indemnified party as a result of such aggregate
losses, claims, damages, liabilities and expenses of the nature contemplated by
such indemnification provision (including any investigation, legal and other
expenses incurred in connection with, and any amount paid in settlement of, any
action or any claims asserted) to which the Issuers and/or the Guarantors and
the Indemnified Persons may be subject, (i) in such proportion as is appropriate
to reflect the relative benefits received by the Issuers and the Guarantors, on
the one hand, and the Indemnified Persons, on the other hand, from the offering
of the Old Notes or, (ii) if such allocation is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Issuers and
the Guarantors, on the one hand, and the Indemnified Persons, on the other hand,
in connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Issuers and the
Guarantors, on the one hand, and the Indemnified Persons, on the other hand,
shall be deemed to be in the same proportion as the total proceeds from the
offering of Old Notes (net of discounts and commissions but before deducting
expenses) received by the Issuers as set forth in the table on the cover page of
the Offering Memorandum bear to the total proceeds received by such Holder with
respect to its sale of Transfer Restricted Securities or New Notes. The relative
fault of the Issuers and the Guarantors, on the one hand, and the Indemnified
Persons, on the other hand, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement

 
                                     -22-

of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Issuers, the Guarantors or the
Indemnified Persons and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission or
alleged statement or omission.

           The Issuers, the Guarantors and the Dealer Manager agree that it
would not be just and equitable if contribution pursuant to this paragraph (c)
of this Section 8 were determined by pro rata allocation or by any other method
of allocation that does not take into account the equitable considerations
referred to above. Notwithstanding the provisions of paragraph (c) of this
Section 8, (i) in no case shall an Indemnified Person be required to contribute
any amount in excess of the amount by which the total proceeds received by such
Indemnified Person with respect to its sale of its Transfer Restricted
Securities or New Notes, as the case may be, exceeds the amount of any damages
that such Indemnified Person has otherwise been required to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this paragraph (c)
of this Section 8, each person, if any, who controls an Indemnified Person
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
shall have the same rights to contribution as such Indemnified Person, and each
person, if any, who controls either of the Issuers or a Guarantor within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have
the same rights to contribution as the Issuers or the Guarantors, respectively,
where applicable, subject in each case to clauses (i) and (ii) of this
paragraph. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action against such party in respect of which a
claim for contribution may be made against another party or parties under this
paragraph 8(c), notify such party or parties from whom contribution may be
sought, but the omission to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have under this paragraph (c) of this Section 8 or otherwise;
provided, however, that no additional notice shall be required with respect to
- --------  ------- 
any action for which notice has been given under paragraphs (a) or (b) of this
Section 8 for purposes of indemnification. No party shall be liable for
contribution with respect to any action or claim settled without its written
consent, provided, however, that such written consent was not unreasonably
         --------  -------      
withheld.

SECTION 9. RULE 144A

           The Issuers and the Guarantors shall use their best efforts, for so
long as any Transfer Restricted Securities remain outstanding, to make available
to any Holder or beneficial owner of Transfer Restricted Securities in
connection with any sale of such securities and any prospective purchaser of
such Transfer Restricted Securities from such Holder or benefi-

 
                                     -23-

cial owner, the information required by Rule 144A(d)(4) under the Act in order
to permit resales of such Transfer Restricted Securities pursuant to Rule 144A.

SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS

          No Holder may participate in any Underwritten Registration under this
Agreement unless such Holder (a) agrees to sell such Holder's Transfer
Restricted Securities on the basis provided in any underwriting arrangements
approved by the Persons entitled under this Agreement to approve such
arrangements and (b) completes and executes all reasonable questionnaires,
powers of attorneys, indemnities, underwriting agreements, lock-up letters and
other documents required under the terms of such underwriting arrangements.

SECTION 11. SELECTION OF UNDERWRITERS

          The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering.  In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
               --------                                                   
reasonably satisfactory to the Issuers.

SECTION 12. MISCELLANEOUS

          (a)  Remedies.  Each Holder, in addition to being entitled to exercise
               --------                                                         
all rights provided in this Agreement, in the Indenture, the Purchase Agreement
or granted by law, including recovery of liquidated or other damages, will be
entitled to specific performance of its rights under this Agreement.  The
Issuers and the Guarantors agree that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agree to waive the defense in any action for
specific performance that a remedy at law would be adequate.

          (b)  No Inconsistent Agreements.  Each of the Issuers and the
               --------------------------                              
Guarantors will not on or after the date of this Agreement enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions of this Agreement. The Issuers will not have previously entered into
any agreement granting any registration rights with respect to its securities to
any Person. The rights granted to the Holders under this Agreement do not in any
way conflict with and are not inconsistent with the rights granted to the
holders of the Issuers' securities under any agreement in effect on the date of
this Agreement.

 
                                     -24-

          (c)  Adjustments Affecting the Notes.  Without the written consent of
               -------------------------------                                 
the Holders of a majority in aggregate principal amount of outstanding Transfer
Restricted Notes, the Issuers and the Guarantors will not take any action, or
permit any change to occur, with respect to the Notes that would materially and
adversely affect the ability of the Holders to Consummate any Exchange Offer.

          (d)  Amendments and Waivers.  The provisions of this Agreement may not
               ----------------------                                           
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions of this Agreement may not be given unless the Issuers have
obtained the written consent of Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities. Notwithstanding the
foregoing, a waiver or consent to departure from the provisions of this
Agreement that relates exclusively to the rights of Holders whose securities are
being sold or tendered pursuant to a Registration Statement and that does not
affect directly or indirectly the rights of other Holders whose securities are
not being sold or tendered pursuant to such Registration Statement may be given
by the Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities being so sold or tendered.

          (e)  Notices.  All notices and other communications provided for or
               -------                                                       
permitted hereunder shall be made in writing by hand-delivering, first-class
mail (registered or certified, return receipt requested), telex, telecopier or
air courier guaranteeing overnight delivery:

             (i)   if to a Holder, at the address set forth on the records of
     the Registrar under the Indenture, with a copy to the Registrar under the
     Indenture; and

             (ii)  if to the Issuers or the Guarantors, at:

                   AEI Resources, Inc.
                   1500 North Big Run Road
                   Ashland, Kentucky 41102
                   Facsimile: (606) 928-0450      
                   Attention: Treasurer/Controller
                                                   
                   with a copy to:                 
                                                   
                   Brown, Todd & Heyburn PLLC      
                   2700 Lexington Financial Center 
                   Lexington, Kentucky 40507-1749  
                   Facsimile: (606) 231-0011      
                   Attention: Paul Sullivan, Esq.  

 
                                     -25-

          All such notices and communications shall be deemed to have been duly
given: (i) at the time delivered by hand, if personally delivered; (ii) five
business days after being deposited in the mail, postage prepaid, if mailed;
(iii) when answered back, if telexed; (iv) when receipt acknowledged, if
telecopied; and (v) on the next business day, if timely delivered to an air
courier guaranteeing overnight delivery.

          Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.

          (f)  Successors and Assigns.  This Agreement shall inure to the
               ----------------------                                    
benefit of and be binding upon the successors and  permitted assigns of each of
the parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities.

          (g)  Counterparts.  This Agreement may be executed in any number of
               ------------                                                  
counterparts and by the parties to this Agreement in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.

          (h)  Captions.  The captions included in this Agreement are included
               --------                                                       
solely for convenience of reference and are not to be considered a part of this
Agreement.

          (i)  Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
               -------------                                                    
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.

          (j)  Submission to Jurisdiction.  The Issuers and the Guarantors
               --------------------------                                 
irrevocably submit to the nonexclusive jurisdiction of any State or Federal
court sitting in New York over any suit, action or proceeding arising out of or
relating to this agreement. The Issuers and the Guarantors irrevocably waive, to
the fullest extent permitted by law, any objection it may now or thereafter have
to the laying of venue of any such court and any claim that any such suit,
action or proceeding brought in such a court has been brought in an inconvenient
forum. The Issuers and the Guarantors agree that a final judgment in any such
suit, action or proceeding brought in any such court shall be conclusive and
binding upon the Issuers and the Guarantors and may be enforced in any other
courts to the jurisdiction of which the Issuers and the Guarantors are or may be
subject, by suit upon such judgment. The Issuers and the Guarantors hereby
appoint, without power of revocation, CT Corporation System as its agent to
accept and acknowledge on its behalf service of any and all process which may be
served in any suit, action or proceeding arising out of or relating to this
letter.

 
                                     -26-

          (k)  Severability.  In the event that any one or more of the
               ------------                                           
provisions contained in this Agreement, or the application of any such provision
in any circumstance, is held invalid, illegal or unenforceable, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained in this Agreement shall not be affected or
impaired thereby.

          (l)  Entire Agreement.  This Agreement together with the other
               ----------------                                         
Operative Documents (as defined in the Purchase Agreement) is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties to
this Agreement in respect of the subject matter contained in this Agreement.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to in this Agreement with respect to the
registration rights granted by the Issuers with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.

                           [Signatures on Next Page]

 
          IN WITNESS WHEREOF, the parties have executed this Senior Note
Registration Rights Agreement as of the date first written above.

                                             AEI RESOURCES, INC.

                                             By: /s/ John E. Baum
                                                 _____________________________
                                                 Name: John E. Baum
                                                 Title:

                                             AEI HOLDING COMPANY, INC.

                                             By: /s/ John E. Baum
                                                 _____________________________
                                                 Name: John E. Baum
                                                 Title:

 
                              Confirmed and Accepted and agreed as of the date
                              first above written:

                              WARBURG DILLON READ LLC,
                                  as Dealer Manager

                              By: /s/ Kaj Ahlburg
                                  _____________________________
                                  Name: Kaj Ahlbug
                                  Title: Executive Director Leveraged Finance

                              By: /s/ David W. Barth
                                  _____________________________
                                  Name: David W. Barth
                                  Title: Associate Director Leveraged Finance

 
                                       Confirmed and Accepted and agreed to
                                            as Guarantors:

                                       17 WEST MINING, INC.,                  
                                       ACECO, INC.,                           
                                       ADDINGTON MINING, INC.,                
                                       AEI COAL SALES COMPANY, INC.,          
                                       AEI RESOURCES HOLDING, INC.,           
                                       AMERICOAL DEVELOPMENT COMPANY,         
                                       APPALACHIAN REALTY COMPANY,            
                                       AYRSHIRE LAND COMPANY,                 
                                       BELLAIRE TRUCKING COMPANY,             
                                       BLUEGRASS COAL DEVELOPMENT             
                                        COMPANY,                              
                                       BOWIE RESOURCES LIMITED                
                                       CC COAL COMPANY,                       
                                       COAL VENTURES HOLDING                  
                                        COMPANY, INC.,                        
                                       EAST KENTUCKY ENERGY CORPORATION,      
                                       EMPLOYEE BENEFITS MANAGEMENT, INC.,    
                                       ENCOAL CORPORATION,                    
                                       ENERZ CORPORATION,                     
                                       EVERGREEN MINING COMPANY,              
                                       FAIRVIEW LAND COMPANY,                 
                                       FRANKLIN COAL SALES COMPANY,           
                                       GRASSY COVE COAL MINING COMPANY,       
                                       HERITAGE MINING COMPANY,               
                                       HIGHLAND COAL, INC.,                   
                                       IKERD-BANDY CO., INC.,                 
                                       KERMIT COAL COMPANY,                   
                                       LESLIE RESOURCES, INC.,                
                                       LESLIE RESOURCES MANAGEMENT, INC.,     
                                       MEADOWLARK, INC.,                      
                                       MEGA MINERALS, INC.,                   
                                       MIDWEST COAL SALES COMPANY,            
                                       MID-VOL LEASING, INC.                  
                                       MINING TECHNOLOGIES, INC.,             
                                       MOUNTAIN-CLAY, INCORPORATED (d/b/a     
                                         Mountain Clay, Inc.),                
                                       PHOENIX LAND COMPANY,                  
                                       PREMIUM PROCESSING, INC.,              
                                       PREMIUM COAL DEVELOPMENT COMPANY,      
                                       PRO-LAND, INC. (d/b/a Kem Coal Company)

 
                                       R. & F. COAL COMPANY,                 
                                       RIVER COAL COMPANY, INC.,             
                                       ROARING CREEK COAL COMPANY,           
                                       SHIPYARD RIVER COAL TERMINAL COMPANY, 
                                       STRAIGHT CREEK COAL RESOURCES COMPANY,
                                       TENNESSEE MINING, INC.,               
                                       TURRIS COAL COMPANY,                  
                                       WYOMING COAL TECHNOLOGY, INC.,        
                                       ZEIGLER COAL HOLDING COMPANY,         
                                       ZEIGLER ENVIRONMENTAL SERVICES COMPANY
                                       ZENERGY, INC.,                        
                                           each as Guarantor                 
                                                                              
                                       By: /s/ John E. Baum
                                           _____________________________________
                                           Name: John E. Baum                  
                                           Title:                            

 
                                        BEECH COAL COMPANY,              
                                        CANNELTON, INC.,                 
                                        CANNELTON INDUSTRIES, INC.,      
                                        CANNELTON LAND COMPANY,          
                                        CANNELTON SALES COMPANY,         
                                        DUNN COAL & DOCK COMPANY,        
                                        HAYMAN HOLDINGS, INC.,           
                                        KANAWHA CORPORATION,             
                                        KINDILL HOLDING, INC.,           
                                        KINDILL MINING, INC.,            
                                        MIDWEST COAL COMPANY ,           
                                        MOUNTAINEER COAL DEVELOPMENT     
                                          COMPANY,                       
                                        MOUNTAIN COALS CORPORATION,      
                                        OLD BEN COAL COMPANY,            
                                        WEST VIRGINIA-INDIANA COAL HOLDING
                                          COMPANY, INC.,                 
                                          each as Guarantor              
                                                                         
                                        By: /s/ William H. Haselhoff
                                            ____________________________________
                                            Name: William H. Haselhoff     
                                            Title:                        

 
                                   BENTLEY COAL COMPANY,                    
                                   SKYLINE COAL COMPANY,                    
                                   KENTUCKY PRINCE MINING COMPANY,          
                                     each as Guarantor                      
                                                                            
                                   By: GRASSY COVE COAL MINING   COMPANY,   
                                       ROARING CREEK COAL COMPANY,          
                                       each as General Partner of each of the
                                       entities listed above                
                                                                            
                                   By: /s/ John E. Baum
                                       _________________________________________
                                       Name: John E. Baum                     
                                       Title:                                

 
                                        NUCOAL, LLC,                     
                                          as Guarantor                   
                                                                         
                                        By: AMERICOAL DEVELOPMENT COMPANY
                                            ENCOAL CORPORATION           
                                            each as Member               
                                                                         
                                        By: /s/ John E. Baum
                                            ____________________________________
                                            Name: John E. Baum             
                                            Title:                        

EX-4.1(B)

 
================================================================================

                             ____________________

                              AEI RESOURCES, INC.

                                      AND

                           AEI HOLDING COMPANY, INC.

                                  AS ISSUERS



                                THE GUARANTORS

                                AS NAMED HEREIN


                                 $200,000,000

                         10 1/2% SENIOR NOTES DUE 2005

                                   INDENTURE

                         ______________________________


                         Dated as of December 14, 1998


                         ------------------------------



                       IBJ Schroder Bank & Trust Company

                                  as Trustee

================================================================================

 
                               TABLE OF CONTENTS

 
 
                                                                            Page
                                                                            ----
                                                                         
                                  ARTICLE ONE

                  DEFINITIONS AND INCORPORATION BY REFERENCE
                                                                               
SECTION 1.01.    Definitions...............................................   1
SECTION 1.02.    Other Definitions.........................................  24
SECTION 1.03.    TIA Terms.................................................  25
SECTION 1.04.    Rules of Construction.....................................  26

                                  ARTICLE TWO

                                   THE NOTES

SECTION 2.01.    Form and Dating...........................................  26
SECTION 2.02.    Execution and Authentication..............................  28
SECTION 2.03.    Registrar and Paying Agent................................  28
SECTION 2.04.    Paying Agent to Hold Money in Trust.......................  29
SECTION 2.05.    Holder Lists..............................................  29
SECTION 2.06.    Transfer and Exchange.....................................  29
SECTION 2.07.    Replacement Notes.........................................  45
SECTION 2.08.    Outstanding Notes.........................................  45
SECTION 2.09.    Treasury Notes............................................  46
SECTION 2.10.    Temporary Notes...........................................  46
SECTION 2.11.    Cancellation..............................................  46
SECTION 2.12.    Defaulted Interest........................................  47

                                 ARTICLE THREE

                           REDEMPTION AND PREPAYMENT

SECTION 3.01.    Notices to Trustee........................................  47
SECTION 3.02.    Selection of Notes to Be Redeemed.........................  47
SECTION 3.03.    Notice of Redemption......................................  48
SECTION 3.04.    Effect of Notice of Redemption............................  49
SECTION 3.05.    Deposit of Redemption Price...............................  49
SECTION 3.06.    Notes Redeemed in Part....................................  49
SECTION 3.07.    Optional Redemption.......................................  50
SECTION 3.08.    Mandatory Redemption......................................  51
SECTION 3.09.    Offer to Purchase by Application of Excess Proceeds.......  51
 

                                      -i-

 
 
 
                                                                            Page
                                                                            ----
                                                                          
                                 ARTICLE FOUR

                                   COVENANTS

SECTION 4.01.    Payment of Notes..........................................  54
SECTION 4.02.    Maintenance of Office or Agency...........................  54
SECTION 4.03.    Reports...................................................  55
SECTION 4.04.    Compliance Certificate....................................  55
SECTION 4.05.    Taxes.....................................................  56
SECTION 4.06.    Stay, Extension and Usury Laws............................  56
SECTION 4.07.    Restricted Payments.......................................  57
SECTION 4.08.    Dividend and Other Payment Restrictions Affecting            
                    Restricted Subsidiaries................................  61
SECTION 4.09.    Incurrence of Indebtedness and Issuance of Preferred         
                    Stock..................................................  63
SECTION 4.10.    Asset Sales...............................................  66
SECTION 4.11.    Transactions with Affiliates..............................  67
SECTION 4.12.    Liens.....................................................  68
SECTION 4.13.    Business Activities.......................................  69
SECTION 4.14.    Corporate Existence.......................................  69
SECTION 4.15.    Offer to Repurchase Upon Change of Control................  69
SECTION 4.16.    Incurrence of Senior Indebtedness.........................  70
SECTION 4.17.    Limitation on Issuances and Sales of Equity Interests in     
                    Wholly Owned Subsidiaries..............................  70
SECTION 4.18.    Payments for Consent......................................  71
SECTION 4.19.    Additional Subsidiary Guarantees..........................  71

                                 ARTICLE FIVE

                                  SUCCESSORS

SECTION 5.01.    Merger, Consolidation, or Sale of Assets..................  71
SECTION 5.02.    Successor Corporation Substituted.........................  72
                                                                             
                                  ARTICLE SIX                                
                                                                             
                             DEFAULTS AND REMEDIES                           
                                                                             
                                                                             
SECTION 6.01.    Events of Default.........................................  73
SECTION 6.02.    Acceleration..............................................  75
SECTION 6.03.    Other Remedies............................................  76
SECTION 6.04.    Waiver of Past Defaults...................................  76
 
                                     -ii-

 
 
 
                                                                            Page
                                                                            ----
                                                                          
SECTION 6.05.    Control by Majority......................................   76
SECTION 6.06.    Limitation on Suits......................................   76
SECTION 6.07.    Rights of Holders of Notes to Receive Payment............   77
SECTION 6.08.    Collection Suit by Trustee...............................   77
SECTION 6.09.    Trustee May File Proofs of Claim.........................   78
SECTION 6.10.    Priorities...............................................   78
SECTION 6.11.    Undertaking for Costs....................................   79
                                                                             
                                 ARTICLE SEVEN                               
                                                                             
                                    TRUSTEE                                  
                                                                             
                                                                             
SECTION 7.01.    Duties of Trustee........................................   79
SECTION 7.02.    Rights of Trustee........................................   80
SECTION 7.03.    Individual Rights of Trustee.............................   81
SECTION 7.04.    Trustee's Disclaimer.....................................   82
SECTION 7.05.    Notice of Defaults.......................................   82
SECTION 7.06.    Reports by Trustee to Holders of the Notes...............   82
SECTION 7.07.    Compensation and Indemnity...............................   83
SECTION 7.08.    Replacement of Trustee...................................   84
SECTION 7.09.    Successor Trustee by Merger, etc.........................   85
SECTION 7.10.    Eligibility; Disqualification............................   85
SECTION 7.11.    Preferential Collection of Claims Against Issuers........   85
                                                                             
                                 ARTICLE EIGHT                               
                                                                             
                   LEGAL DEFEASANCE AND COVENANT DEFEASANCE                  
                                                                             
                                                                             
SECTION 8.01.    Option to Effect Legal Defeasance or Covenant               
                    Defeasance............................................   86
SECTION 8.02.    Legal Defeasance and Discharge...........................   86
SECTION 8.03.    Covenant Defeasance......................................   87
SECTION 8.04.    Conditions to Legal or Covenant Defeasance...............   87
SECTION 8.05.    Deposited Money and Government Securities to be Held        
                    in Trust; Other Miscellaneous Provisions..............   89
SECTION 8.06.    Repayment to Issuers.....................................   89
SECTION 8.07.    Reinstatement............................................   90
                                                                             
                                 ARTICLE NINE                                
                                                                             
                       AMENDMENT, SUPPLEMENT AND WAIVER                      
                                                                             
                                                                             
SECTION 9.01.    Without Consent of Holders of Notes......................   90
 
                                     -iii-

 
 
 
                                                                            Page
                                                                            ----
                                                                          
SECTION 9.02.    With Consent of Holders of Notes.........................   91
SECTION 9.03.    Compliance with Trust Indenture Act......................   93
SECTION 9.04.    Revocation and Effect of Consents........................   93
SECTION 9.05.    Notation on or Exchange of Notes.........................   93
SECTION 9.06.    Trustee to Sign Amendments, etc..........................   93
                                                                             
                                  ARTICLE TEN                                
                                                                             
                                  GUARANTEES                                 
                                                                             
                                                                             
SECTION 10.01.   Guarantee................................................   94
SECTION 10.02.   Limitation on Guarantor Liability........................   95
SECTION 10.03.   Execution and Delivery of Guarantee......................   95
SECTION 10.04.   Subsidiary Guarantors May Consolidate, Etc., on             
                   Certain Terms.  .......................................   96
SECTION 10.05.   Releases Following Sale of Assets........................   97
                                                                             
                                 ARTICLE ELEVEN                              
                                                                             
                                 MISCELLANEOUS                               
                                                                             
                                                                             
SECTION 11.01.   Trust Indenture Act Controls.............................   98
SECTION 11.02.   Notices..................................................   98
SECTION 11.03.   Communication by Holders of Notes with Other Holders        
                   of Notes...............................................   99
SECTION 11.04.   Certificate and Opinion as to Conditions Precedent.......   99
SECTION 11.05.   Statements Required in Certificate or Opinion............  100
SECTION 11.06.   Rules by Trustee and Agents..............................  100
SECTION 11.07.   No Personal Liability of Directors, Officers, Employees    
                   and Stockholders.......................................  100
SECTION 11.08.   Governing Law............................................  101
SECTION 11.09.   No Adverse Interpretation of Other Agreements............  101
SECTION 11.10.   Successors...............................................  101
SECTION 11.11.   Severability.............................................  101
SECTION 11.12.   Counterpart Originals....................................  101
SECTION 11.13.   Table of Contents, Headings, etc.........................  101
 


EXHIBITS

Exhibit A-1  Form of Note
Exhibit A-2  Form of Temporary Regulation S Global Note
Exhibit B    Form of Certificate of Transfer

                                     -iv-


 
  
                                                                                  Page    
                                                                                  ----
                                                                             
Exhibit C    Form of Certificate of Exchange
Exhibit D    Form of Certificate of Acquiring Institutional Accredited Investor
Exhibit E    Form of Guarantee
Exhibit F    Form of Supplemental Indenture
 

                                      -v-

 
          INDENTURE dated as of December 14, 1998 among AEI Resources, Inc., a
Delaware corporation (the "Company"), AEI Holding Company, Inc., a Delaware
corporation ("Old AEI" and, together with the Company, the "Issuers"), the
guarantors named herein (the "Guarantors"), and IBJ Schroder Bank & Trust
Company, as trustee (the "Trustee").

          The Issuers, the Guarantors and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of the Holders of
the 10 1/2% Series A Senior Notes due 2005 (the "Series A Notes") and the  10
1/2% Series B Senior Notes due 2005 (the "Series B Notes" and, together with the
Series A Notes, the "Notes"):


                                  ARTICLE ONE

                  DEFINITIONS AND INCORPORATION BY REFERENCE


          SECTION 1.01.  Definitions.
                         ----------- 

          "144A Global Note" means a global note in the form of Exhibit A-1
hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold in reliance on Rule 144A.

          "Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.

          "Acquisitions" means the acquisition by the Company of: (i) all of the
outstanding capital stock of Zeigler Coal Holding Company, (ii) all of the
outstanding capital stock of certain subsidiaries of Cyprus Amax Coal Company
and certain mining equipment used by such subsidiaries together with an
agreement to pay Cyprus Amax Coal Company or its affiliate certain royalties,
(iii) all of the outstanding capital stock of Mid-Vol Leasing, Inc., Mega
Minerals, Inc. and Premium Processing, Inc. together with an agreement to pay
the former owners of Mid-Vol Leasing, Inc. certain royalties, (iv) all of the
outstanding capital stock of Kindill and Heyman Holding, Inc., (v) certain of
the assets of The Battle Ridge Companies, (vi) the stock of Leslie Resources,
Inc. and Leslie Resources Manage-

 
                                      -2-

ment, Inc., (vii) certain facilities, equipment and intellectual property
through the purchase of a substantial portion of the assets of the Mining
Technologies Division of Addington Enterprises, Inc., (viii) all of the
outstanding capital stock of Martiki Coal Corporation and (ix) all of the
outstanding capital stock of Ikerd-Bandy Co., Inc.

          "Additional Assets" means (i) any property or assets (other than
Capital Stock, Indebtedness or rights to receive payments over a period greater
than 180 days, other than with respect to coal supply contract restructurings)
that are usable by the Company or a Restricted Subsidiary in a Permitted
Business or (ii) the Capital Stock of a Person that is at the time, or becomes,
a Restricted Subsidiary as a result of the acquisition of such Capital Stock by
the Company or another Restricted Subsidiary.

          "Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided  that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control.

          "Agent" means any Registrar, Paying Agent or co-registrar.

          "Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer or
exchange.

          "Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback) other than sales of coal or rights to acquire coal or sales
of mining equipment and related parts and services, in each case, in the
ordinary course of business (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Restricted Subsidiaries taken as a whole will be governed by the provisions of
Section 4.15 and/or the provisions described under Section 5.01 and not by the
provisions of the Asset Sale covenant), and (ii) the issue or sale by the
Company or any of its Restricted Subsidiaries of Equity Interests of any of the
Company's Restricted Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have a fair market value in excess of $2.0 million or (b) for Net Proceeds in
excess of $2.0 million. Notwithstanding the foregoing, the following items shall
not be deemed to be Asset Sales: (i) a transfer of assets by the Company to a
Subsidiary Guarantor Restricted 

 
                                      -3-

Subsidiary or by a Subsidiary Guarantor Restricted Subsidiary to the Company or
to another Restricted Subsidiary, (ii) an issuance of Equity Interests by a
Restricted Subsidiary to the Company or to another Restricted Subsidiary, (iii)
a Restricted Payment that is permitted by, or an Investment that is not
prohibited by, the covenant described under Section 4.07, (iv) a disposition of
Cash Equivalents or obsolete equipment, (v) foreclosures on assets, (vi) the
sale or discount, in each case without recourse, of accounts receivable arising
in the ordinary course of business, but only in connection with the compromise
or collection thereof, (vii) the factoring of accounts receivable arising in the
ordinary course of business pursuant to arrangements customary in the industry
and (viii) the sale or disposition by the Company or a Restricted Subsidiary of
its Equity Interest in, or all or substantially all of the assets of, an
Unrestricted Subsidiary.

          "Assets Held for Sale" means (i) assets of the Company that are
reported on the pro forma financial statements of the Company contained in the
Offering Memorandum as assets held for sale in accordance with GAAP and (ii) the
office building in Fairview Heights, Illinois.

          "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.

          "Board of Directors" means the board of directors of AEI Resources,
Inc. or any authorized committee of the Board of Directors.

          "Bridge Facilities" means the (i) Senior Subordinated Credit
Agreement, dated as of September 2, 1998, among the Company, the Guarantors,
Warburg Dillon Read LLC, as Arranger and Syndication Agent, UBS AG, Stamford
Branch, as Administrative Agent, and the lenders party thereto and (ii) Senior
Credit Agreement, dated as of September 2, 1998, among Holdings, Warburg Dillon
Read LLC, as Arranger and Syndication Agent, UBS AG, Stamford Branch, as
Administrative Agent, and the lenders party thereto.

          "Business Day" means any day other than a Legal Holiday.

          "Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.

          "Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right 

 
                                      -4-

to receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.

          "Cash Equivalents" means (a) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed or insured by the
U.S. Government or any agency thereof, (b) certificates of deposit and time
deposits with maturities of one year or less from the date of acquisition and
overnight bank deposits of any lender under the Senior Credit Facilities or of
any commercial bank having capital and surplus in excess of $500.0 million and a
Thompson Bank Watch Rating of "B" or better, except that up to $10.0 million of
such certificates of deposit, time deposits and overnight deposits may be of or
with the Kentucky Bank and Trust Company at any one time, (c) repurchase
obligations of any lender under the Senior Credit Facilities or of any
commercial bank satisfying the requirements of clause (b) of this definition,
having a term of not more than 90 days with respect to securities issued or
fully guaranteed or insured by the United States Government, (d) commercial
paper of a domestic issuer rated at least A-2 by Standard and Poor's Rating
Group ("S&P") or P-2 by Moody's Investors Service, Inc. ("Moody's"), or carrying
an equivalent rating by a nationally recognized rating agency if both of S&P and
Moody's cease publishing ratings of investments, (e) securities with maturities
of one year or less from the date of acquisition issued or fully guaranteed by
any state, commonwealth or territory of the United States, by any political
subdivision or taxing authority of any such state, commonwealth or territory or
by any foreign government, the securities of which state, commonwealth,
territory, political subdivision, taxing authority or foreign government (as the
case may be) are rated at least A by S&P or A by Moody's, (f) securities with
maturities of one year or less from the date of acquisition backed by standby
letters of credit issued by any lender under the Senior Credit Facilities or any
commercial bank satisfying the requirements of clause (b) of this definition or
(g) shares of money market mutual or similar funds which invest exclusively in
assets satisfying the requirements of clauses (a) through (f) of this
definition.

          "Cedel" means Cedel Bank, S.A.

          "Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than a Principal or a Related Party of a Principal, (ii) the adoption
of a plan relating to the liquidation or dissolution of the Company, (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than the Principals and their Related Parties or (prior to the
establishment of a Public Market) a Permitted Group, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 

 
                                      -5-

13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only upon
the occurrence of a subsequent condition), directly or indirectly, of more than
50% of the Voting Stock of the Company (measured by voting power rather than
number of shares), or (iv) the Company consolidates with, or merges with or
into, any Person, or any Person consolidates with, or merges with or into, the
Company, in any such event pursuant to a transaction in which any of the
outstanding Voting Stock of the Company is converted into or exchanged for cash,
securities or other property, other than any such transaction where the Voting
Stock of the Company outstanding immediately prior to such transaction is
converted into or exchanged for Voting Stock (other than Disqualified Stock) of
the surviving or transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee Person (immediately
after giving effect to such issuance). For purposes of this definition, any
transfer of an equity interest of an entity that was formed for the purpose of
acquiring Voting Stock of the Company will be deemed to be a transfer of such
portion of such Voting Stock as corresponds to the portion of the equity of such
entity that has been so transferred.

          "Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i)
provision for taxes based on income or profits of such Person and its Restricted
Subsidiaries for such period, to the extent that such provision for taxes was
included in computing such Consolidated Net Income, plus (ii) consolidated
interest expense of such Person and its Restricted Subsidiaries for such period,
whether paid or accrued and whether or not capitalized (including, without
limitation, amortization of debt issuance costs, deferred financing fees and
original issue discount, noncash interest payments, the interest component of
any deferred payment obligations (other than employee benefit obligations), the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iii) depreciation, depletion,
amortization (including amortization of goodwill and other intangibles) and
other noncash charges and expenses (including, without limitation, writedowns
and impairment of property, plant and equipment and intangibles and other long-
lived assets) (excluding any such noncash expense for periods after the date of
this Indenture to the extent that it represents an accrual of or reserve for
cash expenses in any future period or amortization of a prepaid cash expense
that was paid in a prior period) of such Person and its Restricted Subsidiaries
for such period to the extent that such depreciation, depletion, amortization
and other noncash expenses were deducted in computing such Consolidated Net
Income, plus, (iv) unusual or nonrecurring charges incurred either (A) prior to
the date of this Indenture or (B) within twelve months thereafter and in
connection with any of the transactions contemplated 

 
                                      -6-

by the Transaction Documents, in each case to the extent deducted in computing
such Consolidated Net Income, minus (v) noncash items increasing such
Consolidated Net Income for such period (other than accruals in accordance with
GAAP), plus (vi) noncash items decreasing such Consolidated Net Income for such
period (other than accruals in accordance with GAAP), in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation, depletion and amortization and other noncash expenses of, a
Restricted Subsidiary that is not a Subsidiary Guarantor shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
that a corresponding amount would be permitted at the date of determination to
be dividended to the Company by such Restricted Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.

          "Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income of any Person that is not a Subsidiary or that
is accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Restricted Subsidiary thereof, (ii) the Net Income of any
Restricted Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary of
that Net Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded, (v) the Net Income (or loss) of any
Unrestricted Subsidiary shall be excluded, whether or not distributed to the
Company or one of its Restricted Subsidiaries, (vi) any non-cash expense related
to employee equity participation programs or stock option or similar plans shall
be disregarded, and (vii) losses of Tek-Kol Partnership prior to the date of
this Indenture shall be disregarded.

          "Consolidated Senior Indebtedness" means, as of any date, the total
amount of Senior Indebtedness of the Company and its Restricted Subsidiaries as
of such date, calculated on a consolidated basis and in accordance with GAAP.

 
                                      -7-

          "Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.02 hereof or such other address as to which the
Trustee may give notice to the Issuers.

          "Credit Facilities" means, with respect to the Company or any of its
Restricted Subsidiaries, one or more debt facilities (including, without
limitation, the Senior Credit Facilities) or commercial paper facilities with
banks or other institutional lenders providing for revolving credit loans, term
loans, receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.

          "Custodian" means the Trustee, as custodian with respect to the Notes
in global form, or any successor entity thereto.

          "Dealer Manager" means Warburg Dillon Read LLC.

          "Debt to Cash Flow Ratio" means, as of any date of determination, the
ratio of (a) the Consolidated Indebtedness of any Person and its Restricted
Subsidiaries as of such date to (b) the Consolidated Cash Flow of such Person
and its Restricted Subsidiaries for the four most recent full fiscal quarters
ending immediately prior to such date for which internal financial statements
are available. For purposes of making the computation referred to above, (i)
acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the date on which the
event for which the calculation of the Debt to Cash Flow Ratio is being
calculated ("Calculation Date") shall be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income and (ii) the Consolidated Cash Flow and Consolidated Senior Indebtedness
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded.

          "Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.

          "Definitive Note" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.06 hereof, in the
form of Exhibit A-

 
                                      -8-

1 hereto except that such Note shall not bear the Global Note Legend and shall
not have the "Schedule of Exchanges of Interests in the Global Note" attached
thereto.

          "Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.

          "Designated Noncash Consideration" means the fair market value of
noncash consideration received by the Company or one of its Restricted
Subsidiaries in connection with an Asset Sale that is so designated as
Designated Noncash Consideration pursuant to an Officers' Certificate, setting
forth the basis of such valuation, executed by the principal executive officer
and the principal financial officer of the Company, less the amount of cash or
Cash Equivalents received in connection with a sale of such Designated Noncash
Consideration.

          "Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the right
to require the Company to repurchase such Capital Stock upon the occurrence of a
Change of Control or an Asset Sale shall not constitute Disqualified Stock if
the terms of such Capital Stock provide that the Company may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such repurchase
or redemption complies with the covenant described under Section 4.07.

          "Domestic Subsidiary" means a Restricted Subsidiary that is (i) formed
under the laws of the United States of America or a state or territory thereof
or (ii) as of the date of determination, treated as a domestic entity or a
partnership or a division of a domestic entity for United States federal income
tax purposes.

          "Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

          "Equity Offering" means any public or private sale of equity
securities (excluding Disqualified Stock) of the Company or Holdings (to the
extent that the net pro-

 
                                      -9-

ceeds therefrom are contributed to the Company as common equity capital), other
than any private sales to an Affiliate of the Company.

          "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.

          "Exchange Act" means the Securities Exchange Act of 1934, as amended.

          "Exchange Agent" means IBJ Schroder Bank and Trust Company.

          "Exchange Notes" means the Notes issued in the Exchange Offer pursuant
to Section 2.06(f) hereof.

          "Exchange Offer" has the meaning set forth in the Registration Rights
Agreement.

          "Exchange Offer Registration Statement" has the meaning set forth in
the Registration Rights Agreement.

          "Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the Senior Credit
Facilities, the Notes, the Senior Subordinated Notes and related Guarantees) in
existence on the date of this Indenture, including without duplication,
outstanding letters of credit which support such Indebtedness, until such
amounts are repaid.

          "Fixed Charge Coverage Ratio" means with respect to any Person and its
Restricted Subsidiaries for any period, the ratio of the Consolidated Cash Flow
of such Person and its Restricted Subsidiaries for such period to the Fixed
Charges of such Person and its Restricted Subsidiaries for such period. In the
event that the referent Person or any of its Restricted Subsidiaries incurs,
assumes, Guarantees or redeems any Indebtedness (other than revolving credit
borrowings) or issues or redeems preferred stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Company or any of its Restricted Subsidiaries, including through mergers
or consolidations and including any related financing transactions during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation 

 
                                     -10-

Date shall be given pro forma effect as if they had occurred on the first day of
the four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated without giving effect to clause (iii) of the proviso
set forth in the definition of Consolidated Net Income, (ii) the Consolidated
Cash Flow attributable to discontinued operations, as determined in accordance
with GAAP, and operations or businesses disposed of prior to the Calculation
Date or held for sale as of the date of this Indenture, shall be excluded and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.

          "Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of (i) the consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and original
issue discount, noncash interest payments, the interest component of any
deferred payment obligations (other than employee benefit obligations), the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letters
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations, but excluding amortization of debt issuance costs) and
(ii) the consolidated interest of such Person and its Restricted Subsidiaries
that was capitalized during such period, and (iii) any interest expense on the
portion of Indebtedness of another Person that is Guaranteed by such Person or
one of its Restricted Subsidiaries or secured by a Lien on assets of such Person
or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is
called upon) and (iv) the product of (a) all dividend payments, whether or not
in cash, on any series of preferred stock of such Person or any of its
Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests of the Company (other than Disqualified
Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the effective combined federal, state and local tax rate of such Person
for such period, expressed as a decimal, in each case, for the Company and its
Restricted Subsidiaries on a consolidated basis and in accordance with GAAP.

          "Foreign Subsidiaries" means Subsidiaries of the Company that are not
Domestic Subsidiaries.

          "GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been ap-

 
                                     -11-

proved by a significant segment of the accounting profession, which are in
effect on the date of this Indenture.

          "Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes, in the form of
Exhibit A hereto issued in accordance with Section 2.01, 2.06(b)(iv),
2.06(d)(ii) or 2.06(f) hereof.

          "Global Note Legend" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Notes issued under
this Indenture.

          "Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.

          "Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.

          "Guarantors" means each of the Subsidiary Guarantors and Holdings.

          "Haulage and Delivery Agreement" means that certain agreement dated as
of October 22, 1997 between the Company and TASK, as the same may be extended or
renewed from time to time without alteration of the material terms thereof.

          "Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) currency exchange, interest rate or
commodity swap agreements, currency exchange, interest rate or commodity cap
agreements and currency exchange, interest rate or commodity collar agreements
and (ii) other agreements or arrangements designed to protect such Person
against fluctuations in currency exchange, interest rates or commodity prices,
in each case for the purpose of risk management and not for speculation.

          "Holder" means a Person in whose name a Note is registered.

          "Holdings" means AEI Resources Holding, Inc., a Delaware corporation
and the 100% parent of the Company.

          "IAI Global Note" means the global Note in the form of Exhibit A-1
hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold to Institutional Accredited Investors.

 
                                     -12-

          "Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations, if
and to the extent any of the foregoing (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others secured
by a Lien on any asset of such Person (whether or not such Indebtedness is
assumed by such Person) and, to the extent not otherwise included, the Guarantee
by such Person of any indebtedness of any other Person, but excluding from the
definition of "Indebtedness," any of the foregoing that constitutes (1) an
accrued expense, (2) trade payables, (3) Obligations in respect of reclamation,
workers' compensation, including black lung, pensions and retiree health care,
in each case to the extent not overdue for more than 90 days and (4) agreements
to make royalty payments, including minimum royalty payments, that are entered
into in connection with the acquisition of assets to be used in a Permitted
Business and which comprise part of the purchase price of the assets acquired.
The amount of any Indebtedness outstanding as of any date shall be (i) the
accreted value thereof, in the case of any Indebtedness issued with original
issue discount, and (ii) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any other
Indebtedness.

          "Indenture" means this Indenture, as amended or supplemented from time
to time.

          "Indirect Participant" means a Person who holds a beneficial interest
in a Global Note through a Participant.

          "Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.

          "Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the form of direct or
indirect loans (including guarantees of any portion of Indebtedness or other
obligations), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of the

 
                                     -13-

Company such that, after giving effect to any such sale or disposition, such
Person is no longer a Restricted Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Restricted
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described under Section 4.07.

          "Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed.  If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue on
such payment for the intervening period.

          "Letter of Transmittal" means the letter of transmittal to be prepared
by the Company and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.

          "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).

          "Liquidated Damages" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement related to the Notes.

          "Manufacture and Service Agreement" means that certain agreement dated
as of November 12, 1998 between Addington Enterprises or its affiliate and MTI,
as the same may be extended or renewed from time to time without alteration of
the material terms thereof.

          "Marketable Securities" means, with respect to any Asset Sale, any
readily marketable equity securities that are (i) traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market; and (ii)
issued by a corporation having a total equity market capitalization of not less
than $250.0 million; provided that the excess of (A) the aggregate amount of
securities of any one such corporation held by the Company and any Restricted
Subsidiary over (B) ten times the average daily trading volume of such
securities during the 20 immediately preceding trading days shall be deemed not
to be Marketable Securities; as determined on the date of the contract relating
to such Asset Sale.

 
                                     -14-

          "MMI Service Agreement" means that certain agreement dated as of
October 22, 1997 between MMI and the Company, as the same may be extended or
renewed from time to time without alteration of the material terms thereof.

          "MMI Leases" means all equipment leases between the Company and its
Subsidiaries and MMI in existence as of the date of this Indenture; provided
that MMI Leases shall not include any extension, renewal, exercise of option or
modification of any equipment lease between the Company and its Subsidiaries and
MMI.

          "Net Income" means, with respect to any Person, the net income or loss
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain or loss,
together with any related provision for taxes on such gain or loss, realized in
connection with (a) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or (b) the disposition of any
securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries and (ii) any extraordinary or nonrecurring item, together with any
related provision for taxes on such extraordinary or nonrecurring item.

          "Net Proceeds" means the aggregate proceeds (cash or property)
received by the Company or any of its Restricted Subsidiaries in respect of any
Asset Sale (including, without limitation, any cash received upon the sale or
other disposition of any noncash consideration received in any Asset Sale) or
the sale or disposition of any Investment, net of the direct costs relating to
such Asset Sale, sale or disposition, (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance with
GAAP.

          "Non-Guarantor Subsidiaries" means (i) Yankeetown Dock Corporation and
its direct and indirect Subsidiaries, (ii) the Company's future Unrestricted
Subsidiaries and (iii) the Company's current and future Foreign Subsidiaries.

          "Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness) other than a pledge of the Equity Interests of any
Unrestricted Subsidiaries, (b) is directly or indirectly liable (as a guarantor
or otherwise) other than by virtue of a pledge of the Equity Interests of any
Unrestricted Subsidiaries, or (c) constitutes the lender; and (ii) no default
with respect to which (including any rights that the holders thereof may have to
take enforcement 

 
                                     -15-

action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness (other than the Notes being
offered hereby) of the Company or any of its Restricted Subsidiaries to declare
a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.

          "Non-U.S. Person" means a Person who is not a U.S. Person.

          "Notes" has the meaning assigned to it in the preamble to this
Indenture.

          "Obligations" means any principal, premium (if any), interest,
penalties, fees, charges, expenses, indemnifications, reimbursement obligations,
damages, Guarantees and other liabilities and amounts payable under the
documentation governing any Indebtedness or in respect thereto.

          "Offering" means the offering of the Notes by the Issuers.

          "Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice-President of such Person.

          "Officers' Certificate" means a certificate signed on behalf of the
Company or Old AEI, as the case may be, by two Officers of the Company or Old
AEI, as the case may be, one of whom must be the principal executive officer,
the principal financial officer, the treasurer or the principal accounting
officer of the Company or Old AEI, as the case may be, that meets the
requirements of Section 11.05 hereof.

          "Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
11.05 hereof.  The counsel may be an employee of or counsel to the Issuers, any
Subsidiary of the Issuers or the Trustee.

          "Participant" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to The Depository Trust Company, shall include
Euroclear and Cedel).

          "Participating Broker-Dealer" has the meaning set forth in the
Registration Rights Agreement.

          "Permitted Business" means coal production, coal mining, coal
brokering, coal transportation, mine development, energy related businesses,
coal, natural gas, petroleum or other fossil fuel exploration, production,
marketing, transportation and distribution 

 
                                     -16-

and other related businesses, and activities of the Company and its Subsidiaries
as of the date of this Indenture and any business or activity that is reasonably
similar to any of the foregoing or a reasonable extension, development or
expansion thereof or ancillary to any of the foregoing.

          "Permitted Group" means any group of investors that is deemed to be a
"person" (as such term is used in Section 13(d)(3) of the Exchange Act) by
virtue of any agreement or arrangement among two or more Persons, provided that
no single Person (together with its Affiliates), other than the Principals and
their Related Parties, is the "beneficial owner" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has
the right to acquire, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition, and beneficial
ownership shall be determined without regard to such agreement or arrangement),
directly or indirectly, of (A) more than 50% of the Voting Stock of the Company
that is "beneficially owned" (as defined above) by such group of investors and
(B) more of the Voting Stock of the Company than is at the time "beneficially
owned" (as defined above) by the Principals and their Related Parties in the
aggregate (Voting Stock, in each case, measured by voting power rather than
number of shares).

          "Permitted Investments" means (a) any Investment in the Company or in
a Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Restricted Subsidiary of the Company in
a Person, if as a result of such Investment (i) such Person becomes a Restricted
Subsidiary of the Company or (ii) such Person, in one transaction or a series of
related transactions, is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Restricted Subsidiary of the Company; (d) any acquisition of
assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Company; (e) any Investment existing on the date of
this Indenture (an "Existing Investment") and any Investment that replaces,
refinances or refunds an Existing Investment, provided that the new Investment
is in an amount that does not exceed the amount replaced, refinanced or refunded
and is made in the same Person as the Investment replaced, refinanced or
refunded, (f) advances to employees not in excess of $5.0 million outstanding at
any one time; (g) Hedging Obligations permitted under clause (vii) of Section
4.09; (h) loans and advances to officers, directors and employees for business-
related travel expenses, moving expenses and other similar expenses, in each
case incurred in the ordinary course of business; (i) any Investment in a
Permitted Business (whether or not an Investment in an Unrestricted Subsidiary)
having an aggregate fair market value, that when taken together with all other
Investments made pursuant to this clause (i), does not exceed in aggregate
amount the sum of (1) 5% of Total Assets at the time of such Invest-

 
                                     -16-

ment (with the fair market value of each Investment being measured at the time
made and without giving effect to subsequent changes in value) plus (2) 100% of
the Net Proceeds from the sale or disposition of any Investment previously made
pursuant to this clause (i) or 100% of the amount of any dividend, distribution
or payment from any such Investment, net of income taxes paid or payable in
respect thereof, in each case up to the amount of the Investment that was made
pursuant to this clause (i) and 50% of the amount of such Net Proceeds or 50% of
such dividends, distributions or payments, in each case received in excess of
the amount of the Investments made pursuant to this clause (i); (j) guarantees
(including Guarantees) of Indebtedness permitted under Section 4.09; (k) any
Investment acquired by the Company or any of its Restricted Subsidiaries (A) in
exchange for any other Investment or accounts receivable held by the Company or
any such Restricted Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer of such
other Investment or accounts receivable or (B) as a result of the transfer of
title with respect to any secured Investment in default as a result of a
foreclosure by the Company or any of its Restricted Subsidiaries with respect to
such secured Investment; (l) that portion of any Investment by the Company or a
Restricted Subsidiary in a Permitted Business to the extent that the Company or
such Restricted Subsidiary will receive in a substantially concurrent
transaction an amount in cash equal to the amount of such Investment (or the
fair market value of such Investment), net of any obligation to pay taxes or
other amounts in respect of the receipt of such cash; and (m) any Investment
made by the Company or any Restricted Subsidiary in an Unrestricted Subsidiary
with the proceeds of any equity contribution to or sale of Equity Interest by
the Company or any Restricted Subsidiary, provided that such proceeds shall not
increase the amount available pursuant to clause (c) of the first paragraph of
the covenant described under Section 4.07; provided that the receipt of such
cash does not carry any obligation by the Company or such Restricted Subsidiary
to repay or return such cash; provided, however, that with respect to any
Investment, the Company may, in its sole discretion, allocate all or any portion
of any Investment to one or more of the above clauses so that the entire
Investment would be a Permitted Investment.

          "Permitted Liens" means (i) Liens securing Indebtedness under Credit
Facilities that was permitted by the terms of this Indenture to be incurred;
(ii) Liens in favor of the Company; (iii) Liens on property of a Person existing
at the time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary of the Company; provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or 

 
                                     -18-

other obligations of a like nature incurred in the ordinary course of business;
(vi) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance or other kinds of
social security; (vii) Liens existing on the date of this Indenture; (viii)
Liens for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (ix) Liens on assets of Subsidiary Guarantors to secure
Senior Indebtedness of such Subsidiary Guarantors that was permitted by this
Indenture to be incurred; (x) Liens incurred in the ordinary course of business
of the Company or any Restricted Subsidiary of the Company with respect to
obligations that (a) are not incurred in connection with the borrowing of money
or the obtaining of advances or credit (other than trade credit in the ordinary
course of business) and (b) do not in the aggregate materially detract from the
value of the property or materially impair the use thereof in the operation of
business by the Company or such Restricted Subsidiary; (xi) Liens on assets of
Foreign Subsidiaries to secure Indebtedness that was permitted by this Indenture
to be incurred; (xii) statutory liens of landlords, mechanics, suppliers,
vendors, warehousemen, carriers or other like Liens arising in the ordinary
course of business; (xiii) judgment Liens not giving rise to an Event of Default
so long as any appropriate legal proceeding that may have been duly initiated
for the review of such judgment shall not have been finally terminated or the
period within which such legal proceeding may be initiated shall not have
expired; (xiv) easements, rights-of-way, zoning and similar restrictions and
other similar encumbrances or title defects incurred or imposed, as applicable,
in the ordinary course of business and consistent with industry practices which,
in the aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto (as such
property is used by the Company or its Subsidiaries) or interfere with the
ordinary conduct of the business of the Company or such Subsidiaries; provided,
however, that any such Liens are not incurred in connection with any borrowing
of money or any commitment to loan any money or to extend any credit; (xv) Liens
to secure Indebtedness (including Capital Lease Obligations) permitted by clause
(iv) of the second paragraph of Section 4.09 and other purchase money Liens to
finance property or assets of the Company or any Restricted Subsidiary acquired
in the ordinary course of business; provided that such Liens are only secured by
such property or assets so acquired or improved (including, in the case of the
acquisition of Capital Stock of a Person who becomes a Restricted Subsidiary,
Liens on the assets of the Person whose Capital Stock was so acquired); (xvi)
Liens securing Indebtedness under Hedging Obligations, provided that such Liens
are only secured by property or assets that secure the Indebtedness subject to
the Hedging Obligation; (xvii) Liens to secure Indebtedness permitted by clause
(xi) of the second paragraph of Section 4.09; and (xviii) Liens on the Equity
Interests of Unrestricted Subsidiaries securing obligations of Unrestricted
Subsidiaries not otherwise prohibited by this Indenture.

 
                                     -19-

          "Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest and premium, if any, on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.

          "Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any subdivision
or ongoing business of any such entity or substantially all of the assets of any
such entity, subdivision or business).

          "Principals" means Larry Addington, Bruce Addington and Robert
Addington.

          "Private Placement Legend" means the legend set forth in Section
2.06(g)(i) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.

          "Public Equity Offering" means an underwritten primary public offering
of common stock of the Company pursuant to an effective registration statement
under the Securities Act.

          A "Public Market" shall be deemed to exist if (i) a Public Equity
Offering has been consummated and (ii) at least 35% of the total issued and
outstanding common stock of the Company immediately prior to the consummation of
such Public Equity Offer-

 
                                     -20-

ing has been distributed by means of an effective registration statement under
the Securities Act.

          "QIB" means a "qualified institutional buyer" as defined in Rule 144A.

          "Registration Rights Agreement" means the Registration Rights
Agreement, dated as of December 14, 1998, by and among the Issuers, the
Guarantors and the other party named on the signature pages thereof, as such
agreement may be amended, modified or supplemented from time to time.

          "Regulation S" means Regulation S promulgated under the Securities
Act.

          "Regulation S Global Note" means a Regulation S Temporary Global Note
or Regulation S Permanent Global Note, as appropriate.

          "Regulation S Permanent Global Note" means a permanent global Note in
the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with or on behalf of and registered in the name
of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount of the Regulation S Temporary Global Note upon
expiration of the Restricted Period.

          "Regulation S Temporary Global Note" means a temporary global Note in
the form of Exhibit A-2 hereto bearing the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee, issued in a denomination equal to the outstanding principal amount
of the Notes initially sold in reliance on Rule 903 of Regulation S.

          "Related Party" with respect to any Principal means (A) any
controlling stockholder of such Principal, any Subsidiary of such Principal, or
in the case of an individual, any spouse or immediate family member of such
Principal or (B) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding a
more than 50% controlling interest of which consist of such Principal and/or
such other Persons referred to in the immediately preceding clause (A).

          "Responsible Officer," when used with respect to the Trustee, means
any officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.

 
                                     -21-

          "Restricted Definitive Note" means a Definitive Note bearing the
Private Placement Legend.

          "Restricted Global Note" means a Global Note bearing the Private
Placement Legend.

          "Restricted Investment" means an Investment other than a Permitted
Investment.

          "Restricted Period" means the 40-day restricted period as defined in
Regulation S.

          "Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.

          "Rule 144" means Rule 144 promulgated under the Securities Act.

          "Rule 144A" means Rule 144A promulgated under the Securities Act.

          "Rule 903" means Rule 903 promulgated under the Securities Act.

          "Rule 904" means Rule 904 promulgated the Securities Act.

          "SEC" means the Securities and Exchange Commission.

          "Securities Act" means the Securities Act of 1933, as amended.

          "Senior Credit Facilities" means that certain Senior Credit Agreement,
dated as of September 2, 1998, by and among the Company, the Subsidiary
Guarantors, Warburg Dillon Read LLC, as Arranger and Syndication Agent, UBS AG,
Stamford Branch, as Administrative Agent, and the other lenders party thereto,
including any related notes, guarantees, collateral documents, letters of
credit, instruments and agreements executed in connection therewith (and any
appendices, exhibits or schedules to any of the foregoing), and in each case as
amended, modified, supplemented, restated, renewed, refunded, replaced,
restructured, repaid or refinanced from time to time (whether with the original
agents and lenders or other agents and lenders or otherwise, and whether
provided under the original credit agreement or other credit agreements or
otherwise).

          "Senior Indebtedness" means any Indebtedness of the Company or any of
its Restricted Subsidiaries (other than intercompany Indebtedness that is not
contractually subordinated to any other Indebtedness).

 
                                     -22-

          "Senior Subordinated Note Indenture" means that certain indenture
among the Company, the guarantors named therein and State Street Bank and Trust
Company, as trustee, governing the Senior Subordinated Notes.

          "Senior Subordinated Notes" mean the Senior Subordinated Notes of the
Company due 2006, to be issued concurrently herewith.

          "Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.

          "Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.

          "Stated Maturity" means, with respect to any installment of interest
or principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.

          "Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or Trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).

          "Subsidiary Guarantee" means a guarantee endorsed on the Notes by a
Subsidiary Guarantor.

          "Subsidiary Guarantors" means each of (i) the Company's Domestic
Subsidiaries at the date of the closing of the Acquisition, other than
Yankeetown Dock Corporation and the Subsidiaries of Yankeetown Dock Corporation
at the date of this Indenture and (ii) any other subsidiary that executes a
Subsidiary Guarantee in accordance with the provisions of this Indenture, and
their respective successors and assigns.

 
                                     -23-

          "Technology Sharing Agreement" means that certain agreement dated as
of April 29, 1998 between the Company and Addington Enterprises, Inc., as the
same may be extended or renewed from time to time without alteration of the
material terms thereof.

          "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
77bbbb) as in effect on the date on which this Indenture is qualified under the
TIA.

          "Total Assets" means the total assets of the Company and its
Restricted Subsidiaries on a consolidated basis determined in accordance with
GAAP, as shown on the most recently available consolidated balance sheet of the
Company and its Restricted Subsidiaries.

          "Transaction Documents" means the documents related to (i) the
Acquisitions, (ii) the Senior Credit Facilities and (iii) the offering of the
Notes and the Senior Subordinated Notes.

          "Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.

          "Unrestricted Definitive Note" means one or more Definitive Notes that
do not bear and are not required to bear the Private Placement Legend.

          "Unrestricted Global Note" means a permanent global Note in the form
of Exhibit A-1 attached hereto that bears the Global Note Legend and that has
the "Schedule of Exchanges of Interests in the Global Note" attached thereto,
and that is deposited with or on behalf of and registered in the name of the
Depositary, representing a series of Notes that do not bear the Private
Placement Legend.

          "Unrestricted Subsidiary" means any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Person: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any obligation (x) to
subscribe for additional Equity Interests in Unrestricted Subsidiaries or (y) to
maintain or preserve such Person's net worth; and (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries; provided, how- 

 
                                     -24-

ever, that the Company and its Restricted Subsidiaries may guarantee the
performance of Unrestricted Subsidiaries in the ordinary course of business
except for guarantees of Obligations in respect of borrowed money. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described under Section 4.07.

          "U.S. Person" means a U.S. person as defined in Rule 902(o) under the
Securities Act.

          "Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.

          "Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.

          "Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.

          "Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.

          SECTION 1.02. Other Definitions.
                        ----------------- 

          "Affiliate Transaction"........................  4.11
          "Asset Sale"...................................  4.10
          "Asset Sale Offer".............................  3.09
          "Authentication Order".........................  2.02 

 
                                     -25-

          "Bankruptcy Law"..............................   4.01
          "Change of Control Offer".....................   4.15
          "Change of Control Payment"...................   4.15
          "Change of Control Payment Date"..............   4.15
          "Covenant Defeasance".........................   8.03
          "Event of Default"............................   6.01
          "Excess Proceeds".............................   4.10
          "incur".......................................   4.09
          "Legal Defeasance"............................   8.02
          "Make Whole Premium"..........................   3.07
          "Offer Amount"................................   3.09
          "Offer Period"................................   3.09
          "Paying Agent"................................   2.03
          "Permitted Debt"..............................   4.09
          "Purchase Date"...............................   3.09
          "Registrar"...................................   2.03
          "Restricted Payments".........................   4.07
          "Treasury Rate"...............................   3.07 


          SECTION 1.03. TIA Terms
                        ---------

          Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.

          The following TIA terms used in this Indenture have the following
meanings:

          "indenture securities" means the Notes;

          "indenture security Holder" means a Holder of a Note;

          "indenture to be qualified" means this Indenture;

          "indenture trustee" or "institutional trustee" means the Trustee; and

          "obligor" on the Notes and the Guarantees with respect to the Notes
means the Issuers and the Guarantors, respectively, and any successor obligor
upon the Notes and the Guarantees with respect to the Notes, respectively.

          All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.

 
                                     -26-

          SECTION 1.04. Rules of Construction.
                        --------------------- 

          (1) a term has the meaning assigned to it;

          (2) an accounting term not otherwise defined has the meaning
     assigned to it in accordance with GAAP;

          (3)  "or" is not exclusive;

          (4) words in the singular include the plural, and in the plural
     include the singular;

          (5) provisions apply to successive events and transactions; and

          (6) references to sections of or rules under the Securities Act
     shall be deemed to include substitute, replacement of successor sections or
     rules adopted by the SEC from time Unless the context otherwise requires:

                                  ARTICLE TWO

                                   THE NOTES

          SECTION 2.01. Form and Dating.
                        --------------- 

          (a) General.  The Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto.  The
Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage.  Each Note shall be dated the date of its
authentication.  The Notes shall be in denominations of $1,000 and integral
multiples thereof.

          The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Issuers, the
Guarantors and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.  However,
to the extent any provision of any Note conflicts with the express provisions of
this Indenture, the provisions of this Indenture shall govern and be
controlling.

          (b) Global Notes.  Notes issued in global form shall be substantially
in the form of Exhibit A-1 or A 2 attached hereto (including the Global Note
Legend thereon and the "Schedule of Exchanges of Interests in the Global Note"
attached thereto). Notes

 
                                     -27-

issued in definitive form shall be substantially in the form of Exhibit A-
1 attached hereto (but without the Global Note Legend thereon and without the
"Schedule of Exchanges of Interests in the Global Note" attached thereto). Each
Global Note shall represent such of the outstanding Notes as shall be specified
therein and each shall provide that it shall represent the aggregate principal
amount of outstanding Notes from time to time endorsed thereon and that the
aggregate principal amount of outstanding Notes represented thereby may from
time to time be reduced or increased, as appropriate, to reflect exchanges and
redemptions. Any endorsement of a Global Note to reflect the amount of any
increase or decrease in the aggregate principal amount of outstanding Notes
represented thereby shall be made by the Trustee or the Note Custodian, at the
direction of the Trustee, in accordance with instructions given by the Holder
thereof as required by Section 2.06 hereof.

          (c) Temporary Global Note.  Notes offered and sold in reliance on
Regulation S shall be issued initially in the form of the Regulation S Temporary
Global Note, which shall be deposited on behalf of the purchasers of the Notes
represented thereby with the Trustee, at its New York office, as custodian for
the Depositary, and registered in the name of the Depositary or the nominee of
the Depositary for the accounts of designated agents holding on behalf of
Euroclear or Cedel Bank, duly executed by the Issuers and authenticated by the
Trustee as hereinafter provided.  The Restricted Period shall be terminated upon
the receipt by the Trustee of (i) a written certificate from the Depositary,
together with copies of certificates from Euroclear and Cedel Bank certifying
that they have received certification of non-United States beneficial ownership
of 100% of the aggregate principal amount of the Regulation S Temporary Global
Note (except to the extent of any beneficial owners thereof who acquired an
interest therein during the Restricted Period pursuant to another exemption from
registration under the Securities Act and who will take delivery of a beneficial
ownership interest in a 144A Global Note or an IAI Global Note bearing a Private
Placement Legend, all as contemplated by Section 2.06(a)(ii) hereof), and (ii)
an Officers' Certificate from each of the Issuers.  Following the termination of
the Restricted Period, beneficial interests in the Regulation S Temporary Global
Note shall be exchanged for beneficial interests in Regulation S Permanent
Global Notes pursuant to the Applicable Procedures.  Simultaneously with the
authentication of Regulation S Permanent Global Notes, the Trustee shall cancel
the Regulation S Temporary Global Note.  The aggregate principal amount of the
Regulation S Temporary Global Note and the Regulation S Permanent Global Notes
may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depositary or its nominee, as the case may be, in
connection with transfers of interest as hereinafter provided.

          (d) Euroclear and Cedel Procedures Applicable.  The provisions of the
"Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank"
and "Customer

 
                                     -28-

Handbook" of Cedel Bank shall be applicable to transfers of beneficial interests
in the Regulation S Temporary Global Note and the Regulation S Permanent Global
Notes that are held by Participants through Euroclear or Cedel Bank.

          SECTION 2.02. Execution and Authentication.
                        ---------------------------- 

          Two Officers shall sign the Notes for each of the Issuers by manual or
facsimile signature.

          If an Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.

          A Note shall not be valid until authenticated by the manual signature
of the Trustee.  The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.

          The Trustee shall, upon a written order of the Issuers signed by an
Officer of each of the Issuers (an "Authentication Order"), authenticate Notes
for original issue up to the aggregate principal amount stated in paragraph 4 of
the Notes. The aggregate principal amount of Notes outstanding at any time may
not exceed such amount except as provided in Section 2.07 hereof.

          The Trustee may appoint an authenticating agent acceptable to the
Issuers to authenticate Notes.  An authenticating agent may authenticate Notes
whenever the Trustee may do so.  Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or
Affiliates of the Issuers.

          SECTION 2.03. Registrar and Paying Agent.
                        -------------------------- 

          Each Issuer shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent").  The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Issuers may appoint one or more co-registrars and one or more additional
paying agents.  The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent.  The Issuers may change any
Paying Agent or Registrar without notice to any Holder.  The Issuers shall
notify the Trustee in writing of the name and address of any Agent not a party
to this Indenture.  If the Issuers fail to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such.  Either Issuer or any
of their Subsidiaries may act as Paying Agent or Registrar.

 
                                     -29-

          The Issuers initially appoint The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes.

          The Issuers initially appoint the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes.

          SECTION 2.04. Paying Agent to Hold Money in Trust.
                        ----------------------------------- 

          The Issuers shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Liquidated Damages, if any, or interest on the Notes, and
will notify the Trustee of any default by the Issuers in making any such
payment.  While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee.  The Issuers at any time may
require a Paying Agent to pay all money held by it to the Trustee.  Upon payment
over to the Trustee, the Paying Agent (if other than the Issuers or a Subsidiary
of either Issuer) shall have no further liability for the money.  If the Issuers
or a Subsidiary of either Issuer acts as Paying Agent, it shall segregate and
hold in a separate trust fund for the benefit of the Holders all money held by
it as Paying Agent.  Upon any bankruptcy or reorganization proceedings relating
to the Issuers, the Trustee shall serve as Paying Agent for the Notes.

          SECTION 2.05. Holder Lists.
                        ------------ 

          The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA (S) 312(a).  If the Trustee is
not the Registrar, the Issuers shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Issuers shall otherwise comply with TIA (S) 312(a).

          SECTION 2.06. Transfer and Exchange.
                        --------------------- 

          (a) Transfer and Exchange of Global Notes.  A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, the Depositary or any such nominee to a successor Depositary or a
nominee of such successor Depositary.  All Global Notes will be exchanged by the
Issuers for Definitive Notes if (i) the Issuers deliver to the Trustee notice
from the Depositary that they are unwilling or unable to continue to act as
Depositary or that they are no longer a clearing agency registered under the
Exchange Act and, in either case, a successor Depositary is not appointed by the

 
                                     -30-

Issuers within 120 days after the date of such notice from the Depositary or
(ii) the Issuers in their sole discretion determine that the Global Notes (in
whole but not in part) should be exchanged for Definitive Notes and deliver a
written notice to such effect to the Trustee; provided that in no event shall
the Regulation S Temporary Global Note be exchanged by the Issuers for
Definitive Notes prior to (x) the expiration of the Restricted Period and (y)
the receipt by the Registrar of any certificates required pursuant to Rule
903(c)(3)(ii)(B) under the Securities Act. Upon the occurrence of either of the
preceding events in (i) or (ii) above, Definitive Notes shall be issued in such
names as the Depositary shall instruct the Trustee.  Global Notes also may be
exchanged or replaced, in whole or in part, as provided in Sections 2.07 and
2.10 hereof.  Every Note authenticated and delivered in exchange for, or in lieu
of, a Global Note or any portion thereof, pursuant to this Section 2.06 or
Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form
of, and shall be, a Global Note.  A Global Note may not be exchanged for another
Note other than as provided in this Section 2.06(a), however, beneficial
interests in a Global Note may be transferred and exchanged as provided in
Section 2.06(b),(c) or (f) hereof.

          (b) Transfer and Exchange of Beneficial Interests in the Global Notes.
The transfer and exchange of beneficial interests in the Global Notes shall be
effected through the Depositary, in accordance with the provisions of this
Indenture and the Applicable Procedures.  Beneficial interests in the Restricted
Global Notes shall be subject to restrictions on transfer comparable to those
set forth herein to the extent required by the Securities Act.  Transfers of
beneficial interests in the Global Notes also shall require compliance with
either subparagraph (i) or (ii) below, as applicable, as well as one or more of
the other following subparagraphs, as applicable:

          (i) Transfer of Beneficial Interests in the Same Global Note.
     Beneficial interests in any Restricted Global Note may be transferred to
     Persons who take delivery thereof in the form of a beneficial interest in
     the same Restricted Global Note in accordance with the transfer
     restrictions set forth in the Private Placement Legend; provided, however,
     that prior to the expiration of the Restricted Period, transfers of
     beneficial interests in the Temporary Regulation S Global Note may not be
     made to a U.S. Person or for the account or benefit of a U.S. Person (other
     than the Dealer Manager.)  Beneficial interests in any Unrestricted Global
     Note may be transferred to Persons who take delivery thereof in the form of
     a beneficial interest in an Unrestricted Global Note.  No written orders or
     instructions shall be required to be delivered to the Registrar to effect
     the transfers described in this Section 2.06(b)(i).

          (ii) All Other Transfers and Exchanges of Beneficial Interests in
     Global Notes.  In connection with all transfers and exchanges of beneficial
     interests that are not subject to Section 2.06(b)(i) above, the transferor
     of such beneficial interest

 
                                     -31-

     must deliver to the Registrar either (A) (1) a
     written order from a Participant or an Indirect Participant given to the
     Depositary in accordance with the Applicable Procedures directing the
     Depositary to credit or cause to be credited a beneficial interest in
     another Global Note in an amount equal to the beneficial interest to be
     transferred or exchanged and (2) instructions given in accordance with the
     Applicable Procedures containing information regarding the Participant
     account to be credited with such increase or (B) (1) a written order from a
     Participant or an Indirect Participant given to the Depositary in
     accordance with the Applicable Procedures directing the Depositary to cause
     to be issued a Definitive Note in an amount equal to the beneficial
     interest to be transferred or exchanged and (2) instructions given by the
     Depositary to the Registrar containing information regarding the Person in
     whose name such Definitive Note shall be registered to effect the transfer
     or exchange referred to in (1) above; provided that in no event shall
     Definitive Notes be issued upon the transfer or exchange of beneficial
     interests in the Regulation S Temporary Global Note prior to (x) the
     expiration of the Restricted Period and (y) the receipt by the Registrar of
     any certificates required pursuant to Rule 903 under the Securities Act.
     Upon consummation of an Exchange Offer by the Issuers in accordance with
     Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall
     be deemed to have been satisfied upon receipt by the Registrar of the
     instructions contained in the Letter of Transmittal delivered by the Holder
     of such beneficial interests in the Restricted Global Notes.  Upon
     satisfaction of all of the requirements for transfer or exchange of
     beneficial interests in Global Notes contained in this Indenture and the
     Notes or otherwise applicable under the Securities Act, the Trustee shall
     adjust the principal amount of the relevant Global Note(s) pursuant to
     Section 2.06(h) hereof.

          (iii)  Transfer of Beneficial Interests to Another Restricted
     Global Note.  A beneficial interest in any Restricted Global Note may be
     transferred to a Person who takes delivery thereof in the form of a
     beneficial interest in another Restricted Global Note if the transfer
     complies with the requirements of Section 2.06(b)(ii) above and the
     Registrar receives the following:

                 (A) if the transferee will take delivery in the form of a
          beneficial interest in the 144A Global Note, then the transferor must
          deliver a certificate in the form of Exhibit B hereto, including the
          certifications in item (1) thereof;

                 (B) if the transferee will take delivery in the form of a
          beneficial interest in the Regulation S Temporary Global Note or the
          Regulation S Global Note, then the transferor must deliver a
          certificate in the form of Exhibit B hereto, including the
          certifications in item (2) thereof; and

 
                                     -32-

                 (C) if the transferee will take delivery in the form of a
          beneficial interest in the IAI Global Note, then the transferor must
          deliver a certificate in the form of Exhibit B hereto, including the
          certifications and certificates and Opinion of Counsel required by
          item (3) thereof, if applicable.

          (iv)   Transfer and Exchange of Beneficial Interests in a Restricted
     Global Note for Beneficial Interests in the Unrestricted Global Note.  A
     beneficial interest in any Restricted Global Note may be exchanged by any
     holder thereof for a beneficial interest in an Unrestricted Global Note or
     transferred to a Person who takes delivery thereof in the form of a
     beneficial interest in an Unrestricted Global Note if the exchange or
     transfer complies with the requirements of Section 2.06(b)(ii) above and:

                 (A) such exchange or transfer is effected pursuant to the
          Exchange Offer in accordance with the Registration Rights Agreement
          and the holder of the beneficial interest to be transferred, in the
          case of an exchange, or the transferee, in the case of a transfer,
          certifies in the applicable Letter of Transmittal that it is not (1) a
          broker-dealer, (2) a Person participating in the distribution of the
          Exchange Notes or (3) a Person who is an affiliate (as defined in Rule
          144) of the Issuers;

                 (B) such transfer is effected pursuant to the Shelf
          Registration Statement in accordance with the Registration Rights
          Agreement;

                 (C) such transfer is effected by a Participating Broker-Dealer
          pursuant to the Exchange Offer Registration Statement in accordance
          with the Registration Rights Agreement; or

                 (D) the Registrar receives the following:

                     (1) if the holder of such beneficial interest in a
                 Restricted Global Note proposes to exchange such beneficial
                 interest for a beneficial interest in an Unrestricted Global
                 Note, a certificate from such holder in the form of Exhibit C
                 hereto, including the certifications in item (1)(a) thereof; or

                     (2) if the holder of such beneficial interest in a
                 Restricted Global Note proposes to transfer such beneficial
                 interest to a Person who shall take delivery thereof in the
                 form of a beneficial interest in an Unrestricted Global Note, a
                 certificate from such holder in the

 
                                     -33-

                 form of Exhibit B hereto, including the certifications in item
                 (4) thereof;

          and, in each such case set forth in this subparagraph (D), if the
          Registrar so requests or if the Applicable Procedures so require, an
          Opinion of Counsel in form reasonably acceptable to the Registrar to
          the effect that such exchange or transfer is in compliance with the
          Securities Act and that the restrictions on transfer contained herein
          and in the Private Placement Legend are no longer required in order to
          maintain compliance with the Securities Act.

                 If any such transfer is effected pursuant to subparagraph (B)
or (D) above at a time when an Unrestricted Global Note has not yet been issued,
the Issuers shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.

                 Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.

              (c)     Transfer or Exchange of Beneficial Interests for
Definitive Notes.

                 (i)  Beneficial Interests in Restricted Global Notes to
     Restricted Definitive Notes. If any holder of a beneficial interest in a
     Restricted Global Note proposes to exchange such beneficial interest for a
     Restricted Definitive Note or to transfer such beneficial interest to a
     Person who takes delivery thereof in the form of a Restricted Definitive
     Note, then, upon receipt by the Registrar of the following documentation:

                      (A)  if the holder of such beneficial interest in a
          Restricted Global Note proposes to exchange such beneficial interest
          for a Restricted Definitive Note, a certificate from such holder in
          the form of Exhibit C hereto, including the certifications in item
          (2)(a) thereof;

                      (B)  if such beneficial interest is being transferred to a
          QIB in accordance with Rule 144A under the Securities Act, a
          certificate to the effect set forth in Exhibit B hereto, including the
          certifications in item (1) thereof;

                      (C)  if such beneficial interest is being transferred to a
          Non-U.S. Person in an offshore transaction in accordance with Rule 903
          or Rule 904

 
                                     -34-

          under the Securities Act, a certificate to the effect set forth in
          Exhibit B hereto, including the certifications in item (2) thereof;

                 (D) if such beneficial interest is being transferred pursuant
          to an exemption from the registration requirements of the Securities
          Act in accordance with Rule 144 under the Securities Act, a
          certificate to the effect set forth in Exhibit B hereto, including the
          certifications in item (3)(a) thereof;

                 (E) if such beneficial interest is being transferred to an
          Institutional Accredited Investor in reliance on an exemption from the
          registration requirements of the Securities Act other than those
          listed in subparagraphs (B) through (D) above, a certificate to the
          effect set forth in Exhibit B hereto, including the certifications,
          certificates and Opinion of Counsel required by item (3) thereof, if
          applicable;

                 (F) if such beneficial interest is being transferred to the
          Issuers or any of their Subsidiaries, a certificate to the effect set
          forth in Exhibit B hereto, including the certifications in item (3)(b)
          thereof; or

                 (G) if such beneficial interest is being transferred pursuant
          to an effective registration statement under the Securities Act, a
          certificate to the effect set forth in Exhibit B hereto, including the
          certifications in item (3)(c) thereof,

     the Trustee shall cause the aggregate principal amount of the applicable
     Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof,
     and the Issuers shall execute and the Trustee shall authenticate and
     deliver to the Person designated in the instructions a Definitive Note in
     the appropriate principal amount.  Any Definitive Note issued in exchange
     for a beneficial interest in a Restricted Global Note pursuant to this
     Section 2.06(c) shall be registered in such name or names and in such
     authorized denomination or denominations as the holder of such beneficial
     interest shall instruct the Registrar through instructions from the
     Depositary and the Participant or Indirect Participant.  The Trustee shall
     deliver such Definitive Notes to the Persons in whose names such Notes are
     so registered.  Any Definitive Note issued in exchange for a beneficial
     interest in a Restricted Global Note pursuant to this Section 2.06(c)(i)
     shall bear the Private Placement Legend and shall be subject to all
     restrictions on transfer contained therein.

          (ii)   Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a
beneficial interest in the Regulation S Temporary Global Note may not be
exchanged for a Definitive Note or transferred to a Person who takes delivery
thereof in the form of a Definitive Note

 
                                     -35-

prior to (x) the expiration of the Restricted Period and (y) the receipt by the
Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B) under
the Securities Act, except in the case of a transfer pursuant to an exemption
from the registration requirements of the Securities Act other than Rule 903 or
Rule 904.

          (ii)   Beneficial Interests in Restricted Global Notes to
     Unrestricted Definitive Notes.  A holder of a beneficial interest in a
     Restricted Global Note may exchange such beneficial interest for an
     Unrestricted Definitive Note or may transfer such beneficial interest to a
     Person who takes delivery thereof in the form of an Unrestricted Definitive
     Note only if:

                 (A) such exchange or transfer is effected pursuant to the
          Exchange Offer in accordance with the Registration Rights Agreement
          and the holder of such beneficial interest, in the case of an
          exchange, or the transferee, in the case of a transfer, certifies in
          the applicable Letter of Transmittal that it is not (1) a broker-
          dealer, (2) a Person participating in the distribution of the Exchange
          Notes or (3) a Person who is an affiliate (as defined in Rule 144) of
          the Issuers;

                 (B) such transfer is effected pursuant to the Shelf
          Registration Statement in accordance with the Registration Rights
          Agreement;

                 (C) such transfer is effected by a Participating Broker-Dealer
          pursuant to the Exchange Offer Registration Statement in accordance
          with the Registration Rights Agreement; or

                 (D) the Registrar receives the following:

                     (1) if the holder of such beneficial interest in a
                 Restricted Global Note proposes to exchange such beneficial
                 interest for a Definitive Note that does not bear the Private
                 Placement Legend, a certificate from such holder in the form of
                 Exhibit C hereto, including the certifications in item (1)(b)
                 thereof; or

                     (2) if the holder of such beneficial interest in a
                 Restricted Global Note proposes to transfer such beneficial
                 interest to a Person who shall take delivery thereof in the
                 form of a Definitive Note that does not bear the Private
                 Placement Legend, a certificate from such holder in the form of
                 Exhibit B hereto, including the certifications in item (4)
                 thereof;

 
                                     -36-

     and, in each such case set forth in this subparagraph (D), if the Registrar
     so requests or if the Applicable Procedures so require, an Opinion of
     Counsel in form reasonably acceptable to the Registrar to the effect that
     such exchange or transfer is in compliance with the Securities Act and that
     the restrictions on transfer contained herein and in the Private Placement
     Legend are no longer required in order to maintain compliance with the
     Securities Act.

          (i) Beneficial Interests in Unrestricted Global Notes to
     Unrestricted Definitive Notes.  If any holder of a beneficial interest in
     an Unrestricted Global Note proposes to exchange such beneficial interest
     for a Definitive Note or to transfer such beneficial interest to a Person
     who takes delivery thereof in the form of a Definitive Note, then, upon
     satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof, the
     Trustee shall cause the aggregate principal amount of the applicable Global
     Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the
     Issuers shall execute and the Trustee shall authenticate and deliver to the
     Person designated in the instructions a Definitive Note in the appropriate
     principal amount.  Any Definitive Note issued in exchange for a beneficial
     interest pursuant to this Section 2.06(c)(iii) shall be registered in such
     name or names and in such authorized denomination or denominations as the
     holder of such beneficial interest shall instruct the Registrar through
     instructions from the Depositary and the Participant or Indirect
     Participant.  The Trustee shall deliver such Definitive Notes to the
     Persons in whose names such Notes are so registered.  Any Definitive Note
     issued in exchange for a beneficial interest pursuant to this Section
     2.06(c)(iii) shall not bear the Private Placement Legend.

          (d)    Transfer and Exchange of Definitive Notes for Beneficial
     Interests.

             (i) Restricted Definitive Notes to Beneficial Interests in
     Restricted Global Notes.  If any Holder of a Restricted Definitive Note
     proposes to exchange such Note for a beneficial interest in a Restricted
     Global Note or to transfer such Restricted Definitive Notes to a Person who
     takes delivery thereof in the form of a beneficial interest in a Restricted
     Global Note, then, upon receipt by the Registrar of the following
     documentation:

                 (A) if the Holder of such Restricted Definitive Note proposes
          to exchange such Note for a beneficial interest in a Restricted Global
          Note, a certificate from such Holder in the form of Exhibit C hereto,
          including the certifications in item (2)(b) thereof;

                 (B) if such Restricted Definitive Note is being transferred to
          a QIB in accordance with Rule 144A under the Securities Act, a
          certificate to the

 
                                     -37-

          effect set forth in Exhibit B hereto, including the certifications in
          item (1) thereof;

                 (C) if such Restricted Definitive Note is being transferred
          to a Non-U.S. Person in an offshore transaction in accordance with
          Rule 903 or Rule 904 under the Securities Act, a certificate to the
          effect set forth in Exhibit B hereto, including the certifications in
          item (2) thereof ;

                 (D) if such Restricted Definitive Note is being transferred
          pursuant to an exemption from the registration requirements of the
          Securities Act in accordance with Rule 144 under the Securities Act, a
          certificate to the effect set forth in Exhibit B hereto, including the
          certifications in item (3)(a) thereof;

                 (E) if such Restricted Definitive Note is being transferred to
          an Institutional Accredited Investor in reliance on an exemption from
          the registration requirements of the Securities Act other than those
          listed in subparagraphs (B) through (D) above, a certificate to the
          effect set forth in Exhibit B hereto, including the certifications,
          certificates and Opinion of Counsel required by item (3) thereof, if
          applicable;

                 (F) if such Restricted Definitive Note is being transferred to
          the Issuers or any of their Subsidiaries, a certificate to the effect
          set forth in Exhibit B hereto, including the certifications in item
          (3)(b) thereof; or

                 (G) if such Restricted Definitive Note is being transferred
          pursuant to an effective registration statement under the Securities
          Act, a certificate to the effect set forth in Exhibit B hereto,
          including the certifications in item (3)(c) thereof,

     the Trustee shall cancel the Restricted Definitive Note, increase or cause
     to be increased the aggregate principal amount of, in the case of clause
     (A) above, the appropriate Restricted Global Note, in the case of clause
     (B) above, the 144A Global Note, in the case of clause (c) above, the
     Regulation S Global Note, and in all other cases, the IAI Global Note.

          (ii)   Restricted Definitive Notes to Beneficial Interests in
     Unrestricted Global Notes.  A Holder of a Restricted Definitive Note may
     exchange such Note for a beneficial interest in an Unrestricted Global Note
     or transfer such Restricted Definitive Note to a Person who takes delivery
     thereof in the form of a beneficial interest in an Unrestricted Global Note
     only if:

 
                                     -38-

               (A) such exchange or transfer is effected pursuant to the
          Exchange Offer in accordance with the Registration Rights Agreement
          and the Holder, in the case of an exchange, or the transferee, in the
          case of a transfer, certifies in the applicable Letter of Transmittal
          that it is not (1) a broker-dealer, (2) a Person participating in the
          distribution of the Exchange Notes or (3) a Person who is an affiliate
          (as defined in Rule 144) of the Issuers;

               (B) such transfer is effected pursuant to the Shelf Registration
          Statement in accordance with the Registration Rights Agreement;

               (C) such transfer is effected by a Participating Broker-Dealer
          pursuant to the Exchange Offer Registration Statement in accordance
          with the Registration Rights Agreement; or

               (D) the Registrar receives the following:

                   (1) if the Holder of such Definitive Notes proposes to
               exchange such Notes for a beneficial interest in the Unrestricted
               Global Note, a certificate from such Holder in the form of
               Exhibit C hereto, including the certifications in item (1)(c)
               thereof; or

                   (2) if the Holder of such Definitive Notes proposes to
               transfer such Notes to a Person who shall take delivery thereof
               in the form of a beneficial interest in the Unrestricted Global
               Note, a certificate from such Holder in the form of Exhibit B
               hereto, including the certifications in item (4) thereof;

     and, in each such case set forth in this subparagraph (D), if the Registrar
     so requests or if the Applicable Procedures so require, an Opinion of
     Counsel in form reasonably acceptable to the Registrar to the effect that
     such exchange or transfer is in compliance with the Securities Act and that
     the restrictions on transfer contained herein and in the Private Placement
     Legend are no longer required in order to maintain compliance with the
     Securities Act.

     Upon satisfaction of the conditions of any of the subparagraphs in this
     Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and
     increase or cause to be increased the aggregate principal amount of the
     Unrestricted Global Note.

          (iii)  Unrestricted Definitive Notes to Beneficial Interests in
     Unrestricted Global Notes.  A Holder of an Unrestricted Definitive Note may
     exchange such Note for a beneficial interest in an Unrestricted Global Note
     or transfer such Defini-

 
                                     -39-

     tive Notes to a Person who takes delivery thereof in the form of a
     beneficial interest in an Unrestricted Global Note at any time. Upon
     receipt of a request for such an exchange or transfer, the Trustee shall
     cancel the applicable Unrestricted Definitive Note and increase or cause to
     be increased the aggregate principal amount of one of the Unrestricted
     Global Notes.

          If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or
(iii) above at a time when an Unrestricted Global Note has not yet been issued,
the Issuers shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of Definitive Notes so transferred.

          (e)    Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such Holder's compliance with
the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Notes.  Prior to such registration of
transfer or exchange, the requesting Holder shall present or surrender to the
Registrar the Definitive Notes duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Registrar duly executed by
such Holder or by its attorney, duly authorized in writing.  In addition, the
requesting Holder shall provide any additional certifications, documents and
information, as applicable, required pursuant to the following provisions of
this Section 2.06(e).

          (i)    Restricted Definitive Notes to Restricted Definitive Notes. Any
     Restricted Definitive Note may be transferred to and registered in the name
     of Persons who take delivery thereof in the form of a Restricted Definitive
     Note if the Registrar receives the following:

                 (A) if the transfer will be made pursuant to Rule 144A under
          the Securities Act, then the transferor must deliver a certificate in
          the form of Exhibit B hereto, including the certifications in item (1)
          thereof ;

                 (B) if the transfer will be made pursuant to Rule 903 or Rule
          904, then the transferor must deliver a certificate in the form of
          Exhibit B hereto, including the certifications in item (2) thereof;
          and

                 (C) if the transfer will be made pursuant to any other
          exemption from the registration requirements of the Securities Act,
          then the transferor must deliver a certificate in the form of Exhibit
          B hereto, including the certifications, certificates and Opinion of
          Counsel required by item (3) thereof, if applicable.

 
                                     -40-

          (ii)   Restricted Definitive Notes to Unrestricted Definitive Notes.
     Any Restricted Definitive Note may be exchanged by the Holder thereof for
     an Unrestricted Definitive Note or transferred to a Person or Persons who
     take delivery thereof in the form of an Unrestricted Definitive Note if:

                 (A) such exchange or transfer is effected pursuant to the
          Exchange Offer in accordance with the Registration Rights Agreement
          and the Holder, in the case of an exchange, or the transferee, in the
          case of a transfer, certifies in the applicable Letter of Transmittal
          that it is not (1) a broker-dealer, (2) a Person participating in the
          distribution of the Exchange Notes or (3) a Person who is an affiliate
          (as defined in Rule 144) of the Issuers;

                 (B) any such transfer is effected pursuant to the Shelf
          Registration Statement in accordance with the Registration Rights
          Agreement;

                 (C) any such transfer is effected by a Participating Broker-
          Dealer pursuant to the Exchange Offer Registration Statement in
          accordance with the Registration Rights Agreement; or

                 (D) the Registrar receives the following:

                     (1) if the Holder of such Restricted Definitive Notes
                 proposes to exchange such Notes for an Unrestricted Definitive
                 Note, a certificate from such Holder in the form of Exhibit C
                 hereto, including the certifications in item (1)(d) thereof; or

                     (2) if the Holder of such Restricted Definitive Notes
                 proposes to transfer such Notes to a Person who shall take
                 delivery thereof in the form of an Unrestricted Definitive
                 Note, a certificate from such Holder in the form of Exhibit B
                 hereto, including the certifications in item (4) thereof;

     and, in each such case set forth in this subparagraph (D), if the Registrar
     so requests, an Opinion of Counsel in form reasonably acceptable to the
     Issuers to the effect that such exchange or transfer is in compliance with
     the Securities Act and that the restrictions on transfer contained herein
     and in the Private Placement Legend are no longer required in order to
     maintain compliance with the Securities Act.

          (iii)  Unrestricted Definitive Notes to Unrestricted Definitive Notes.
     A Holder of Unrestricted Definitive Notes may transfer such Notes to a
     Person who takes delivery thereof in the form of an Unrestricted Definitive
     Note. Upon receipt

 
                                     -41-

     of a request to register such a transfer, the Registrar shall register the
     Unrestricted Definitive Notes pursuant to the instructions from the Holder
     thereof.

          (f)    Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Issuers shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons that
certify in the applicable Letters of Transmittal that (x) they are not broker-
dealers, (y) they are not participating in a distribution of the Exchange Notes
and (z) they are not affiliates (as defined in Rule 144) of the Issuers, and
accepted for exchange in the Exchange Offer and (ii) Definitive Notes in an
aggregate principal amount equal to the principal amount of the Restricted
Definitive Notes accepted for exchange in the Exchange Offer.  Concurrently with
the issuance of such Notes, the Trustee shall cause the aggregate principal
amount of the applicable Restricted Global Notes to be reduced accordingly, and
the Issuers shall execute and the Trustee shall authenticate and deliver to the
Persons designated by the Holders of Definitive Notes so accepted Definitive
Notes in the appropriate principal amount.

          (g)    Legends. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.

          (i)    Private Placement Legend.

                 (A) Except as permitted by subparagraph (B) below, each Global
          Note and each Definitive Note (and all Notes issued in exchange
          therefor or substitution thereof) shall bear the legend in
          substantially the following form:

     THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
     AMENDED (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD,
     PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
     REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM
     THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (SUBJECT TO THE
     DELIVERY OF SUCH EVIDENCE, IF ANY REQUIRED UNDER THE INDENTURE PURSUANT TO
     WHICH THIS NOTE IS ISSUED) AND IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
     LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION. EACH
     HOLDER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NO-

 
                                     -42-

     TIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS
     OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR
     ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE SECURITY
     EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY AND OLD AEI THAT (A)
     SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1)(a)
     TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
     BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION
     MEETING THE REQUIREMENTS OF RULE 144A, (B) IN A TRANSACTION MEETING THE
     REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED
     STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF
     RULE 904 UNDER THE SECURITIES ACT OR (D) IN ACCORDANCE WITH ANOTHER
     EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND
     BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), AS LONG AS
     THE REGISTRAR RECEIVES A CERTIFICATION OF THE TRANSFEROR AND AN OPINION OF
     COUNSEL THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (2) TO
     THE COMPANY AND OLD AEI OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
     STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
     LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION
     AND (B) THE HOLDER WILL AND EACH SUBSEQUENT HOLDER IS REQUIRED TO NOTIFY
     ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
     RESTRICTION SET FORTH IN (A) ABOVE.

                 (B) Notwithstanding the foregoing, any Global Note or
          Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(ii),
          (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section
          2.06 (and all Notes issued in exchange therefor or substitution
          thereof) shall not bear the Private Placement Legend.

          (ii)   Global Note Legend. Each Global Note shall bear a legend in
     substantially the following form:

     "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
     GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
     BENEFICIAL OWNERS

 
                                     -43-

     HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
     EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE
     REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE
     MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF
     THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR
     CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL
     NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN
     CONSENT OF AEI RESOURCES, INC. AND AEI HOLDING COMPANY, INC."

          (iii)  Regulation S Temporary Global Note Legend. The Regulation S
     Temporary Global Note shall bear a legend in substantially the following
     form:

     "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
     CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES,
     ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER
     NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL
     BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON."

 
                                     -44-

          (h)    Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for or transferred to a Person who will take delivery thereof in
the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note, such other Global Note shall be increased accordingly
and an endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.

          (i)    General Provisions Relating to Transfers and Exchanges.

            (i)    To permit registrations of transfers and exchanges, the
     Issuers shall execute and the Trustee shall authenticate Global Notes and
     Definitive Notes upon the Issuers' order or at the Registrar's request.

            (ii)   No service charge shall be made to a holder of a beneficial
     interest in a Global Note or to a Holder of a Definitive Note for any
     registration of transfer or exchange, but the Issuers may require payment
     of a sum sufficient to cover any transfer tax or similar governmental
     charge payable in connection therewith (other than any such transfer taxes
     or similar governmental charge payable upon exchange or transfer pursuant
     to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).

            (iii)  The Registrar shall not be required to register the transfer
     of or exchange any Note selected for redemption in whole or in part, except
     the unredeemed portion of any Note being redeemed in part.

            (iv)   All Global Notes and Definitive Notes issued upon any
     registration of transfer or exchange of Global Notes or Definitive Notes
     shall be the valid obligations of the Issuers, evidencing the same debt,
     and entitled to the same benefits under this Indenture, as the Global Notes
     or Definitive Notes surrendered upon such registration of transfer or
     exchange.

            (v)    The Issuers shall not be required (A) to issue, to register
     the transfer of or to exchange any Notes during a period beginning at the
     opening of business 15 days before the day of any selection of Notes for
     redemption under Section 3.02

 
                                     -45-

     hereof and ending at the close of business on the day of selection, (B) to
     register the transfer of or to exchange any Note so selected for redemption
     in whole or in part, except the unredeemed portion of any Note being
     redeemed in part or (c) to register the transfer of or to exchange a Note
     between a record date and the next succeeding Interest Payment Date.

          (vi)   Prior to due presentment for the registration of a transfer of
     any Note, the Trustee, any Agent and the Issuers may deem and treat the
     Person in whose name any Note is registered as the absolute owner of such
     Note for the purpose of receiving payment of principal of and interest on
     such Notes and for all other purposes, and none of the Trustee, any Agent
     or the Issuers shall be affected by notice to the contrary.

          (vii)  The Trustee shall authenticate Global Notes and Definitive
     Notes in accordance with the provisions of Section 2.02 hereof.

          (viii) All certifications, certificates and Opinions of Counsel
     required to be submitted to the Registrar pursuant to this Section 2.06 to
     effect a registration of transfer or exchange may be submitted by
     facsimile.

          SECTION 2.07.  Replacement Notes.
                         ----------------- 

          If any mutilated Note is surrendered to the Trustee or either Issuer
and the Trustee receives evidence to its satisfaction of the destruction, loss
or theft of any Note, the Issuers shall issue and the Trustee, upon receipt of
an Authentication Order, shall authenticate a replacement Note if the Trustee's
requirements are met.  If required by the Trustee or the Issuers, an indemnity
bond must be supplied by the Holder that is sufficient in the judgment of the
Trustee and the Issuers to protect the Issuers, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Note is
replaced.  The Issuers may charge for their expenses in replacing a Note.

          Every replacement Note is an additional obligation of the Issuers and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.

          SECTION 2.08.  Outstanding Notes.
                         ----------------- 

          The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding.  Except as set forth in

 
                                     -46-

Section 2.09 hereof, a Note does not cease to be outstanding because the Issuers
or an Affiliate of the Issuers holds the Note; however, Notes held by the
Issuers or a Subsidiary of the Issuers shall not be deemed to be outstanding for
purposes of Section 3.07(b) hereof.

          If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.

          If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.

          If the Paying Agent (other than the Issuers, a Subsidiary of the
Issuers or an Affiliate of any thereof) holds, on a redemption date or maturity
date, money sufficient to pay Notes payable on that date, then on and after that
date such Notes shall be deemed to be no longer outstanding and shall cease to
accrue interest.

          SECTION 2.09.  Treasury Notes.
                         -------------- 

          In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Issuers, or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Issuers, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that the Trustee actually knows are so owned shall be so disregarded.

          SECTION 2.10.  Temporary Notes.
                         --------------- 

          Until certificates representing Notes are ready for delivery, the
Issuers may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes.  Temporary Notes shall be substantially in
the form of certificated Notes but may have variations that the Issuers consider
appropriate for temporary Notes and as shall be reasonably acceptable to the
Trustee.  Without unreasonable delay, the Issuers shall prepare and the Trustee
shall authenticate definitive Notes in exchange for temporary Notes.

          Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.

          SECTION 2.11.  Cancellation.
                         ------------ 

          The Issuers at any time may deliver Notes to the Trustee for
cancellation.  The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them 

 
                                     -47-

for registration of transfer, exchange or payment. The Trustee and no one else
shall cancel all Notes surrendered for registration of transfer, exchange,
payment, replacement or cancellation and shall destroy canceled Notes (subject
to the record retention requirement of the Exchange Act). Certification of the
destruction of all canceled Notes shall be delivered to the Issuers. The Issuers
may not issue new Notes to replace Notes that they have paid or that have been
delivered to the Trustee for cancellation.

          SECTION 2.12.  Defaulted Interest.
                         ------------------ 

          If the Issuers default in a payment of interest on the Notes, they
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof.  The Issuers shall notify the Trustee
in writing of the amount of defaulted interest proposed to be paid on each Note
and the date of the proposed payment.  The Issuers shall fix or cause to be
fixed each such special record date and payment date, provided that no such
special record date shall be less than 10 days prior to the related payment date
for such defaulted interest.  At least 15 days before the special record date,
the Issuers (or, upon the written request of the Issuers, the Trustee in the
name and at the expense of the Issuers) shall mail or cause to be mailed to
Holders a notice that states the special record date, the related payment date
and the amount of such interest to be paid.

                                 ARTICLE THREE

                           REDEMPTION AND PREPAYMENT

          SECTION 3.01.  Notices to Trustee.
                         ------------------ 

          If the Issuers elect to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, they each shall furnish to the
Trustee, at least 35 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Notes to be redeemed and (iv) the redemption price.

          SECTION 3.02.  Selection of Notes to Be Redeemed.
                         --------------------------------- 

          If less than all of the Notes are to be redeemed or purchased in an
offer to purchase at any time, the Trustee shall select the Notes to be redeemed
or purchased among the Holders of the Notes in compliance with the requirements
of the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not so listed, on a 

 
                                     -48-

pro rata basis, by lot or in accordance with any other method the Trustee
considers fair and appropriate. In the event of partial redemption by lot, the
particular Notes to be redeemed shall be selected, unless otherwise provided
herein, not less than 30 nor more than 60 days prior to the redemption date by
the Trustee from the outstanding Notes not previously called for redemption.

          The Trustee shall promptly notify the Issuers in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed.  Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000 except
that if all of the Notes of a Holder are to be redeemed, the entire outstanding
amount of Notes held by such Holder, even if not a multiple of $1,000, shall be
redeemed.  Except as provided in the preceding sentence, provisions of this
Indenture that apply to Notes called for redemption also apply to portions of
Notes called for redemption.

          SECTION 3.03.  Notice of Redemption.
                         -------------------- 

          Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date, the Issuers shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address.

          The notice shall identify the Notes to be redeemed and shall state:

          (a)  the redemption date;

          (b)  the redemption price;

          (c)  if any Note is being redeemed in part, the portion of the
     principal amount of such Note to be redeemed and that, after the redemption
     date upon surrender of such Note, a new Note or Notes in principal amount
     equal to the unredeemed portion shall be issued upon cancellation of the
     original Note;

          (d)  the name and address of the Paying Agent;

          (e)  that Notes called for redemption must be surrendered to the
     Paying Agent to collect the redemption price;

          (f)  that, unless the Issuers default in making such redemption
     payment, interest on Notes called for redemption ceases to accrue on and
     after the redemption date;

 
                                     -49-

          (g)  the paragraph of the Notes and/or Section of this Indenture
     pursuant to which the Notes called for redemption are being redeemed; and

          (h)  that no representation is made as to the correctness or accuracy
     of the CUSIP number, if any, listed in such notice or printed on the Notes.

          At the Issuers' request, the Trustee shall give the notice of
redemption in the Issuers' names and at the Issuers' expense; provided, however,
that each of the Issuers shall have delivered to the Trustee, at least 45 days
prior to the redemption date, an Officers' Certificate requesting that the
Trustee give such notice and setting forth the information to be stated in such
notice as provided in the preceding paragraph.

          SECTION 3.04.  Effect of Notice of Redemption.
                         ------------------------------ 

          Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price.  A notice of redemption may not be
conditional.

          SECTION 3.05.  Deposit of Redemption Price.
                         --------------------------- 

          One Business Day prior to the redemption date, the Issuers shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on all Notes to be redeemed on that
date.  The Trustee or the Paying Agent shall promptly return to the Issuers any
money deposited with the Trustee or the Paying Agent by the Issuers in excess of
the amounts necessary to pay the redemption price of, and accrued interest on,
all Notes to be redeemed.

          If the Issuers comply with the provisions of the preceding paragraph,
on and after the redemption date, interest shall cease to accrue on the Notes or
the portions of Notes called for redemption.  If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such record date.  If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Issuers to comply with the preceding paragraph,
interest shall be paid on the unpaid principal, from the redemption date until
such principal is paid, and to the extent lawful on any interest not paid on
such unpaid principal, in each case at the rate provided in the Notes and in
Section 4.01 hereof.

          SECTION 3.06.  Notes Redeemed in Part.
                         ---------------------- 

          Upon surrender of a Note that is redeemed in part, the Issuers shall
issue and, upon the Issuers' written request, the Trustee shall authenticate for
the Holder at the 

 
                                     -50-

expense of the Issuers a new Note equal in principal amount to the unredeemed
portion of the Note surrendered.

          SECTION 3.07.  Optional Redemption.
                         ------------------- 

          (a) The Notes will be subject to redemption at any time at the option
of the Company, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages
thereon to the applicable redemption date if redeemed during the twelve-month
period beginning on each December 15 of the years indicated below:

 
 
          YEAR                          PERCENTAGE
          ----                          ----------
                                      
          2002.......................   105.250%
          2003.......................   103.500%
          2004 and thereafter........   101.750%
 

          In addition, prior to December 15, 2002, the Notes will be redeemable
at a price equal to 100% of the principal amount thereof plus an applicable Make
Whole Premium, plus, to the extent not included in the Make Whole Premium,
accrued and unpaid interest and Liquidated Damages, if any, to the date of
redemption.

          For purposes of the foregoing, the "Make Whole Premium" means, with
respect to a Note, an amount equal to the greater of (A) the redemption price of
such Note on December 15, 2002 and (B) the excess of, if any, (1) the present
value of the remaining interest, premium, if any, and principal payments due on
such Note as if such Note were redeemed on December 15, 2002, computed using a
discount rate equal to the Treasury Rate plus 50 basis points, over (2) the
outstanding principal amount of such Note.

          "Treasury Rate" means the yield to maturity at the time of computation
of United States Treasury securities with a constant maturity (as compiled by,
and published in, the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the date
fixed for redemption of the Notes (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the then remaining Weighted Average Life to Maturity of the Notes;
provided, however, that if the Weighted Average Life to Maturity of the Notes is
not equal to the constant maturity of a United States Treasury security for
which a weekly average yield is given, the Treasury Rate shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such yields
are given, except that if the Weighted Average Life to Maturity of the Notes is
less than one year, the weekly average 

 
                                      51-

yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.

          (b)  Notwithstanding the foregoing, at any time on or before December
15, 2000, the Company may on any one or more occasions redeem up to 35% of the
aggregate principal amount of Notes ever issued under this Indenture at a
redemption price equal to the principal amount thereof plus a premium equal to
110 1/2% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the redemption date, with the net cash
proceeds of an initial public offering of common stock of the Company or
Holdings (to the extent that the net proceeds therefrom are contributed to the
Company as common equity capital); provided that at least 65% of the aggregate
principal amount of Notes issued on the date of this Indenture remains
outstanding immediately after the occurrence of such redemption (excluding Notes
held by Holdings or the Company and their Subsidiaries) and provided, further,
that such redemption shall occur within 45 days of the date of the closing of
such initial public offering.

          (c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.

          SECTION 3.08.  Mandatory Redemption.
                         -------------------- 

          The Issuers shall not be required to make mandatory redemption
payments with respect to the Notes.

          SECTION 3.09.  Offer to Purchase by Application of Excess Proceeds.
                         ---------------------------------------------------

          In the event that, pursuant to Section 4.10 hereof, the Issuers shall
be required to commence an offer to all Holders to purchase Notes (an "Asset
Sale Offer"), they shall follow the procedures specified below.

          The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period").  No later than
five Business Days after the termination of the Offer Period (the "Purchase
Date"), the Issuers shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer.  Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.

 
                                     -52-

          If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.

          Upon the commencement of an Asset Sale Offer, the Issuers shall send,
by first class mail, a notice to the Trustee and each of the Holders.  The
notice shall contain all instructions and materials necessary to enable such
Holders to tender Notes pursuant to the Asset Sale Offer.  The Asset Sale Offer
shall be made to all Holders.  The notice, which shall govern the terms of the
Asset Sale Offer, shall state:

          (a) that the Asset Sale Offer is being made pursuant to this Section
     3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer
     shall remain open;

          (b) the Offer Amount, the purchase price and the Purchase Date;

          (c) that any Note not tendered or accepted for payment shall continue
     to accrue interest;

          (d) that, unless the Issuers default in making such payment, any Note
     accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
     interest after the Purchase Date;

          (e) that Holders electing to have a Note purchased pursuant to an
     Asset Sale Offer may only elect to have all of such Note purchased and may
     not elect to have only a portion of such Note purchased;

          (f) that Holders electing to have a Note purchased pursuant to any
     Asset Sale Offer shall be required to surrender the Note, with the form
     entitled "Option of Holder to Elect Purchase" on the reverse of the Note
     completed, or transfer by book-entry transfer, to the Issuers, a
     depositary, if appointed by the Issuers, or a Paying Agent at the address
     specified in the notice at least three days before the Purchase Date;

          (g) that Holders shall be entitled to withdraw their election if the
     Issuers, the depositary or the Paying Agent, as the case may be, receives,
     not later than the expiration of the Offer Period, a telegram, telex,
     facsimile transmission or letter setting forth the name of the Holder, the
     principal amount of the Note the Holder 

 
                                     -53-

     delivered for purchase and a statement that such Holder is withdrawing his
     election to have such Note purchased;

          (h) that, if the aggregate principal amount of Notes surrendered by
     Holders exceeds the Offer Amount, the Issuers shall select the Notes to be
     purchased on a pro rata basis (with such adjustments as may be deemed
     appropriate by the Issuers so that only Notes in denominations of $1,000,
     or integral multiples thereof, shall be purchased); and

          (i) that Holders whose Notes were purchased only in part shall be
     issued new Notes equal in principal amount to the unpurchased portion of
     the Notes surrendered (or transferred by book-entry transfer).

          On or before the Purchase Date, the Issuers shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and each shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Issuers in accordance
with the terms of this Section 3.09.  The Issuers, the Depositary or the Paying
Agent, as the case may be, shall promptly (but in any case not later than five
days after the Purchase Date) mail or deliver to each tendering Holder an amount
equal to the purchase price of the Notes tendered by such Holder and accepted by
the Issuers for purchase, and the Issuers shall promptly issue a new Note, and
the Trustee, upon written request from the Issuers shall authenticate and mail
or deliver such new Note to such Holder, in a principal amount equal to any
unpurchased portion of the Note surrendered.  Any Note not so accepted shall be
promptly mailed or delivered by the Issuers to the Holder thereof.  The Issuers
shall publicly announce the results of the Asset Sale Offer on the Purchase
Date.

          Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.

 
                                     -54-

                                 ARTICLE FOUR

                                   COVENANTS

          SECTION 4.01. Payment of Notes.
                        ---------------- 

          The Issuers shall pay or cause to be paid the principal of, premium,
if any, and interest on the Notes on the dates and in the manner provided in the
Notes.  Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Issuers or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Issuers in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due.  The Issuers shall pay
all Liquidated Damages, if any, in the same manner on the dates and in the
amounts set forth in the Registration Rights Agreement.

          The Issuers shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in excess of the then applicable interest rate on the Notes to
the extent lawful; they shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace period) at the same
rate to the extent lawful.

          SECTION 4.02. Maintenance of Office or Agency.
                        ------------------------------- 

          Each Issuer shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Issuers in respect of the Notes and this Indenture may be
served.  The Issuers shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency.  If at any
time the Issuers shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.

          The Issuers may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Issuers of their obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes.

 
                                     -55-

The Issuers shall give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.

          The Issuers hereby designate the Corporate Trust Office of the Trustee
as one such office or agency of the Issuers in accordance with Section 2.03.

          SECTION 4.03. Reports.
                        ------- 

          (a) Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company shall furnish to
the Trustee and to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a ''Management's Discussion and Analysis of Financial Condition
and Results of Operations'' that describes the financial condition and results
of operations of the Company and its consolidated Subsidiaries (showing in
reasonable detail, either on the face of the financial statements or in the
footnotes thereto and in Management's Discussion and Analysis of Financial
Condition and Results of Operations, the financial condition and results of
operations of the Company and its Restricted Subsidiaries separate from the
financial condition and results of operations of the Unrestricted Subsidiaries
of the Company) and, with respect to the annual information only, a report
thereon by the Company's certified independent accountants and (ii) all current
reports that would be required to be filed with the Commission on Form 8-K if
the Company were required to file such reports, in each case within the time
periods specified in the Commission's rules and regulations. In addition,
whether or not required by the rules and regulations of the Commission, the
Company shall file a copy of all such information and reports with the
Commission for public availability within the time periods specified in the
Commission's rules and regulations (unless the Commission will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request.  The Issuers shall at all times comply with
TIA (S) 314(a).

          (b) In addition, the Company and the Subsidiary Guarantors have agreed
that, for so long as any Notes remain outstanding, they shall furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.

          SECTION 4.04. Compliance Certificate.
                        ---------------------- 

          (a) Each of the Issuers and each Guarantor (to the extent that such
Guarantor is so required under the TIA) shall deliver to the Trustee, within 90
days after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Issuers and their Subsidiaries during the
preceding fiscal year has been made under the supervi-

 
                                     -56-

sion of the signing Officers with a view to determining whether the Issuers have
kept, observed, performed and fulfilled their obligations under this Indenture,
and further stating, as to each such Officer signing such certificate, that to
the best of his or her knowledge the Issuers have kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and are not in
default in the performance or observance of any of the terms, provisions and
conditions of this Indenture (or, if a Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of which he or she
may have knowledge and what action the Issuers are taking or propose to take
with respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of or interest, if any, on the Notes is prohibited or if such event
has occurred, a description of the event and what action the Issuers are taking
or propose to take with respect thereto.

          (b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Issuers' independent public accountants (who shall be a
firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Issuers have violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.

          (c) Each of the Issuers shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith (and in no event more than five
Business Days after) upon any Officer becoming aware of any Default or Event of
Default, an Officers' Certificate specifying such Default or Event of Default
and what action the Issuers are taking or propose to take with respect thereto.

          SECTION 4.05. Taxes.
                        ----- 

          The Issuers shall pay, and shall cause each of their Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate proceedings
or where the failure to effect such payment is not adverse in any material
respect to the Holders of the Notes.

          SECTION 4.06. Stay, Extension and Usury Laws.
                        ------------------------------ 

          The Issuers and each of the Guarantors covenant (to the extent that
they may lawfully do so) that they shall not at any time insist upon, plead, or
in any manner whatso-

 
                                     -57-

ever claim or take the benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, that may affect the
covenants or the performance of this Indenture; and the Issuers and each of the
Guarantors (to the extent that they may lawfully do so) hereby expressly waive
all benefit or advantage of any such law, and covenants that they shall not, by
resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee, but shall suffer and permit the execution of
every such power as though no such law has been enacted.

          SECTION 4.07. Restricted Payments.
                        ------------------- 

          The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly make any Restricted Payment of the types
described in clauses (i) and (ii) of the definition of Restricted Payments prior
to the first anniversary of the date of this Indenture.  The Company shall not
at any time thereafter, and shall not permit any of its Restricted Subsidiaries
to, directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company or any of its
Restricted Subsidiaries) or to the direct or indirect holders of the Company's
or any of its Restricted Subsidiaries' Equity Interests in their capacity as
such (other than dividends or distributions payable in Equity Interests (other
than Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value (including, without limitation, in connection with
any merger or consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company; (iii) make any payment
on or with respect to, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated to the Notes or any
Subsidiary Guarantee, except a payment of interest or principal at Stated
Maturity; or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as ''Restricted Payments''), unless, at the time of and after giving effect
to such Restricted Payment:

          (a) no Default or Event of Default shall have occurred and be
     continuing or would occur as a consequence thereof; and

          (b) the Company would, at the time of such Restricted Payment and
     after giving pro forma effect thereto as if such Restricted Payment had
     been made at the beginning of the applicable four-quarter period, have been
     permitted to incur at least $1.00 of additional Indebtedness pursuant to
     the Fixed Charge Coverage Ratio test set forth in the first paragraph of
     Section 4.09; and

 
                                     -58-

          (c) such Restricted Payment, together with the aggregate amount of all
     other Restricted Payments made by the Company and its Subsidiaries after
     the date of this Indenture (excluding Restricted Payments permitted by
     clauses (ii), (iii), (iv), (v), (vii), (viii) and (ix) of the next
     succeeding paragraph), is less than the sum, without duplication, of (i)
     50% of the Consolidated Net Income of the Company for the period (taken as
     one accounting period) from the date of the closing of the issuance of the
     Notes to the end of the Company's most recently ended fiscal quarter for
     which internal financial statements are available at the time of such
     Restricted Payment (or, if such Consolidated Net Income for such period is
     a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net
     cash proceeds received by the Company since the date of the closing of the
     issuance of the Notes as a contribution to its common equity capital or
     from the issue or sale of Equity Interests of the Company (other than
     Disqualified Stock) or from the issue or sale of Disqualified Stock or debt
     securities of the Company that have been converted into such Equity
     Interests (other than Equity Interests (or Disqualified Stock or
     convertible debt securities) sold to a Subsidiary of the Company), plus
     (iii) to the extent that any Restricted Investment that reduced the amount
     available for Restricted Payments under this clause (c) is sold for cash or
     otherwise liquidated or repaid for cash or any dividend or payment is
     received by the Company or a Restricted Subsidiary after the date of the
     closing of the Acquisitions in respect of such Investment, 100% of the
     amount of Net Proceeds or dividends or payments (including the fair market
     value of property) received in connection therewith, up to the amount of
     the Restricted Investment that reduced this clause (c), and thereafter 50%
     of the amount of Net Proceeds or dividends or payments (including the fair
     market value of property) received in connection therewith (except that the
     amount of dividends or payments received in respect of payments of
     Obligations in respect of such Investments, such as taxes, shall not
     increase the amounts under this clause (c)), plus (iv) to the extent that
     any Unrestricted Subsidiary of the Company is redesignated as a Restricted
     Subsidiary after the date of this Indenture, 100% of the fair market value
     of the Company's Investment in such Subsidiary as of the date of such
     redesignation up to the amount of the Restricted Investments made in such
     Subsidiary that reduced this clause (c) and 50% of the excess of the fair
     market value of the Company's Investment in such Subsidiary as of the date
     of such redesignation over (1) the amount of the Restricted Investment that
     reduced this clause (c) and (2) any amounts that increased the amount
     available as a Permitted Investment provided that with respect to any
     redesignation pursuant to this clause (iv) the Company shall deliver to the
     Trustee (I) in the case of any such redesignation involving aggregate fair
     market value greater than $2.0 million, a resolution of the Board of
     Directors set forth in an Officers' Certificate certifying such value or
     (II) in the case of any such redesignation involving aggregate fair market
     value greater than $10.0 million, an independ-

 
                                     -59-

     ent appraisal or valuation opinion issued by an accounting, appraisal or
     investment banking firm of national standing; provided that any amounts
     that increase this clause (c) shall not duplicatively increase amounts
     available as Permitted Investments.

          The foregoing provisions shall not prohibit: (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Restricted Subsidiary of the Company) of, other Equity
Interests of the Company (other than any Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (c)(ii) of the preceding paragraph; (iii) the defeasance, redemption,
repurchase or other acquisition of subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv)
dividends or distributions by a Restricted Subsidiary of the Company so long as,
in the case of any dividend or distribution payable on or in respect of any
class or series of securities issued by a Restricted Subsidiary, the Company or
a Restricted Subsidiary receives at least its pro rata share of such dividend or
distribution in accordance with its Equity Interests in such class or series of
securities; (v) Investments in Unrestricted Subsidiaries having an aggregate
fair market value not to exceed the amount, at the time of such Investment,
substantially concurrently contributed in cash or Cash Equivalents to the common
equity capital of the Company after the date of the closing of the Acquisitions;
provided that any such amount contributed shall be excluded from the calculation
made pursuant to clause (c) of the preceding paragraph; (vi) the payment of
dividends on the Company's Common Stock, following the first public offering of
the Company's Common Stock after the date of the closing of the Acquisitions, of
up to 6% per annum of the net proceeds received by the Company in such public
offering, other than public offerings with respect to the Company's Common Stock
registered on Form S-8; (vii) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any Restricted
Subsidiary of the Company held by any present or former employee or director of
the Company (or any of its Restricted Subsidiaries), other than Equity Interests
held by the Principals or any of their Related Parties, pursuant to any
management equity subscription agreement or stock option agreement or any other
management or employee benefit plan; provided that (A) the aggregate price paid
for all such repurchased, redeemed, acquired or retired Equity Interests shall
not exceed $2.0 million in any calendar year (with unused amounts in any
calendar year being carried over to succeeding calendar years subject to a
maximum (without giving effect to the following proviso) of $5.0 million in any
calendar year); provided further that such amount in any calendar year

 
                                     -60-

may be increased by an amount not to exceed (x) the cash proceeds from the sale
of Equity Interests (not including Disqualified Stock) of the Company or a
Restricted Subsidiary to members of management and directors of the Company and
its Subsidiaries that occurs after the date of this Indenture, plus (y) the cash
proceeds of key-man life insurance policies received by the Company and its
Restricted Subsidiaries after the date of this Indenture, less (z) the amount of
any Restricted Payments previously made pursuant to clauses (x) and (y) of this
subparagraph (vii) and (B) no Default or Event of Default shall have occurred
and be continuing immediately after such transaction; and, provided further,
that cancellation of Indebtedness owing to the Company from members of
management of the Company or any of its Restricted Subsidiaries (other than the
Principals or any of their Related Parties) in connection with a repurchase of
Equity Interests of the Company or a Restricted Subsidiary pursuant to any
employment agreement or arrangement or any stock option or similar plan shall
not be deemed to constitute a Restricted Payment for purposes of this covenant
or any other provision of this Indenture; (viii) repurchases of Equity Interests
deemed to occur upon exercise of stock options if such Equity Interests
represent a portion of the exercise price of such options; (ix) the payment of
dividends or distributions to Holdings (I) pursuant to a tax allocation
agreement in effect on the date of this Indenture, in amounts required by
Holdings to pay income taxes; (II) in amounts required by Holdings to pay
administrative expenses not to exceed $500,000 in any calendar year; and (III)
in order to permit Holdings to repay Indebtedness under the Bridge Facilities;
and (x) the use of any and all Net Proceeds received from the sale of Assets
Held for Sale to repay Indebtedness outstanding under the Bridge Facilities.

          As of the date of this Indenture, all of the Company's Subsidiaries
shall be Restricted Subsidiaries. The Board of Directors may designate any
Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would
not cause a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such Restricted Payment
would be permitted at such time and if such Restricted Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary.

          If, at any time, any Unrestricted Subsidiary would fail to meet the
requirements in the definition of "Unrestricted Subsidiary" as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of this Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
(and, if such Indebtedness is not permitted to be incurred as of

 
                                     -61-

such date under the covenant described under Section 4.09, the Company shall be
in default of such covenant). The Board of Directors of the Company may at any
time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant described
under Section 4.09, calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period, and (ii) no
Default or Event of Default would be in existence following such designation.

          The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment or any adjustment made
pursuant to clause (c) of the first paragraph of this covenant shall be
determined by the Board of Directors whose resolution with respect thereto shall
be delivered to the Trustee, such determination to be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if such fair market value exceeds $10.0 million. Not later
than the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
Section 4.07 were computed.

          If any Restricted Investment is sold or otherwise liquidated or repaid
or any dividend or payment is received by the Company or a Restricted Subsidiary
and such amounts may be credited to clause (c) of the first paragraph of this
covenant, then such amounts will be credited only to the extent of amounts not
otherwise included in Consolidated Net Income and that do not otherwise increase
the amount available as a Permitted Investment.

          SECTION 4.08.  Dividend and Other Payment Restrictions Affecting
                         Restricted Subsidiaries.
                         -------------------------------------------------   

          The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to
the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or
(2) with respect to any other interest or participation in, or measured by, its
profits, or (b) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets to
the Company or any of its Re-

 
                                     -62-

stricted Subsidiaries. However, the foregoing restrictions shall not apply to
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of this Indenture, (b) the Senior Credit
Facilities as in effect as of the date of this Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than those contained in
the Senior Credit Facilities as in effect on the date of this Indenture, (c)
this Indenture, the Senior Subordinated Note Indenture, the Notes and the Senior
Subordinated Notes, (d) applicable law or any applicable rule, regulation or
order, (e) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of this Indenture to be incurred, (f)
customary non-assignment provisions in leases and other agreements entered into
in the ordinary course of business and consistent with past practices, (g)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired, (h) any agreement for the sale of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary pending
its sale, (i) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Indebtedness
are no more restrictive, taken as a whole, than those contained in the
agreements governing the Indebtedness being refinanced, (j) secured Indebtedness
otherwise permitted to be incurred pursuant to the provisions of the covenant
described under Section 4.12 that limits solely the right of the debtor to
dispose of the assets securing such Indebtedness, (k) provisions with respect to
the disposition or distribution of assets or property in joint venture
agreements and other similar agreements entered into in the ordinary course of
business, (l) restrictions on cash or other deposits or net worth imposed by
customers or lessors under contracts or leases entered into in the ordinary
course of business and (m) any encumbrances or restrictions imposed by any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts, instruments or
obligations referred to in clauses (a) through (l) above, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment of the
Company's Board of Directors, not materially more restrictive in the aggregate
with respect to such dividend and other payment restrictions than those
(considered as a whole) contained in the dividend or other payment restrictions
prior to such amend-

 
                                     -63-

ment, modification, restatement, renewal, increase, supplement, refunding,
replacement or refinancing.

          SECTION 4.09.   Incurrence of Indebtedness and Issuance 
                          of Preferred Stock.
                          ------------------------------------------

          The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, ''incur'') any Indebtedness (including Acquired Debt) and the
Company shall not issue any Disqualified Stock and shall not permit any of its
Subsidiaries to issue any shares of preferred stock; provided, however, that the
Company may incur Indebtedness (including Acquired Debt) or issue shares of
Disqualified Stock and the Subsidiary Guarantors may incur Indebtedness or issue
Disqualified Stock or preferred stock if the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock or preferred
stock is issued would have been at least 2.0 to 1.0, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock or
preferred stock had been issued, as the case may be, at the beginning of such
four-quarter period.

          The provisions of the first paragraph of this covenant shall not apply
to the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):

             (i)    the incurrence by the Company of Indebtedness under Credit
     Facilities (and the Guarantee thereof by the Subsidiary Guarantors);
     provided that the aggregate principal amount of all Indebtedness
     outstanding under this clause (i) after giving effect to such incurrence
     does not exceed an amount equal to $875.0 million (with letters of credit
     being deemed to have a principal amount equal to the maximum potential
     liability of the Company and its Restricted Subsidiaries thereunder) less
     the amount of proceeds of Asset Sales applied to repay any such term
     Indebtedness or revolving Indebtedness if such repayment of revolving
     Indebtedness resulted in a corresponding commitment reduction (excluding
     any such payments to the extent refinanced at the time of repayment);

             (ii)   the incurrence by the Company and its Subsidiaries of
     Existing Indebtedness, the Senior Subordinated Notes issued in the Offering
     and the Guarantees thereof;

 
                                     -64-

             (iii)  (A) the guarantee by the Company or any of the Subsidiary
     Guarantors of Indebtedness of the Company or a Restricted Subsidiary of the
     Company or (B) the incurrence of Indebtedness of a Restricted Subsidiary to
     the extent that such Indebtedness is supported by a letter of credit, in
     each case that was permitted to be incurred by another provision of this
     covenant;

             (iv)   the incurrence by the Company or any of its Restricted
     Subsidiaries of Indebtedness (including Capital Lease Obligations) to
     finance the acquisition (including by direct purchase, by lease or
     indirectly by the acquisition of the Capital Stock of a Person that becomes
     a Restricted Subsidiary as a result of such acquisition) or improvement of
     assets or property (real or personal) in an aggregate principal amount
     which, when aggregated with the principal amount of all other Indebtedness
     then outstanding pursuant to this clause (iv) and including all Permitted
     Refinancing Indebtedness incurred to refund, refinance or replace any
     Indebtedness incurred pursuant to this clause (iv), does not exceed an
     amount equal to 5% of Total Assets at the time of such incurrence;

             (v)    the incurrence by the Company or any of its Restricted
     Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
     net proceeds of which are used to refund, refinance or replace Indebtedness
     (other than intercompany Indebtedness) that was permitted by this Indenture
     to be incurred under the first paragraph hereof or clauses (ii), (iii) or
     (iv) of this paragraph;

             (vi)   the incurrence by the Company or any of its Restricted
     Subsidiaries of intercompany Indebtedness between or among the Company and
     any of its Restricted Subsidiaries; provided, however, that (i) if the
     Company is the obligor on such Indebtedness, such Indebtedness is expressly
     subordinated to the prior payment in full in cash of all Obligations with
     respect to the Notes and (ii)(A) any subsequent issuance or transfer of
     Equity Interests that results in any such Indebtedness being held by a
     Person other than the Company or a Restricted Subsidiary thereof and (B)
     any sale or other transfer of any such Indebtedness to a Person that is not
     either the Company or a Restricted Subsidiary thereof shall be deemed, in
     each case, to constitute an incurrence of such Indebtedness by the Company
     or such Restricted Subsidiary, as the case may be, that was not permitted
     by this clause (vi);

             (vii)  the incurrence by the Company or any of its Restricted
     Subsidiaries of Hedging Obligations that are incurred in the ordinary
     course of business for the purpose of risk management and not for the
     purpose of speculation;

             (viii) the incurrence by the Company's Unrestricted Subsidiaries
     of Non-Recourse Debt, provided, however, that if any such Indebtedness
     ceases to be Non-

 
                                     -65-

     Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to
     constitute an incurrence of Indebtedness by a Restricted Subsidiary of the
     Company that was not permitted by this clause (viii), and the issuance of
     preferred stock by Unrestricted Subsidiaries;

             (ix)   the incurrence of Indebtedness solely in respect of
     performance, surety and similar bonds or completion or performance
     guarantees (including, without limitation, performance guarantees pursuant
     to coal supply agreements or equipment leases and including letters of
     credit issued in support of such performance, surety and similar bonds), to
     the extent that such incurrence does not result in the incurrence of any
     obligation for the payment of borrowed money to others;

             (x)    the incurrence of Indebtedness arising from agreements of
     the Company or a Restricted Subsidiary providing for indemnification,
     adjustment of purchase price or similar obligations, in each case, incurred
     or assumed in connection with the disposition of any business, assets or a
     Subsidiary; provided, however, that (i) such Indebtedness is not reflected
     on the balance sheet of the Company or any Restricted Subsidiary
     (contingent obligations referred to in a footnote to financial statements
     and not otherwise reflected on the balance sheet shall not be deemed to be
     reflected on such balance sheet for purposes of this clause (i)) and (ii)
     the maximum assumable liability in respect of all such Indebtedness shall
     at no time exceed the gross proceeds including noncash proceeds (the fair
     market value of such noncash proceeds being measured at the time received
     and without giving effect to any subsequent changes in value) actually
     received by the Company and its Restricted Subsidiaries in connection with
     such disposition; and

             (xi)   the incurrence by the Company or any of its Restricted
     Subsidiaries of additional Indebtedness in an aggregate principal amount
     (or accreted value, as applicable) at any time outstanding, including all
     Permitted Refinancing Indebtedness incurred to refund, refinance or replace
     any Indebtedness incurred pursuant to this clause (xi), not to exceed the
     greater of (i) (x) $25.0 million and (y) 1% of Total Assets if incurred on
     or prior to December 15, 2000 or (ii) (x) $50.0 million and (y) 2% of Total
     Assets if incurred thereafter.

             The Company shall not incur, and shall not permit its Restricted
Subsidiaries to incur, any Indebtedness (including Permitted Debt) that is
contractually subordinated in right of payment to any other Indebtedness of the
Company or such Restricted Subsidiary unless such Indebtedness is also
contractually subordinated in right of payment to the Notes, or the Subsidiary
Guarantees, as the case may be, on substantially identical terms; provided,
however, that no Indebtedness of the Company or any Restricted Subsidiary shall

 
                                     -66-

be deemed to be contractually subordinated in right of payment to any other
Indebtedness of the Company or any Restricted Subsidiary solely by virtue of
being unsecured.

          For purposes of determining compliance with this covenant, in the
event that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xi) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify or reclassify such item of
Indebtedness in any manner that complies with this covenant. Accrual of
interest, accretion or amortization of original issue discount, the payment of
interest on any Indebtedness in the form of additional Indebtedness with the
same terms, and the payment of dividends on Disqualified Stock in the form of
additional shares of the same class of Disqualified Stock, shall not be deemed
to be an incurrence of Indebtedness or an issuance of Disqualified Stock for
purposes of this covenant; provided, in each such case, that the amount thereof
is included in Fixed Charges of the Company as accrued.

          SECTION 4.10.   Asset Sales.
                          ----------- 

          The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time of
such Asset Sale at least equal to the fair market value as determined in good
faith by the Company (evidenced by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee with respect to any
Asset Sale determined to have a value greater than $25.0 million) of the assets
or Equity Interests issued or sold or otherwise disposed of and (ii) except in
the case of Assets Held for Sale, at least 75% of the consideration therefor
received by the Company or such Subsidiary is in the form of cash, Cash
Equivalents or Marketable Securities; provided that the following amounts shall
be deemed to be cash: (w) any liabilities (as shown on the Company's or such
Restricted Subsidiary's most recent balance sheet), of the Company or any
Restricted Subsidiary (other than contingent liabilities and liabilities that
are by their terms subordinated to the Notes or any guarantee thereof) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases the Company or such Restricted Subsidiary from further
liability, (x) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received), (y) any Designated Noncash Consideration received by the Company or
any of its Restricted Subsidiaries in such Asset Sale; provided that the
aggregate fair market value (as determined above) of such Designated Noncash
Consideration, taken together with the fair market value at the time of receipt
of all other Designated Noncash Consideration received pursuant to this clause
(y) less the amount of Net Proceeds previously realized in cash from prior
Designated Noncash Consideration is less than 5% of Total Assets at the time of
the 

 
                                     -67-

receipt of such Designated Noncash Consideration (with the fair market value
of each item of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in value) and (z)
Additional Assets received in an exchange of assets transaction.

          Within 360 days after the receipt of any cash Net Proceeds from an
Asset Sale, the Company or such Restricted Subsidiary, at its option, may apply
such cash Net Proceeds, at its option, (i) in the case of an Asset Sale of
Assets Held for Sale, toward the repayment of the Bridge Facilities and (ii) in
the case of all other Asset Sales, (a) to repay Indebtedness of the Company or
any Restricted Subsidiary that is not subordinated in right of payment to the
Notes or to repay debt under one or more Credit Facilities and, if such debt is
revolving debt, to effect a corresponding commitment reduction thereunder, (b)
to the acquisition of all or a portion of the assets of, or a majority of the
Voting Stock of, another Permitted Business, the making of a capital expenditure
or the acquisition of other assets or Investments that are used or useful in a
Permitted Business or (c) to an Investment in Additional Assets. Any cash Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph shall be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $15.0 million,
the Company will be required to make an offer to all Holders of Notes and all
holders of other Indebtedness that ranks pari passu with the Notes containing
provisions similar to those set forth in this Indenture with respect to offers
to purchase or redeem with the proceeds of sales of assets (an "Asset Sale
Offer") to purchase the maximum principal amount of Notes and such other
Indebtedness that may be purchased out of the Excess Proceeds, at an offer price
in cash in an amount equal to 100% of the principal amount thereof plus accrued
and unpaid interest and Liquidated Damages thereon, if any, to the date of
purchase, in accordance with the procedures set forth in this Indenture and such
other Indebtedness. To the extent that any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Company may use such Excess Proceeds
for any purpose not otherwise prohibited by this Indenture. If the aggregate
principal amount of Notes and such other Indebtedness tendered into such Asset
Sale Offer surrendered by Holders thereof exceeds the amount of Excess Proceeds,
the Trustee shall select the Notes and such other Indebtedness to be purchased
on a pro rata basis. Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset at zero.

          SECTION 4.11.   Transactions with Affiliates.
                          ---------------------------- 

          The Company shall not, and shall not permit any of its Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction"), unless (i) such 

 
                                     -68-

Affiliate Transaction is on terms that are materially no less favorable to the
Company or the relevant Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $2.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors and (b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $10.0
million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing. Notwithstanding the foregoing, the
following items shall not be deemed to be Affiliate Transactions: (i)
transactions entered into pursuant to the terms of (a) the Haulage and Delivery
Agreement, (b) the MMI Service Agreement, (c) the MMI Leases, (d) the Bowie
Sales Agency Agreement, (e) the Manufacture and Service Agreement and (f) the
Technology Sharing Agreement, each as in effect on the date of this Indenture or
as thereafter amended, provided any such amendment does not materially and
adversely effect the rights of the Holders of the Notes under this Indenture,
(ii) any employment agreement or arrangement entered into by the Company or any
of its Subsidiaries or any employee benefit plan available to employees of the
Company and its Subsidiaries generally, in each case in the ordinary course of
business and consistent with the past practice of the Company or such
Subsidiary, (iii) transactions between or among the Company and/or its
Subsidiaries, (iv) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of the Company, (v) Restricted Payments that are permitted
by the provisions of Section 4.07 or pursuant to the definition of Permitted
Investments, (vi) indemnification payments made to officers, directors and
employees of the Company or any Restricted Subsidiary pursuant to charter,
bylaw, statutory or contractual provisions; and (vii) transactions pursuant to
the terms of the Transaction Documents in effect on the dates of the closings of
the Acquisitions.

          SECTION 4.12.   Liens.
                          ----- 

          The Company shall not and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or otherwise
cause or suffer to exist or become effective any Lien of any kind (other than
Permitted Liens) upon any of their property or assets, now owned or hereafter
acquired, unless all payments due under this Indenture and the Notes are secured
on an equal and ratable basis with the obligations so secured until such time as
such obligations are no longer secured by a Lien.

 
                                     -69-

          SECTION 4.13.   Business Activities.
                          ------------------- 

          The Company shall not, and shall not permit any Restricted Subsidiary
to, engage in any business other than Permitted Businesses, except to such
extent as would not be material to the Company and its Restricted Subsidiaries
taken as a whole.

          SECTION 4.14.   Corporate Existence.
                          ------------------- 

          Subject to Article 5 hereof, each Issuer shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time) of it or any such Subsidiary and
(ii) the rights (charter and statutory), licenses and franchises of it and its
Subsidiaries; provided, however, that each Issuer shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any of its Subsidiaries, if its Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of it and its Subsidiaries, taken as a whole, and that the loss
thereof is not adverse in any material respect to the Holders of the Notes.

          SECTION 4.15.   Offer to Repurchase Upon Change of Control.
                          ------------------------------------------ 

          (a)  Upon the occurrence of a Change of Control, each Holder of Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to
the offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of purchase
(the "Change of Control Payment"). Within ten days following any Change of
Control, the Company shall mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by this Indenture and described in such notice. The Company shall
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.

          On the Change of Control Payment Date, the Company shall, to the
extent lawful, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the 

 
                                     -70-

Change of Control Payment in respect of all Notes or portions thereof so
tendered and (3) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the aggregate principal
amount of Notes or portions thereof being purchased by the Company. The Paying
Agent will promptly mail to each Holder of Notes so tendered the Change of
Control Payment for such Notes, and the Trustee will promptly authenticate and
mail (or cause to be transferred by book entry) to each Holder a new Note equal
in principal amount to any unpurchased portion of the Notes surrendered, if any;
provided that each such new Note will be in a principal amount of $1,000 or an
integral multiple thereof. The Company shall publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.

          (b)  The Company will not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Indenture applicable to a Change of Control Offer
made by the Company and purchases all Notes validly tendered and not withdrawn
under such Change of Control Offer.

          SECTION 4.16.   Incurrence of Senior Indebtedness.
                          --------------------------------- 

          The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, incur any Senior Indebtedness (other
than (x) secured Indebtedness pursuant to the Senior Credit Facilities not in
excess of $875.0 million at any one time outstanding thereunder and (y)
Indebtedness incurred pursuant to clauses (iii) through (xi) of the definition
of Permitted Debt); provided, however, that the Company or any of its Restricted
Subsidiaries may incur Senior Indebtedness (including Acquired Debt that is
Senior Indebtedness) if the Company's Debt to Cash Flow Ratio at the time of
incurrence of such Senior Indebtedness, after giving pro forma effect to such
incurrence as of such date and to the use of proceeds therefrom as if the same
had occurred at the beginning of the most recently ended four full fiscal
quarter period of the Company for which internal financial statements are
available, would have been no greater than 3.0 to 1; provided, further, that any
unsecured Senior Indebtedness to be issued in compliance with this proviso must
have a maturity date or mandatory redemption or repurchase date which is the
same as or later than the maturity date of the Notes.

          SECTION 4.17.   Limitation on Issuances and Sales of Equity 
                          Interests in Wholly Owned Subsidiaries.
                          --------------------------------------------

          The Company (i) shall not, and shall not permit any Wholly Owned
Restricted Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Equity Interests in a Wholly Owned Restricted
Subsidiary of the Company to any Person (other than the Company or a Wholly
Owned Subsidiary of the Company), unless (1) 

 
                                     -71-

such transfer, conveyance, sale, lease or other disposition is of all the Equity
Interests in such Wholly Owned Restricted Subsidiary and (2) the cash Net
Proceeds from such transfer, conveyance, sale, lease or other disposition are
applied in accordance with the covenant described above under Section 4.10, and
(ii) shall not permit any Wholly Owned Restricted Subsidiary of the Company to
issue any of its Equity Interests (other than, if necessary, shares of its
Capital Stock constituting directors' qualifying shares) to any Person other
than to the Company or a Wholly Owned Restricted Subsidiary of the Company.

          SECTION 4.18.   Payments for Consent.
                          -------------------- 

          Neither the Company nor any of its Restricted Subsidiaries shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Notes unless such consideration is offered to be paid
or is paid to all Holders of the Notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.

          SECTION 4.19.   Additional Subsidiary Guarantees.
                          -------------------------------- 

          If the Company or any of its Domestic Subsidiaries shall acquire or
create another Domestic Subsidiary after the date of this Indenture and such
Domestic Subsidiary provides a guarantee of the Senior Credit Facilities, then
such newly acquired or created Domestic Subsidiary shall execute a supplemental
indenture in form and substance satisfactory to the Trustee providing that such
Domestic Subsidiary shall become a Subsidiary Guarantor under this Indenture,
provided, however, this covenant shall not apply to any Domestic Subsidiary that
has been properly designated as an Unrestricted Subsidiary in accordance with
this Indenture for so long as it continues to constitute an Unrestricted
Subsidiary.


                                 ARTICLE FIVE

                                  SUCCESSORS

          SECTION 5.01.   Merger, Consolidation, or Sale of Assets.
                          ---------------------------------------- 

          The Company may not consolidate or merge with or into (whether or not
the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another corporation, Person or
entity unless (i) the Company is the surviving cor-

 
                                     -72-

poration or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Registration Rights Agreement, the Notes and this Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee; (iii) immediately after such transaction no Default or Event of Default
exists; and (iv) except in the case of a merger of the Company with or into a
Wholly Owned Restricted Subsidiary of the Company, immediately after giving pro
forma effect to such transaction, as if such transaction had occurred at the
beginning of the applicable four-quarter period, (A) the entity surviving such
consolidation or merger would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described under Section 4.09 or (B) the Fixed
Charge Coverage Ratio for the Company or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made would, immediately after giving pro forma effect thereto as
if such transaction had occurred at the beginning of the applicable four-quarter
period, not be less than such Fixed Charge Coverage Ratio for the Company and
its Restricted Subsidiaries immediately prior to such transaction. The Company
may not, directly or indirectly, lease all or substantially all of its
properties or assets, in one or more related transactions, to any other Person.
The provisions of this covenant shall not be applicable to a sale, assignment,
transfer, conveyance or other disposition of assets between or among the Company
and its Restricted Subsidiaries.

          Notwithstanding the foregoing clause (iv), (i) any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company and (ii) the Company may merge with an
Affiliate that has no significant assets or liabilities and was formed solely
for the purpose of changing the jurisdiction of organization of the Company in
another State of the United States or the form of organization of the Company so
long as the amount of Indebtedness of the Company and its Restricted
Subsidiaries is not increased thereby and provided that the successor assumes
all the obligations of the Company under the Registration Rights Agreement, the
Notes and this Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee.

          SECTION 5.02.   Successor Corporation Substituted.
                          --------------------------------- 

          Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of either Issuer in 

 
                                     -73-

accordance with Section 5.01 hereof, the successor corporation formed by such
consolidation or into or with which such Issuer is merged or to which such sale,
assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be substituted for (so that from and after the date of such
consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to such "Issuer" shall refer instead to
the successor corporation and not to such Issuer), and may exercise every right
and power of such Issuer under this Indenture with the same effect as if such
successor Person had been named as such Issuer herein; provided, however, that
the predecessor Issuer shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale of all of
such Issuer's assets that meets the requirements of Section 5.01 hereof.


                                  ARTICLE SIX

                             DEFAULTS AND REMEDIES

          SECTION 6.01.   Events of Default.
                          ----------------- 

          Each of the following constitutes an Event of Default:

          (a)     default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes;

          (b)     default in payment when due of the principal of or premium, if
any, on the Notes;

          (c)     failure by the Company or any of its Subsidiaries to make the
offer required or to purchase any of the Notes as required under the provisions
described under Section 4.10 or Section 4.15;

          (d)     failure by the Company or any of its Subsidiaries for 30 days
after notice to comply with the provisions of Section 4.07 or Section 4.09, or
failure by the Company or any of its Subsidiaries for 60 days after notice to
comply with any of its other agreements in this Indenture or the Notes;

          (e)     default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or
is created after the date of this Indenture, which

 
                                     -74-

default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $25.0 million or more;

          (f)     failure by the Company or any of its Restricted Subsidiaries
or any group of Restricted Subsidiaries that, taken as a whole, would be a
Significant Subsidiary to pay final judgments aggregating in excess of $25.0
million, which judgments are not paid, discharged or stayed for a period of 60
days;

          (g)     except as permitted by this Indenture, any Guarantee of the
Notes shall be held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or any Guarantor, or
any Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Guarantee of the Notes;

          (h)     an Issuer or any of its Significant Subsidiaries that are
Restricted Subsidiaries or any group of Restricted Subsidiaries that, taken as a
whole, would be a Significant Subsidiary pursuant to or within the meaning of
Bankruptcy Law:

             (i)  commences a voluntary case,

            (ii)  consents to the entry of an order for relief against it in an
     involuntary case,

           (iii)  consents to the appointment of a custodian of it or for all
     or substantially all of its property,

            (iv)  makes a general assignment for the benefit of its creditors,
     or

             (v)  generally is not paying its debts as they become due; or

          (i)     a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:

             (i)  is for relief against an Issuer or any of its Significant
     Subsidiaries that are Restricted Subsidiaries or any group of Restricted
     Subsidiaries that, taken as a whole, would be a Significant Subsidiary in
     an involuntary case;

 
                                     -75-

            (ii)  appoints a custodian of an Issuer or any of its Significant
     Subsidiaries that are Restricted Subsidiaries or any group of Restricted
     Subsidiaries that, taken as a whole, would be a Significant Subsidiary or
     for all or substantially all of the property of an Issuer or any of its
     Significant Subsidiaries that are Restricted Subsidiaries or any group of
     Restricted Subsidiaries that, taken as a whole, would be a Significant
     Subsidiary; or

           (iii)  orders the liquidation of an Issuer or any of its
     Significant Subsidiaries that are Restricted Subsidiaries or any group of
     Restricted Subsidiaries that, taken as a whole, would be a Significant
     Subsidiary;

     and the order or decree remains unstayed and in effect for 60 consecutive
     days.

          SECTION 6.02.   Acceleration.
                          ------------ 

          If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary that is a Restricted Subsidiary or any group of Restricted
Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding Notes will become due and payable without further action or
notice. Holders of the Notes may not enforce this Indenture or the Notes except
as provided in this Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may by written notice
to the Trustee direct the Trustee in its exercise of any trust or power.

          In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of this Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
December 15, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding paying the
premium upon redemption of the Notes prior to December 15, 2002, then the
premium specified in the event of an optional redemption using the net cash
proceeds of an Equity Offering shall also become immediately due and payable to
the extent permitted by law upon the acceleration of the Notes.

 
                                     -76-

          SECTION 6.03.   Other Remedies.
                          -------------- 

          If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision of
the Notes or this Indenture.

          The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding.  A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default.  All remedies
are cumulative to the extent permitted by law.

          SECTION 6.04.   Waiver of Past Defaults.
                          ----------------------- 

          The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under this Indenture, except a continuing Default or Event of Default in the
payment of the principal of, premium and Liquidated Damages, if any, or interest
on, the Notes (including in connection with an offer to purchase) (provided,
however, that the Holders of a majority in aggregate principal amount of the
then outstanding Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration).
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.

          SECTION 6.05.   Control by Majority.
                          ------------------- 

          Holders of a majority in principal amount of the then outstanding
Notes may by written notice to the Trustee direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee or
exercising any trust or power conferred on it.  However, the Trustee may refuse
to follow any direction that conflicts with law or this Indenture that the
Trustee determines may be unduly prejudicial to the rights of other Holders of
Notes or that may involve the Trustee in personal liability.

          SECTION 6.06.   Limitation on Suits.
                          ------------------- 

          Holders of the Notes may not enforce this Indenture or the Notes
except as provided herein. A Holder of a Note may pursue a remedy with respect
to this Indenture or the Notes only if:

 
                                     -77-

          (a)  the Holder of a Note gives to the Trustee written notice of a
     continuing Event of Default;

          (b)  the Holders of at least 25% in principal amount of the then
     outstanding Notes make a written request to the Trustee to pursue the
     remedy;

          (c)  such Holder of a Note or Holders of Notes offer and, if
     requested, provide to the Trustee indemnity satisfactory to the Trustee
     against any loss, liability or expense;

          (d)  the Trustee does not comply with the request within 60 days after
     receipt of the request and the offer and, if requested, the provision of
     indemnity; and

          (e)  during such 60-day period the Holders of a majority in principal
     amount of the then outstanding Notes do not give the Trustee a direction
     inconsistent with the request.

          A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.

          SECTION 6.07.   Rights of Holders of Notes to Receive Payment.
                          --------------------------------------------- 

          Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium and Liquidated
Damages, if any, and interest on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.

          SECTION 6.08.   Collection Suit by Trustee.
                          -------------------------- 

          If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Issuers for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent lawful,
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.

 
                                     -78-

          SECTION 6.09.   Trustee May File Proofs of Claim.
                          -------------------------------- 

          The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Issuers
(or any other obligor upon the Notes), their creditors or their property and
shall be entitled and empowered to collect, receive and distribute any money or
other property payable or deliverable on any such claims and any custodian in
any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 hereof.  To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment of
the same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise.  Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.

          SECTION 6.10.   Priorities.
                          ---------- 

          If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:

          First:  to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including, without limitation, payment of all compensation,
expense and liabilities incurred, and all advances made, by the Trustee and the
costs and expenses of collection;

          Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium and Liquidated Damages, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium and Liquidated Damages, if any and
interest, respectively; and

 
                                     -79-

          Third:  to the Issuers or to such party as a court of competent
jurisdiction shall direct.

          The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.

          SECTION 6.11.   Undertaking for Costs.
                          --------------------- 

          In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.


                                 ARTICLE SEVEN

                                    TRUSTEE

          SECTION 7.01.   Duties of Trustee.
                          ----------------- 

          (a)     If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.

          (b)     Except during the continuance of an Event of Default:

             (i)  the duties of the Trustee shall be determined solely by the
     express provisions of this Indenture and the Trustee need perform only
     those duties that are specifically set forth in this Indenture and no
     others, and no implied covenants or obligations shall be read into this
     Indenture against the Trustee; and

            (ii)  in the absence of bad faith on its part, the Trustee may
     conclusively rely, as to the truth of the statements and the correctness of
     the opinions expressed therein, upon certificates or opinions furnished to
     the Trustee and conforming to the requirements of this Indenture.  However,
     the Trustee shall examine the certificates 

 
                                     -80-

     and opinions to determine whether or not they conform to the requirements
     of this Indenture.

          (c)     The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:

             (i)  this paragraph does not limit the effect of paragraph (b) of
     this Section;

            (ii)  the Trustee shall not be liable for any error of judgment made
     in good faith by a Responsible Officer, unless it is proved that the
     Trustee was negligent in ascertaining the pertinent facts; and

           (iii)  the Trustee shall not be liable with respect to any action
     it takes or omits to take in good faith in accordance with a direction
     received by it pursuant to Section 6.05 hereof.

          (d)     Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section.

          (e)     No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.

          (f)     The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuers.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.

          SECTION 7.02.   Rights of Trustee.
                          ----------------- 

          (a)     The Trustee may conclusively rely upon, and shall be fully
protected in acting or refraining from acting upon, any document believed by it
to be genuine and to have been signed or presented by the proper Person.  The
Trustee need not investigate any fact or matter stated in the document.

          (b)     Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the written advice of such 

 
                                     -81-

counsel or any Opinion of Counsel shall be full and complete authorization and
protection from liability in respect of any action taken, suffered or omitted by
it hereunder in good faith and in reliance thereon.

          (c)     The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.

          (d)     The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.

          (e)     Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Issuers shall be sufficient if
signed by an Officer of either of the Issuers.

          (f)     The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.

          (g)     The Trustee shall not be required to give any bond or surety
in respect of the performance of its powers and duties hereunder.

          (h)     Delivery of reports, information and documents to the Trustee
under Section 4.03 is for informational purposes only and the Trustee's receipt
of the foregoing shall not constitute constructive notice of any information
contained therein or determinable from information contained therein, including
the Company's compliance with any of their covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates).

          (i)     The Trustee shall not be charged with knowledge of any
Defaults or Events of Default unless either (1) a Trust Officer of the Trustee
shall have actual knowledge of such Default or Event of Default or (2) written
notice of such Default or Event of Default shall have been given to the Trustee
by any Holder or by the Company or any other obligor on the Notes or any holder
of Senior Indebtedness or Guarantor Senior Indebtedness or any representative
thereof.

          SECTION 7.03.   Individual Rights of Trustee.
                          ---------------------------- 

          The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Issuers or any
Affiliate of the Issuers 

 
                                     -82-

with the same rights it would have if it were not Trustee. However, in the event
that the Trustee acquires any conflicting interest it must eliminate such
conflict within 90 days, apply to the SEC for permission to continue as trustee
or resign. Any Agent may do the same with like rights and duties. The Trustee is
also subject to Sections 7.10 and 7.11 hereof.

          SECTION 7.04.   Trustee's Disclaimer.
                          -------------------- 

          The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Issuers' use of the proceeds from the Notes or any money
paid to the Issuers or upon the Issuers' direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.

          SECTION 7.05.   Notice of Defaults.
                          ------------------ 

          If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the
Default or Event of Default within 90 days after it occurs.  Except in the case
of a Default or Event of Default in payment of principal of, premium, if any, or
interest on any Note, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Notes.

          SECTION 7.06.   Reports by Trustee to Holders of the Notes.
                          ------------------------------------------ 

          Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA (S) 313(a) (but if no event described in
TIA (S) 313(a) has occurred within the twelve months preceding the reporting
date, no report need be transmitted).  The Trustee also shall comply with TIA
(S) 313(b)(2).  The Trustee shall also transmit by mail all reports as required
by TIA (S) 313(c).

          A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Issuers and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA (S) 313(d).  The
Issuers shall promptly notify the Trustee when the Notes are listed on any stock
exchange.

 
                                     -83-

          SECTION 7.07.  Compensation and Indemnity.
                         -------------------------- 

          The Issuers shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder as the
Issuers and the Trustee shall agree. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Issuers
shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.

          The Issuers and the Guarantors shall indemnify the Trustee and its
officers, directors, shareholders, agents and employees (each, an "Indeminified
Party") and hold the same harmless against any and all losses, liabilities or
expenses incurred by it arising out of or in connection with the acceptance or
administration of its duties and the exercise of its rights and powers under
this Indenture or the Notes, including the costs and expenses of enforcing this
Indenture against the Issuers (including this Section 7.07) and defending itself
against any claim (whether asserted by the Issuers or any Holder or any other
person) or liability in connection with the exercise or performance of any of
its powers or duties hereunder, except to the extent any such loss, liability or
expense may be attributable to its negligence or bad faith. The Trustee and its
officers, directors, shareholders, agents and employees, in its capacity as
Paying Agent, Registrar, Custodian, Exchange Agent, and agent for service of
notices and demands shall have the full benefit of the foregoing indemnity. The
Indemnified Party shall notify the Issuers promptly of any claim for which it
may seek indemnity. Failure by the Indemnified Party to so notify the Issuers
shall not relieve the Issuers of their obligations hereunder. The Issuers shall
defend the claim and the Trustee shall cooperate in the defense. The Indemnified
Party may have separate counsel reasonably satisfactory to the Indemnified Party
and the Issuers shall pay the reasonable fees and expenses of such counsel. The
Issuers need not pay for any settlement made without their consent, which
consent shall not be unreasonably withheld. The Trustee's right to receive
payment of any amounts under this Indenture shall not be subordinate to any
other Indebtedness of the Issuers.

          The obligations of the Issuers and the Guarantors under this Section
7.07 shall survive the satisfaction and discharge of this Indenture.

          To secure the Issuers' payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.

 
                                     -84-

          When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(h) or (i) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.

          The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to
the extent applicable.

          SECTION 7.08.  Replacement of Trustee.
                         ----------------------

          A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.

          The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Issuers. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Issuers in writing. The Issuers may
remove the Trustee if:

          (a)  the Trustee fails to comply with Section 7.10 hereof;

          (b)  the Trustee is adjudged a bankrupt or an insolvent or an order
     for relief is entered with respect to the Trustee under any Bankruptcy Law;

          (c)  a custodian or public officer takes charge of the Trustee or its
     property; or

          (d)  the Trustee becomes incapable of acting.

          If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Issuers shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Issuers.

          If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuers, or
the Holders of at least 10% in principal amount of the then outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.

          If the Trustee, after written request by any Holder who has been a
Holder for at least six months, fails to comply with Section 7.10, such Holder
may petition any court

 
                                     -85-

of competent jurisdiction for the removal of the Trustee and the appointment of
a successor Trustee.

          A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuers. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in Section
7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Issuers' obligations under Section 7.07 hereof shall continue for the
benefit of the retiring Trustee.

          SECTION 7.09.  Successor Trustee by Merger, etc.
                         -------------------------------- 

          If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.

          SECTION 7.10.  Eligibility; Disqualification.
                         ----------------------------- 

          There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100 million
as set forth in its most recent published annual report of condition.

          This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA
(S) 310(b).

          SECTION 7.11.  Preferential Collection of Claims Against Issuers.
                         ------------------------------------------------- 

          The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.

 
                                     -86-


                                 ARTICLE EIGHT

                   LEGAL DEFEASANCE AND COVENANT DEFEASANCE

          SECTION 8.01.  Option to Effect Legal Defeasance or Covenant 
                         Defeasance.
                         ---------------------------------------------

          The Issuers may, at the option of their respective Boards of Directors
evidenced by resolutions set forth in Officers' Certificates, at any time, elect
to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes
upon compliance with the conditions set forth below in this Article Eight.

          SECTION 8.02.  Legal Defeasance and Discharge.
                         ------------------------------ 

          Upon the Issuers' exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Issuers shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from their obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Issuers shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all their other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Issuers, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (i) the rights of Holders of
outstanding Notes to receive payments in respect of the principal of, premium,
if any, and interest and Liquidated Damages, if any, on such Notes when such
payments are due from the trust referred to below, (ii) the Issuers' obligations
with respect to the Notes concerning issuing temporary Notes, registration of
Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an
office or agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and the
Issuers' obligations in connection therewith and (iv) the Legal Defeasance
provisions of this Indenture. Subject to compliance with this Article Eight, the
Issuers may exercise their option under this Section 8.02 notwithstanding the
prior exercise of its option under Section 8.03 hereof.

 
                                     -87-

          SECTION 8.03.  Covenant Defeasance.
                         ------------------- 

          Upon the Issuers' exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Issuers shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from their
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.13, and Sections 4.15 through 4.19 hereof with respect to the
outstanding Notes on and after the date the conditions set forth in Section 8.04
are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Issuers may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.01 hereof, but,
except as specified above, the remainder of this Indenture and such Notes shall
be unaffected thereby. In addition, upon the Issuers' exercise under Section
8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, Sections
6.01(d) through 6.01(g) hereof shall not constitute Events of Default.

          SECTION 8.04.  Conditions to Legal or Covenant Defeasance.
                         ------------------------------------------ 

          The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:

             (i)    the Company must irrevocably deposit with the Trustee, in
     trust, for the benefit of the Holders of the Notes, cash in U.S. dollars,
     non-callable Government Securities, or a combination thereof, in such
     amounts as will be sufficient, in the opinion of a nationally recognized
     firm of independent public accountants, to pay the principal of, premium,
     if any, and interest and Liquidated Damages, if any, on the outstanding
     Notes on the stated maturity or on the applicable redemption date, as the
     case may be, and the Company must specify whether the Notes are being
     defeased to maturity or to a particular redemption date;

             (ii)   in the case of Legal Defeasance, the Company shall have
     delivered to the Trustee an opinion of counsel in the United States
     reasonably acceptable to the Trustee confirming that (A) the Company has
     received from, or there has been pub-

 
                                     -88-

     lished by, the Internal Revenue Service a ruling or (B) since the date of
     this Indenture, there has been a change in the applicable federal income
     tax law, in either case to the effect that, and based thereon such opinion
     of counsel shall confirm that, the Holders of the outstanding Notes will
     not recognize income, gain or loss for federal income tax purposes as a
     result of such Legal Defeasance and will be subject to federal income tax
     on the same amounts, in the same manner and at the same times as would have
     been the case if such Legal Defeasance had not occurred;

             (iii)  in the case of Covenant Defeasance, the Company shall have
     delivered to the Trustee an opinion of counsel in the United States
     reasonably acceptable to the Trustee confirming that the Holders of the
     outstanding Notes will not recognize income, gain or loss for federal
     income tax purposes as a result of such Covenant Defeasance and will be
     subject to federal income tax on the same amounts, in the same manner and
     at the same times as would have been the case if such Covenant Defeasance
     had not occurred;

             (iv)   no Default or Event of Default shall have occurred and be
     continuing on the date of such deposit (other than a Default or Event of
     Default resulting from the borrowing of funds to be applied to such
     deposit) or insofar as Events of Default from bankruptcy or insolvency
     events are concerned, at any time in the period ending on the effective
     date of such defeasance;

             (v)    such Legal Defeasance or Covenant Defeasance will not result
     in a breach or violation of, or constitute a default under any material
     agreement or instrument (other than this Indenture) to which the Company or
     any of its Subsidiaries is a party or by which the Company or any of its
     Subsidiaries is bound;

             (vi)   the Company must have delivered to the Trustee, at or prior
     to the effective date of such defeasance, an opinion of counsel to the
     effect that at the effective date of such defeasance, the trust funds will
     not be subject to the effect of any applicable bankruptcy, insolvency,
     reorganization or similar laws affecting creditors' rights generally;

             (vii)  the Company must deliver to the Trustee an Officers'
     Certificate stating that the deposit was not made by the Company with the
     intent of preferring the Holders of Notes over the other creditors of the
     Company with the intent of defeating, hindering, delaying or defrauding
     creditors of the Company or others; and

             (viii) the Company must deliver to the Trustee an Officers'
     Certificate and an opinion of counsel, each stating that all conditions
     precedent provided for relating to the Legal Defeasance or the Covenant
     Defeasance have been complied with.

 
                                     -89-

          SECTION 8.05.  Deposited Money and Government Securities to be Held in
                         Trust; Other Miscellaneous Provisions.
                         -------------------------------------------------------

          Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Issuers acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.

          The Issuers shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.

          Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Issuers from time to time upon the request
of the Issuers any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.

          SECTION 8.06.  Repayment to Issuers.
                         -------------------- 

          Any money deposited with the Trustee or any Paying Agent, or then held
by the Issuers, in trust for the payment of the principal of, premium, if any,
or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Issuers on their request or (if then held by the Issuers) shall be
discharged from such trust; and the Holder of such Note shall thereafter look
only to the Issuers for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Issuers as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Issuers cause to be published once, in the New York
Times and The Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified

 
                                     -90-

therein, which shall not be less than 30 days from the date of such notification
or publication, any unclaimed balance of such money then remaining will be
repaid to the Issuers.

          SECTION 8.07.  Reinstatement.
                         ------------- 

          If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Issuers' obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Issuers make any
payment of principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Issuers shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.

                                 ARTICLE NINE

                       AMENDMENT, SUPPLEMENT AND WAIVER

          SECTION 9.01.  Without Consent of Holders of Notes.
                         ----------------------------------- 

          Notwithstanding Section 9.02 of this Indenture, the Issuers, the
Guarantors and the Trustee may amend or supplement this Indenture, the
Guarantees with respect to the Notes or the Notes without the consent of any
Holder of a Note:

          (a)  to cure any ambiguity, defect or inconsistency;

          (b)  to provide for uncertificated Notes in addition to or in place of
     certificated Notes or to alter the provisions of Article 2 hereof
     (including the related definitions) in a manner that does not materially
     adversely affect any Holder;

          (c)  to provide for the assumption of an Issuer's or a Guarantor's
     obligations to the Holders of the Notes by a successor to an Issuer or a
     Guarantor pursuant to Article 5 or Article 10 hereof;

          (d)  to make any change that would provide any additional rights or
     benefits to the Holders of the Notes or that does not adversely affect the
     legal rights hereunder of any Holder of the Note;

 
                                     -91-

          (e)  to comply with requirements of the SEC in order to effect or
     maintain the qualification of this Indenture under the TIA; or

          (f)  to allow any Guarantor to execute a supplemental indenture and/or
     a Guarantee with respect to the Notes.

          Upon the request of the Issuers accompanied by resolutions of the
Boards of Directors of each of the Issuers authorizing the execution of any such
amended or supplemental Indenture, and upon receipt by the Trustee of the
documents described in Section 7.02 hereof, the Trustee shall join with the
Issuers and the Guarantors in the execution of any amended or supplemental
Indenture authorized or permitted by the terms of this Indenture and to make any
further appropriate agreements and stipulations that may be therein contained,
but the Trustee shall not be obligated to enter into such amended or
supplemental Indenture that affects its own rights, duties or immunities under
this Indenture or otherwise.

          SECTION 9.02.  With Consent of Holders of Notes.
                         -------------------------------- 

          Except as provided below in this Section 9.02, the Issuers and the
Trustee may amend or supplement this Indenture (including Section 3.09, 4.10 and
4.15 hereof), the Guarantees with respect to the Notes and the Notes with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding voting as a single class (including consents obtained in
connection with a tender offer or exchange offer for, or purchase of, the
Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or
Event of Default (other than a Default or Event of Default in the payment of the
principal of, premium, if any, or interest on the Notes, except a payment
default resulting from an acceleration that has been rescinded) or compliance
with any provision of this Indenture, the Guarantees with respect to the Notes
or the Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes voting as a single class
(including consents obtained in connection with a tender offer or exchange offer
for, or purchase of, the Notes).

          Upon the request of the Issuers accompanied by resolutions of the
Boards of Directors of each of the Issuers authorizing the execution of any such
amended or supplemental Indenture, and upon the filing with the Trustee of
evidence satisfactory to the Trustee of the consent of the Holders of Notes as
aforesaid, and upon receipt by the Trustee of the documents described in Section
7.02 hereof, the Trustee shall join with the Issuers in the execution of such
amended or supplemental Indenture unless such amended or supplemental Indenture
directly affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its discretion, but
shall not be obligated to, enter into such amended or supplemental Indenture.

 
                                     -92-

          It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.

          After an amendment, supplement or waiver under this Section becomes
effective, the Issuers shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Issuers to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding voting as a
single class may waive compliance in a particular instance by the Issuers with
any provision of this Indenture or the Notes. However, without the consent of
each Holder affected, an amendment or waiver under this Section 9.02 may not
(with respect to any Notes held by a non-consenting Holder):

          (a)  reduce the principal amount of Notes whose Holders must consent
     to an amendment, supplement or waiver;

          (b)  reduce the principal of or change the fixed maturity of any Note
     or alter or waive any of the provisions with respect to the redemption of
     the Notes except as provided above with respect to Sections 3.09, 4.10 and
     4.15 hereof;

          (c)  reduce the rate of or change the time for payment of interest,
     including default interest, on any Note;

          (d)  waive a Default or Event of Default in the payment of principal
     of or premium, if any, or interest on the Notes (except a rescission of
     acceleration of the Notes by the Holders of at least a majority in
     aggregate principal amount of the then outstanding Notes and a waiver of
     the payment default that resulted from such acceleration;

          (e)  make any change in the provisions of this Indenture relating to
     waivers of past Defaults or the rights of Holders of Notes to receive
     payments of principal of or interest on the Notes;

          (f)  make any change in Section 6.04 or 6.07 hereof or in the
     foregoing amendment and waiver provisions; or

          (g)  release any Guarantor from any of its obligations under its
     Guarantee of the Notes or this Indenture, except in accordance with the
     terms of this Indenture.

          (h)  make any Note payable in money other than that stated in the
     Notes,

 
                                     -93-

          (i)  waive a redemption payment with respect to any Note (other than a
     payment required by Sections 4.10 or 4.15 hereof).

          SECTION 9.03.  Compliance with Trust Indenture Act.
                         ----------------------------------- 

          Every amendment or supplement to this Indenture or the Notes shall be
set forth in a amended or supplemental Indenture that complies with the TIA as
then in effect.

          SECTION 9.04.  Revocation and Effect of Consents.
                         --------------------------------- 

          Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.

          SECTION 9.05.  Notation on or Exchange of Notes.
                         -------------------------------- 

          The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Issuers in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.

          Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.

          SECTION 9.06.  Trustee to Sign Amendments, etc.
                         ------------------------------- 

          The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article Nine if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Issuers may not sign an amendment or supplemental Indenture until the Boards
of Directors of each of the Issuers approve it. In executing any amended or
supplemental indenture, the Trustee shall be entitled to receive and (subject to
Section 7.01 hereof) shall be fully protected in relying upon, in addition to
the documents required by Section 11.04 hereof, an Officer's Certificate and an
Opinion of Counsel stating that the execution of such amended or supplemental
indenture is authorized or permitted by this Indenture.

 
                                     -94-


                                  ARTICLE TEN

                                  GUARANTEES

          SECTION 10.01.  Guarantee.
                          --------- 

          Subject to this Article 10, each of the Guarantors hereby, jointly and
severally, unconditionally guarantees to each Holder of a Note authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of this Indenture, the Notes or
the obligations of the Issuers hereunder or thereunder, that: (a) the principal
of and interest on the Notes will be promptly paid in full when due, whether at
maturity, by acceleration, redemption or otherwise, and interest on the overdue
principal of and interest on the Notes, if any, if lawful, and all other
obligations of the Issuers to the Holders or the Trustee hereunder or thereunder
will be promptly paid in full or performed, all in accordance with the terms
hereof and thereof; and (b) in case of any extension of time of payment or
renewal of any Notes or any of such other obligations, that same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or otherwise.
Failing payment when due of any amount so guaranteed or any performance so
guaranteed for whatever reason, the Guarantors shall be jointly and severally
obligated to pay the same immediately. Each Guarantor agrees that this is a
guarantee of payment and not a guarantee of collection.

          The Guarantors hereby agree that their obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the recovery of any judgment against the Issuers, any action
to enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor. Each Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of either Issuer, any right to require
a proceeding first against either Issuer, protest, notice and all demands
whatsoever and covenant that this Guarantee shall not be discharged except by
complete performance of the obligations contained in the Notes and this
Indenture.

          If any Holder or the Trustee is required by any court or otherwise to
return to the Issuers, the Guarantors or any custodian, trustee, liquidator or
other similar official acting in relation to either the Issuers or the
Guarantors, any amount paid by either to the Trustee or such Holder, this
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect.

 
                                     -95-

          Each Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby. Each
Guarantor further agrees that, as between the Guarantors, on the one hand, and
the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article 6 hereof
for the purposes of this Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such obligations as provided in Article 6 hereof, such obligations (whether or
not due and payable) shall forthwith become due and payable by the Guarantors
for the purpose of this Guarantee. The Guarantors shall have the right to seek
contribution from any non-paying Guarantor so long as the exercise of such right
does not impair the rights of the Holders under the Guarantee.

          SECTION 10.02.  Limitation on Guarantor Liability.
                          --------------------------------- 

          Each Guarantor, and by its acceptance of Notes, each Holder, hereby
confirms that it is the intention of all such parties that the Guarantee of the
Notes of such Guarantor not constitute a fraudulent transfer or conveyance for
purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform
Fraudulent Transfer Act or any similar federal or state law to the extent
applicable to any Guarantee. To effectuate the foregoing intention, the Trustee,
the Holders and the Guarantors hereby irrevocably agree that the obligations of
each Guarantor under its Guarantee of the Notes and this Article 10 shall be
limited to the maximum amount as will, after giving effect to such maximum
amount and all other contingent and fixed liabilities of such Guarantor that are
relevant under such laws, and after giving effect to any collections from,
rights to receive contribution from or payments made by or on behalf of any
other Guarantor in respect of the obligations of such other Guarantor under this
Article 10, result in the obligations of such Guarantor under its Guarantee of
the Notes not constituting a fraudulent transfer or conveyance under applicable
law.

          SECTION 10.03.  Execution and Delivery of Guarantee.
                          ----------------------------------- 

          To evidence its Guarantee set forth in Section 10.01, each Guarantor
hereby agrees that a notation of such Guarantee substantially in the form
included in Exhibit E shall be endorsed by an Officer of such Guarantor on each
Note authenticated and delivered by the Trustee and that this Indenture shall be
executed on behalf of such Guarantor by its President or one of its Vice
Presidents.

          Each Guarantor hereby agrees that its Guarantee set forth in Section
10.01 shall remain in full force and effect notwithstanding any failure to
endorse on each Note a notation of such Guarantee.

 
                                     -96-

          If an Officer whose signature is on this Indenture or on the Guarantee
no longer holds that office at the time the Trustee authenticates the Note on
which a Guarantee is endorsed, the Guarantee shall be valid nevertheless.

          The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantee set forth in
this Indenture on behalf of the Guarantors.

          In the event that the Issuers create or acquire any new Subsidiaries
subsequent to the date of this Indenture, if required by Section 4.19 hereof,
the Issuers shall cause such Subsidiaries to execute supplemental indentures to
this Indenture and Guarantees in accordance with Section 4.19 hereof and this
Article 10, to the extent applicable. No Subsidiary of an Issuer is required to
endorse a Subsidiary Guarantee unless such Subsidiary is required to, and does,
simultaneously execute a Guarantee of the Senior Credit Facilities.

          SECTION 10.04.  Subsidiary Guarantors May Consolidate, Etc., on
                          Certain Terms.
                          -----------------------------------------------

          Except as otherwise provided in Section 10.05, no Subsidiary Guarantor
may consolidate with or merge with or into (whether or not such Subsidiary
Guarantor is the surviving Person) another corporation, Person or entity whether
or not affiliated with such Subsidiary Guarantor unless:

          (a)  subject to Section 10.05 hereof, the Person formed by or
     surviving any such consolidation or merger (if other than such Subsidiary
     Guarantor) assumes all the obligations of such Subsidiary Guarantor
     pursuant to a supplemental indenture in form and substance reasonably
     satisfactory to the Trustee, under the Notes, this Indenture and the
     Registration Rights Agreement;

          (b)  immediately after giving effect to such transaction, no Default
     or Event of Default exists; and

          (c)  the Company would be permitted by virtue of the Company's pro
     forma Fixed Charge Coverage Ratio, immediately after giving effect to such
     transaction, to incur at least $1.00 of additional Indebtedness pursuant to
     the Fixed Charge Coverage Ratio test set forth in the first paragraph of
     Section 4.09 hereof.

          In the event of any such consolidation, merger, sale or conveyance and
upon the assumption by the successor Person, by supplemental indenture, executed
and delivered to the Trustee and satisfactory in form to the Trustee, of the
Subsidiary Guarantee endorsed

 
                                     -97-

upon the Notes and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Subsidiary Guarantor, such
successor Person shall succeed to and be substituted for the Subsidiary
Guarantor with the same effect as if it had been named herein as a Subsidiary
Guarantor. Such successor Person thereupon may cause to be signed any or all of
the Subsidiary Guarantees to be endorsed upon all of the Notes issuable
hereunder which theretofore shall not have been signed by the Issuers and
delivered to the Trustee. All the Subsidiary Guarantees so issued shall in all
respects have the same legal rank and benefit under this Indenture as the
Subsidiary Guarantees theretofore and thereafter issued in accordance with the
terms of this Indenture as though all of such Subsidiary Guarantees had been
issued at the date of the execution hereof.

          Except as set forth in Articles 4 and 5 hereof, and notwithstanding
clause (a) above, nothing contained in this Indenture or in any of the Notes
shall prevent any consolidation or merger of a Subsidiary Guarantor with or into
the Issuers or another Subsidiary Guarantor, or shall prevent any sale or
conveyance of the property of a Subsidiary Guarantor as an entirety or
substantially as an entirety to the Issuers or another Subsidiary Guarantor.

          SECTION 10.05.  Releases Following Sale of Assets.
                          --------------------------------- 

          In the event of a sale or other disposition of all of the assets of
any Subsidiary Guarantor, by way of merger, consolidation or otherwise, a sale
or other disposition of all of the capital stock of any Subsidiary Guarantor or
the designation of a Subsidiary Guarantor as an Unrestricted Subsidiary in
accordance with the terms of this Indenture, then such Subsidiary Guarantor (in
the event of a sale or other disposition, by way of merger, consolidation or
otherwise, of all of the capital stock of such Subsidiary Guarantor) or the
corporation acquiring the property (in the event of a sale or other disposition
of all or substantially all of the assets of such Subsidiary Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of this Indenture, including without
limitation Section 4.10 hereof. Upon delivery by each Issuer to the Trustee of
an Officers' Certificate and an Opinion of Counsel to the effect that such sale
or other disposition was made by the Issuers in accordance with the applicable
provisions of this Indenture, including without limitation Section 4.10 hereof,
the Trustee shall execute any documents reasonably required in order to evidence
the release of any Subsidiary Guarantor from its obligations under its
Subsidiary Guarantee.

          Any Subsidiary Guarantor not released from its obligations under its
Subsidiary Guarantee shall remain liable for the full amount of principal of and
interest on the Notes and for the other obligations of any Subsidiary Guarantor
under this Indenture as provided in this Article 10.

 
                                     -98-

                                ARTICLE ELEVEN

                                 MISCELLANEOUS

          SECTION 11.01. Trust Indenture Act Controls.
                         ---------------------------- 

          If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA (S) 318(c), the imposed duties shall control.

          SECTION 11.02. Notices.
                         ------- 

          Any notice or communication by the Issuers, any Guarantor or the
Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified, return receipt requested),
telex, telecopier or overnight air courier guaranteeing next day delivery, to
the others' address

          If to the Issuers and/or any Guarantor:

          AEI Resources, Inc.
          1500 North Big Run Road
          Ashland, Kentucky 41102
          Telecopier No.: (606) 928-0450
          Attention: Treasurer/Controller

          With a copy to:

          Brown, Todd & Heyburn, PLLC
          2700 Lexington Financial Center
          Lexington, Kentucky 40507-1749
          Telecopier No.: (606) 231-0011
          Attention: Paul Sullivan, Esq.

          If to the Trustee:

          IBJ Schroder Bank & Trust Company
          One State Street
          New York, New York 10004
          Telecopier No.: (212) 858-2000
          Attention: Corporate Trust Administration

 
                                     -99-

          The Issuers, any Guarantor or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.

          All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.

          Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar.  Any notice or communication shall also be so mailed to any
Person described in TIA (S) 313(c), to the extent required by the TIA.  Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders.

          If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.

          If the Issuers mail a notice or communication to Holders, they shall
mail a copy to the Trustee and each Agent at the same time.

          SECTION 11.03. Communication by Holders of Notes with Other 
                         Holders of Notes.
                         --------------------------------------------

          Holders may communicate pursuant to TIA (S) 312(b) with other Holders
with respect to their rights under this Indenture or the Notes.  The Issuers,
the Trustee, the Registrar and anyone else shall have the protection of TIA (S)
312(c).

          SECTION 11.04. Certificate and Opinion as to Conditions 
                         Precedent.
                         ----------------------------------------

          Upon any request or application by the Issuers to the Trustee to take
any action under this Indenture, each of the Issuers shall furnish to the
Trustee:

          (a)  an Officers' Certificate in form and substance reasonably
     satisfactory to the Trustee (which shall include the statements set forth
     in Section 11.05 hereof) stating that, in the opinion of the signers, all
     conditions precedent and covenants, if any, provided for in this Indenture
     relating to the proposed action have been satisfied; and

 
                                     -100-

          (b)  an Opinion of Counsel in form and substance reasonably
     satisfactory to the Trustee (which shall include the statements set forth
     in Section 11.05 hereof) stating that, in the opinion of such counsel, all
     such conditions precedent and covenants have been satisfied.

          SECTION 11.05. Statements Required in Certificate or Opinion.
                         --------------------------------------------- 

          Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA
(S) 314(e) and shall include:

          (a)  a statement that the Person making such certificate or opinion
     has read such covenant or condition;

          (b)  a brief statement as to the nature and scope of the examination
     or investigation upon which the statements or opinions contained in such
     certificate or opinion are based;

          (c)  a statement that, in the opinion of such Person, he or she has
     made such examination or investigation as is necessary to enable him to
     express an informed opinion as to whether or not such covenant or condition
     has been satisfied; and

          (d)  a statement as to whether or not, in the opinion of such Person,
     such condition or covenant has been satisfied.

          SECTION 11.06. Rules by Trustee and Agents.
                         --------------------------- 

          The Trustee may make reasonable rules for action by or at a meeting of
Holders.  The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.

          SECTION 11.07. No Personal Liability of Directors, Officers, 
                         Employees and Stockholders.
                         ---------------------------------------------

          No past, present or future director, officer, employee, incorporator
or stockholder of either Issuer or any Guarantor, as such, shall have any
liability for any obligations of the Issuers or such Guarantor under the Notes,
the Guarantees, this Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation.  Each Holder by accepting a Note
waives and releases all such liability.  The waiver and release are part of the
consideration for issuance of the Notes.

 
                                     -101-

          SECTION 11.08. Governing Law.
                         ------------- 

          THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE GUARANTEES WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

          SECTION 11.09. No Adverse Interpretation of Other Agreements.
                         --------------------------------------------- 

          This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Issuers or their Subsidiaries or of any other Person.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.

          SECTION 11.10. Successors.
                         ---------- 

          All agreements of the Issuers in this Indenture and the Notes shall
bind their successors.  All agreements of the Trustee in this Indenture shall
bind its successors.

          SECTION 11.11. Severability.
                         ------------ 

          In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

          SECTION 11.12. Counterpart Originals.
                         --------------------- 

          The parties may sign any number of copies of this Indenture.  Each
signed copy shall be an original, but all of them together represent the same
agreement.

          SECTION 11.13. Table of Contents, Headings, etc.
                         -------------------------------- 

          The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.

                         [SIGNATURES ON FOLLOWING PAGE]

 
                                  SIGNATURES
Dated as of December 14, 1998

                                        AEI RESOURCES, INC.

                                        By: /s/ John E. Baum
                                           _____________________________________
                                           Name: 
                                           Title:

                                        AEI HOLDING COMPANY, INC.

                                        By:  /s/ John E. Baum
                                             ___________________________________
                                             Name:
                                             Title:

 
                                        IBJ SCHRODER BANK & TRUST COMPANY,
                                        as trustee
          
                                        By:  /s/ Terence Rawlins
                                             ___________________________________
                                             Name: Terence Rawlins
                                             Title: Assistant Vice President

 
                                   Confirmed and agreed to as Guarantors:

                                        17 WEST MINING, INC.,               
                                        ACECO, INC.,                        
                                        ADDINGTON MINING, INC.,             
                                        AEI COAL SALES COMPANY, INC.,       
                                        AEI RESOURCES HOLDING, INC.,        
                                        AMERICOAL DEVELOPMENT COMPANY,      
                                        APPALACHIAN REALTY COMPANY,         
                                        AYRSHIRE LAND COMPANY,              
                                        BELLAIRE TRUCKING COMPANY,          
                                        BLUEGRASS COAL DEVELOPMENT COMPANY, 
                                        BOWIE RESOURCES LIMITED             
                                        CC COAL COMPANY,                    
                                        COAL VENTURES HOLDING               
                                         COMPANY, INC.,                     
                                        EAST KENTUCKY ENERGY CORPORATION,   
                                        EMPLOYEE BENEFITS MANAGEMENT, INC., 
                                        ENCOAL CORPORATION,                 
                                        ENERZ CORPORATION,                  
                                        EVERGREEN MINING COMPANY,           
                                        FAIRVIEW LAND COMPANY,              
                                        FRANKLIN COAL SALES COMPANY,        
                                        GRASSY COVE COAL MINING COMPANY,    
                                        HERITAGE MINING COMPANY,            
                                        HIGHLAND COAL, INC.,                
                                        IKERD-BANDY CO., INC.,              
                                        KERMIT COAL COMPANY,                
                                        LESLIE RESOURCES, INC.,             
                                        LESLIE RESOURCES MANAGEMENT, INC.,  
                                        MEADOWLARK, INC.,                   
                                        MEGA MINERALS, INC.,                
                                        MIDWEST COAL SALES COMPANY,         
                                        MID-VOL LEASING, INC.               
                                        MINING TECHNOLOGIES, INC.,          
                                        MOUNTAIN-CLAY, INCORPORATED (d/b/a  
                                          Mountain Clay, Inc.),             
                                        PHOENIX LAND COMPANY,               
                                        PREMIUM PROCESSING, INC.,           
                                        PREMIUM COAL DEVELOPMENT COMPANY,   
                                        PRO-LAND, INC. (d/b/a Kem Coal Company)
                                        R. & F. COAL COMPANY,               
                                        RIVER COAL COMPANY, INC.,           

 
                                        ROARING CREEK COAL COMPANY,            
                                        SHIPYARD RIVER COAL TERMINAL COMPANY,  
                                        STRAIGHT CREEK COAL RESOURCES COMPANY, 
                                        TENNESSEE MINING, INC.,                
                                        TURRIS COAL COMPANY,                   
                                        WYOMING COAL TECHNOLOGY, INC.,         
                                        ZEIGLER COAL HOLDING COMPANY,          
                                        ZEIGLER ENVIRONMENTAL SERVICES COMPANY,
                                        ZENERGY, INC.,                          
                                          each as Guarantor


                                        By:  /s/ John E. Baum
                                             ___________________________________
                                             Name:
                                             Title:

 
                       BEECH COAL COMPANY,               
                       CANNELTON, INC.,                  
                       CANNELTON INDUSTRIES, INC.,       
                       CANNELTON LAND COMPANY,           
                       CANNELTON SALES COMPANY,          
                       DUNN COAL & DOCK COMPANY,         
                       HAYMAN HOLDINGS, INC.,            
                       KANAWHA CORPORATION,              
                       KINDILL HOLDING, INC.,            
                       KINDILL MINING, INC.,             
                       MIDWEST COAL COMPANY ,            
                       MOUNTAINEER COAL DEVELOPMENT      
                         COMPANY,                        
                       MOUNTAIN COALS CORPORATION,       
                       OLD BEN COAL COMPANY,             
                       WEST VIRGINIA-INDIANA COAL HOLDING
                         COMPANY, INC.,                  
                         each as Guarantor                
                       
                       
                       By:  /s/ William H. Haselhoff
                            ___________________________________
                            Name: William H. Haselhoff
                            Title: Vice President of Administration

 
                                        BENTLEY COAL COMPANY,                   
                                        SKYLINE COAL COMPANY,                   
                                        KENTUCKY PRINCE MINING COMPANY,         
                                          each as Guarantor                     
                                                                                
                                                                                
                                        By:  GRASSY COVE COAL MINING   COMPANY, 
                                                                                
                                             ROARING CREEK COAL COMPANY,   
                                               each as General Partner of each
                                               of the entities listed above
                                                                               

                                        By:  /s/ John E. Baum
                                             ___________________________________
                                             Name: John E. Baum
                                             Title:                            

 
                                        NUCOAL, LLC,               
                                          as Guarantor             
                                                                   
                                        By:  AMERICOAL DEVELOPMENT COMPANY   
                                                                  
                                             ENCOAL CORPORATION   
                                               each as Member     
                                                                   
                                        By:  /s/ John E. Baum
                                             ___________________________________
                                             Name: John E. Baum     
                                             Title:               

 
                                  EXHIBIT A-1
                                (FACE OF NOTE)

================================================================================

          (a)  CUSIP/CINS  ______________

          10 1/2% Series A Senior Notes due 2005

No.                                                             $_______________

AEI RESOURCES, INC. AND
AEI HOLDING COMPANY, INC.

promise to pay to_______________________________________________________________

or registered assigns,

  the principal sum of__________________________________________________________

Dollars on December 15, 2005.

Interest Payment Dates:  June 15 and December 15

Record Dates:  June 1 and December 1

                                                  Dated: December 14, 1998

                                                  AEI RESOURCES, INC.


                                                  By:  _________________________
                                                       Name:
                                                       Title:


                                                  By:  _________________________
                                                       Name:
                                                       Title:

                                     A-1-1

 
                                             AEI HOLDING COMPANY, INC.


                                             By:  ______________________________
                                                  Name:
                                                  Title:

                                             By:  ______________________________
                                                  Name:
                                                  Title:


This is one of the Global
Notes referred to in the
within-mentioned Indenture:

IBJ Schroder Bank & Trust Company,
as Trustee
By:_______________________________

                                     A-1-2

 
                                 (BACK OF NOTE)

                         10 1/2% SENIOR NOTES DUE 2005

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (SUBJECT TO THE DELIVERY OF SUCH EVIDENCE, IF ANY REQUIRED
UNDER THE INDENTURE PURSUANT TO WHICH THIS NOTE IS ISSUED) AND IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER JURISDICTION.  EACH HOLDER OF THE SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER
EXEMPTION UNDER THE SECURITIES ACT.  THE HOLDER OF THE SECURITY EVIDENCED HEREBY
AGREES FOR THE BENEFIT OF THE COMPANY AND OLD AEI THAT (A) SUCH SECURITY MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1)(a) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (B) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (C) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (D)
IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), AS LONG AS THE REGISTRAR RECEIVES A CERTIFICATION OF THE TRANSFEROR
AND AN OPINION OF COUNSEL THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITES
ACT, (2) TO THE COMPANY AND OLD AEI OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
THE HOLDER WILL AND EACH SUBSEQUENT HOLDER IS REQUIRED TO NOTIFY ANY PURCHASER
FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICITON SET FORTH IN
(A) ABOVE.

THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUS-

                                     A-1-3

 
TEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07
OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN
PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE
DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE
INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY
WITH THE PRIOR WRITTEN CONSENT OF AEI RESOURCES, INC. AND AEI HOLDING COMPANY,
INC.

          Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.

          1.   Interest.  AEI Resources, Inc., a Delaware corporation (the
"Company") and AEI Holding Company, Inc., a Delaware corporation ("Old AEI" and,
together with the Company, the "Issuers") promise to pay interest on the
principal amount of this Note at 10 1/2% per annum from December 15, 1998 until
maturity and shall pay the Liquidated Damages payable pursuant to Section 5 of
the Registration Rights Agreement referred to below.  The Issuers will pay
interest and Liquidated Damages semi-annually on December 15 and June 15 of each
year, or if any such day is not a Business Day, on the next succeeding Business
Day (each an "Interest Payment Date").  Interest on the Notes will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from the date of issuance; provided that if there is no existing Default
in the payment of interest, and if this Note is authenticated between a record
date referred to on the face hereof and the next succeeding Interest Payment
Date, interest shall accrue from such next succeeding Interest Payment Date;
provided, further, that the first Interest Payment Date shall be December 15,
1998.  The Issuers shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1% per annum in excess of the rate
then in effect; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace periods) from time to
time on demand at the same rate to the extent lawful.  Interest will be computed
on the basis of a 360-day year of twelve 30-day months.

          2.   Method of Payment.  The Issuers will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the December 1 or June 1
next preceding the Interest Payment Date, even if such Notes are canceled after
such record date and on or before such Interest Payment Date, except as provided
in Section 2.12 of the Indenture with respect to defaulted interest.  The Notes
will be payable as to principal, premium and Liquidated Damages, if any, and
interest at the office or agency of the Issuers maintained for such purpose
within or without the City and State of New York, or, at the option of the
Issuers, payment of interest and Liquidated Damages may be made by check mailed
to the 

                                     A-1-4

 
Holders at their addresses set forth in the register of Holders, and
provided that payment by wire transfer of immediately available funds will be
required with respect to principal of and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the Issuers or the Paying Agent.  Such
payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts;
provided that Liquidated Damages may be paid through the issuance of additional
Notes having a value at the time of issuance equal to the amount of Liquidated
Damages so paid.

          3.   Paying Agent and Registrar.  Initially, IBJ Schroder Bank & Trust
Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar.  The Issuers may change any Paying Agent or Registrar without notice
to any Holder.  Either Issuer or any of their Subsidiaries may act in any such
capacity.

          4.   Indenture .  The Issuers issued the Notes under an Indenture
dated as of December 14, 1998 ("Indenture") among the Issuers, the guarantors
named therein and the Trustee.  The terms of the Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb).  The Notes
are subject to all such terms, and Holders are referred to the Indenture and
such Act for a statement of such terms.  To the extent any provision of this
Note conflicts with the express provisions of the Indenture, the provisions of
the Indenture shall govern and be controlling.  The Notes are obligations of the
Issuers limited to $200.0 million in aggregate principal amount, plus amounts,
if any, issued to pay Liquidated Damages on outstanding Notes as set forth in
Paragraph 2 hereof.

          5.   Optional Redemption.

          (a)  The Notes will be subject to redemption at any time at the option
of the Company, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages
thereon to the applicable redemption date if redeemed during the twelve-month
period beginning on each December 15 of the years indicated below:

 
 
          YEAR                                    PERCENTAGE
          ----                                    ----------
                                                
          2002..........................          105.250%  
          2003..........................          103.500%  
          2004 and thereafter...........          101.750%   
 

          In addition, prior to December 15, 2002, the Notes will be redeemable
at a price equal to 100% of the principal amount thereof plus an applicable Make
Whole Premium, plus, to the extent not included in the Make Whole Premium,
accrued and unpaid interest and Liquidated Damages, if any, to the date of
redemption.

                                     A-1-5

 
          For purposes of the foregoing, the "Make Whole Premium" means, with
respect to a Note, an amount equal to the greater of (A) the redemption price of
such Note on December 15, 2002 and (B) the excess of, if any, (1) the present
value of the remaining interest, premium, if any, and principal payments due on
such Note as if such Note were redeemed on December 15, 2002, computed using a
discount rate equal to the Treasury Rate plus 50 basis points, over (2) the
outstanding principal amount of such Note.

          "Treasury Rate" means the yield to maturity at the time of computation
of United States Treasury securities with a constant maturity (as compiled by,
and published in, the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the date
fixed for redemption of the Notes (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the then remaining Weighted Average Life to Maturity of the Notes;
provided, however, that if the Weighted Average Life to Maturity of the Notes is
not equal to the constant maturity of a United States Treasury security for
which a weekly average yield is given, the Treasury Rate shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such yields
are given, except that if the Weighted Average Life to Maturity of the Notes is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.

          (b)  Notwithstanding the foregoing, at any time on or before December
15, 2000, the Company may on any one or more occasions redeem up to 35% of the
aggregate principal amount of Notes ever issued under this Indenture at a
redemption price equal to the principal amount thereof plus a premium equal 110
1/2% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the redemption date, with the net cash
proceeds of an initial public offering of common stock of the Company or
Holdings (to the extent that the net proceeds therefrom are contributed to the
Company as common equity capital); provided that at least 65% of the aggregate
principal amount of Notes issued on the date of this Indenture remains
outstanding immediately after the occurrence of such redemption (excluding Notes
held by Holdings or the Company and their Subsidiaries) and provided, further,
that such redemption shall occur within 45 days of the date of the closing of
such initial public offering.

          6.   Mandatory Redemption.

          Except as set forth in paragraph 7 below, the Issuers shall not be
required to make mandatory redemption payments with respect to the Notes.

                                     A-1-6

 
          7.   Repurchase at Option of Holder.

          (a)  If there is a Change of Control, each Holder of the Notes will
have the right to require the Issuers to make an offer (a "Change of Control
Offer") to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of each Holder's Notes at a purchase price equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of purchase (the "Change of
Control Payment").  Within 10 days following any Change of Control, the Issuers
shall mail a notice to each Holder setting forth the procedures governing the
Change of Control Offer as required by the Indenture.

          (b)  If the Issuers or a Subsidiary consummates any Asset Sales,
within five days of each date on which the aggregate amount of Excess Proceeds
exceeds $2.0 million, the Issuers shall commence an offer to all Holders of
Notes (as "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to
purchase the maximum principal amount of Notes that may be purchased out of the
Excess Proceeds at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the date fixed for the closing of such offer in accordance
with the procedures set forth in the Indenture. To the extent that the aggregate
amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Issuers (or such Subsidiary) may use such deficiency for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Holders of Notes that are the
subject of an offer to purchase will receive an Asset Sale Offer from the
Issuers prior to any related purchase date and may elect to have such Notes
purchased by completing the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Notes.

          8.   Notice of Redemption.  Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address.  Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed.  On and after the redemption date interest ceases to accrue on Notes
or portions thereof called for redemption.

          9.   Denominations, Transfer, Exchange.  The Notes are in registered
form in denominations of $1,000 and integral multiples of $1,000.  The transfer
of Notes may be registered and Notes may be exchanged as provided in the
Indenture.  The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuers may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture.  The Issuers need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part.  Also, the Issuers
need not ex-

                                     A-1-7

 
change or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date and
the corresponding Interest Payment Date.

          10.  Persons Deemed Owners.  The registered Holder of a Note may be
treated as its owner for all purposes.

          11.  Amendment, Supplement and Waiver.  Subject to certain exceptions,
the Indenture, the Guarantees or the Notes may be amended or supplemented with
the consent of the Holders of at least a majority in principal amount of the
then outstanding Notes voting as a single class and any existing default or
compliance with any provision of the Indenture, the Guarantees or the Notes may
be waived with the consent of the Holders of a majority in principal amount of
the then outstanding Notes voting as a single class.  Without the consent of any
Holder of a Note, the Indenture, the Guarantees or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Issuers' or Guarantor's obligations to Holders
of the Notes in case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, to comply with the requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act or to
allow any Guarantor to execute a supplemental indenture to the Indenture and/or
a Guarantee with respect to the Notes.

          12.  Defaults and Remedies.  Each of the following constitutes an
Event of Default: (a) default for 30 days in the payment when due of interest
on, or Liquidated Damages, if any, with respect to, the Notes; (b) default in
payment when due of the principal of or premium, if any, on the Notes; (c)
failure by the Company or any of its Subsidiaries to make the offer required or
to purchase any of the Notes as required under the provisions described under
Section 4.10 or Section 4.15; (d) failure by the Company or any of its
Subsidiaries for 30 days after notice to comply with the provisions of Section
4.07 or Section 4.09, or failure by the Company or any of its Subsidiaries for
60 days after notice to comply with any of its other agreements in the Indenture
or the Notes; (e) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or
is created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default 

                                     A-1-8

 
or the maturity of which has been so accelerated, aggregates $25.0 million or
more; (f) failure by the Company or any of its Restricted Subsidiaries or any
group of Restricted Subsidiaries that, taken as a whole, would be a Significant
Subsidiary to pay final judgments aggregating in excess of $25.0 million, which
judgments are not paid, discharged or stayed for a period of 60 days; (g) except
as permitted by the Indenture, any Guarantee of the Notes shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any reason
to be in full force and effect or any Guarantor, or any Person acting on behalf
of any Guarantor, shall deny or disaffirm its obligations under its Guarantee of
the Notes; and (h) certain events of bankruptcy or insolvency with respect to
the Company, any of its Significant Subsidiaries that are Restricted
Subsidiaries or any group of Restricted Subsidiaries that, taken as a whole,
would be a Significant Subsidiary. If any Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Notes may declare all the Notes to be due and payable.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Notes will become
due and payable without further action or notice. Holders may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes. Each Issuer is required
to deliver to the Trustee annually a statement regarding compliance with the
Indenture, and each Issuer is required upon becoming aware of any Default or
Event of Default, to deliver to the Trustee a statement specifying such Default
or Event of Default.

          13.  Trustee Dealings with Issuers.  The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Issuers or their Affiliates, and may otherwise deal with the
Issuers or their Affiliates, as if it were not the Trustee.

          14.  No Recourse Against Others.  A director, officer, employee,
incorporator or stockholder, of either Issuer, as such, shall not have any
liability for any obligations of the Issuers under the Notes or the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation.  Each Holder by accepting a Note waives and releases all such
liability.  The waiver and release are part of the consideration for the
issuance of the Notes.

          15.  Authentication.  This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.

                                     A-1-9

 
          16.  Abbreviations.  Customary abbreviations may be used in the name
of a Holder or an assignee, such as:  TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).

          17.  Additional Rights of Holders of Restricted Global Notes and
Restricted Definitive Notes.  In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of December 14, 1998, among the Issuers, the Guarantors and
the party named on the signature pages thereof (the "Registration Rights
Agreement").

          18.  CUSIP Numbers.  Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuers have caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders.  No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.

          The Issuers will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:

          AEI Resources, Inc.
          1500 North Big Run Road
          Ashland, Kentucky  41102
          Attention: Chief Financial Officer

                                    A-1-10

 
                                ASSIGNMENT FORM

To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to

________________________________________________________________________________
                 (Insert assignee's soc. sec. or tax I.D. no.)

________________________________________________________________________________


________________________________________________________________________________


________________________________________________________________________________


________________________________________________________________________________
(Print or type assignee's name, address and zip code)

and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Issuers.  The agent may substitute
another to act for him.

Date:  ____________
                                        Your Signature:_________________________

                                        (Sign exactly as your name appears on 
                                        the face of this Note)

Signature Guarantee:____________________________________

                                    A-1-11

 
                      OPTION OF HOLDER TO ELECT PURCHASE

          If you want to elect to have this Note purchased by the Issuers
pursuant to Section 4.10 or 4.15 of the Indenture, check the applicable box
below:

          [_] Section 4.10         [_] Section 4.15

          If you want to elect to have only part of the Note purchased by the
Issuers pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:  $________

Date: _____________              Your Signature:________________________________
                                 (Sign exactly as your name appears on the Note)

                                 Tax Identification No:_________________________

Signature Guarantee:____________________________

                                    A-1-12

 
             SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE

          The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note, have
been made:



                                                               Principal Amount
                   Amount of decrease   Amount of increase   of this Global Note         Signature of
                           in              in Principal         following such        authorized officer
                    Principal Amount         Amount of           decrease (or           of Trustee or
Date of Exchange   of this Global Note   this Global Note         increase)             Note Custodian
- ----------------   -------------------  -------------------  -------------------     --------------------
                                                                          


                                    A-1-13

 
                                 [EXHIBIT A-2]
                 (FACE OF REGULATION S TEMPORARY GLOBAL NOTE)

================================================================================

                                                                      CUSIP/CINS

                    10 1/2% Series A Senior Notes due 2005

No.                                                               $__________

AEI RESOURCES, INC. AND

AEI HOLDING COMPANY, INC.


promise to pay to  ___________________________________________

or registered assigns,

the principal sum of _________________________________________

Dollars on December 15, 2005.

Interest Payment Dates:  June 15 and December 15

Record Dates:  June 1 and December 1


                                   Dated:  December 14, 1998

                                   AEI RESOURCES, INC.


                                   By:______________________________________
                                      Name:
                                      Title:


                                   By:______________________________________
                                      Name:
                                      Title:

                                     A-2-1

 
                                   AEI Holding Company, Inc.


                                   By:______________________________________
                                      Name:
                                      Title:


                                   By:______________________________________
                                      Name:
                                      Title:

This is one of the Global
Notes referred to in the
within-mentioned Indenture:

IBJ Schroder Bank & Trust Company,
as Trustee

By: ______________________________

================================================================================

                                     A-2-2

 
                 (BACK OF REGULATION S TEMPORARY GLOBAL NOTE)

                    10 1/2% SERIES A SENIOR NOTES DUE 2005

THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN).  NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.  UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE ISSUERS OR THEIR
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (SUBJECT TO THE DELIVERY OF SUCH EVIDENCE, IF ANY REQUIRED
UNDER THE INDENTURE PURSUANT TO WHICH THIS NOTE IS ISSUED) AND IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER JURISDICTION.  EACH HOLDER OF THE SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER
EXEMPTION UNDER THE SECURITIES ACT.  THE HOLDER OF THE SECURITY EVIDENCED HEREBY
AGREES FOR THE 

                                     A-2-3

 
BENEFIT OF THE COMPANY AND OLD AEI THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED
OR OTHERWISE TRANSFERRED ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (B) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (C)
OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (D) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND
BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), AS LONG AS THE
REGISTRAR RECEIVES A CERTIFICATION OF THE TRANSFEROR AND AN OPINION OF COUNSEL
THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (2) TO THE COMPANY
AND OLD AEI OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH
CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL AND
EACH SUBSEQUENT HOLDER IS REQUIRED TO NOTIFY ANY PURCHASER FROM IT OF THE
SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTION SET FORTH IN (A) ABOVE.

          Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.

          1.   Interest.  AEI Resources, Inc., a Delaware corporation (the
"Company") and AEI Holding Company, Inc., a Delaware corporation ("Old AEI" and,
together with the Company, the "Issuers"), promise to pay interest on the
principal amount of this Note at 10 1/2% per annum from December 15, 1998 until
maturity and shall pay the Liquidated Damages payable pursuant to Section 5 of
the Registration Rights Agreement referred to below.  The Issuers will pay
interest and Liquidated Damages semi-annually on December 15 and June 15 of each
year, or if any such day is not a Business Day, on the next succeeding Business
Day (each an "Interest Payment Date").  Interest on the Notes will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from the date of issuance; provided that if there is no existing Default
in the payment of interest, and if this Note is authenticated between a record
date referred to on the face hereof and the next succeeding Interest Payment
Date, interest shall accrue from such next succeeding Interest Payment Date;
provided, further, that the first Interest Payment Date shall be December 15,
1998.  The Issuers shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1% per annum in excess of the rate
then in effect; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace periods) from time to
time on demand at the same 

                                     A-2-4

 
rate to the extent lawful. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.

          Until this Regulation S Temporary Global Note is exchanged for one or
more Regulation S Permanent Global Notes, the Holder hereof shall not be
entitled to receive payments of interest hereon; until so exchanged in full,
this Regulation S Temporary Global Note shall in all other respects be entitled
to the same benefits as other Senior Subordinated Notes under the Indenture.

          2.   Method of Payment.  The Issuers will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the December 1 or June 1
next preceding the Interest Payment Date, even if such Notes are canceled after
such record date and on or before such Interest Payment Date, except as provided
in Section 2.12 of the Indenture with respect to defaulted interest.  The Notes
will be payable as to principal, premium and Liquidated Damages, if any, and
interest at the office or agency of the Issuers maintained for such purpose
within or without the City and State of New York, or, at the option of the
Issuers, payment of interest and Liquidated Damages may be made by check mailed
to the Holders at their addresses set forth in the register of Holders, and
provided that payment by wire transfer of immediately available funds will be
required with respect to principal of and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the Issuers or the Paying Agent.  Such
payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts;
provided that Liquidated Damages may be paid through the issuance of additional
Notes having a value at the time of issuance equal to the amount of Liquidated
Damages so paid.

          3.   Paying Agent and Registrar.  Initially, IBJ Schroder Bank & Trust
Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar.  The Issuer may change any Paying Agent or Registrar without notice
to any Holder.  Either Issuer or any of their Subsidiaries may act in any such
capacity.

          4.   Indenture.  The Issuers issued the Notes under an Indenture
dated as of December 14, 1998 ("Indenture") among the Issuers, the guarantors
named therein and the Trustee.  The terms of the Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb).  The Notes
are subject to all such terms, and Holders are referred to the Indenture and
such Act for a statement of such terms.  To the extent any provision of this
Note conflicts with the express provisions of the Indenture, the provisions of
the Indenture shall govern and be controlling.  The Notes are obligations of the
Issuers limited to $200.0 million in aggregate principal amount, plus amounts,
if any, issued to pay Liquidated Damages on outstanding Notes as set forth in
Paragraph 2 hereof.

                                     A-2-5

 
          5.  Optional Redemption.

          (a) The Notes will be subject to redemption at any time at the option
of the Company, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages
thereon to the applicable redemption date if redeemed during the twelve-month
period beginning on each December 15 of the years indicated below:

          YEAR                           PERCENTAGE
          ----                           ----------
          2002........................    105.250%
          2003........................    103.500%
          2004 and thereafter.........    101.750%

          In addition, prior to December 15, 2002, the Notes will be redeemable
at a price equal to 100% of the principal amount thereof plus an applicable Make
Whole Premium, plus, to the extent not included in the Make Whole Premium,
accrued and unpaid interest and Liquidated Damages, if any, to the date of
redemption.

          For purposes of the foregoing, the "Make Whole Premium" means, with
respect to a Note, an amount equal to the greater of (A) the redemption price of
such Note on December 15, 2002 and (B) the excess of, if any, (1) the present
value of the remaining interest, premium, if any, and principal payments due on
such Note as if such Note were redeemed on December 15, 2002, computed using a
discount rate equal to the Treasury Rate plus 50 basis points, over (2) the
outstanding principal amount of such Note.

          "Treasury Rate" means the yield to maturity at the time of computation
of United States Treasury securities with a constant maturity (as compiled by,
and published in, the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the date
fixed for redemption of the Notes (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the then remaining Weighted Average Life to Maturity of the Notes;
provided, however, that if the Weighted Average Life to Maturity of the Notes is
not equal to the constant maturity of a United States Treasury security for
which a weekly average yield is given, the Treasury Rate shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such yields
are given, except that if the Weighted Average Life to Maturity of the Notes is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.

          (b) Notwithstanding the foregoing, at any time on or before December
15, 2000, the Company may on any one or more occasions redeem up to 35% of the
aggre-

                                     A-2-6

 
gate principal amount of Notes ever issued under this Indenture at a redemption
price equal to the principal amount thereof plus a premium equal 110 1/2% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the net cash proceeds of
an initial public offering of common stock of the Company or Holdings (to the
extent that the net proceeds therefrom are contributed to the Company as common
equity capital); provided that at least 65% of the aggregate principal amount of
Notes issued on the date of this Indenture remains outstanding immediately after
the occurrence of such redemption (excluding Notes held by Holdings or the
Company and their Subsidiaries) and provided, further, that such redemption
shall occur within 45 days of the date of the closing of such initial public
offering.

          6.   Mandatory Redemption.

          Except as set forth in paragraph 7 below, the Issuers shall not be
required to make mandatory redemption payments with respect to the Notes.

          7.   Repurchase at Option of Holder.

          (a) If there is a Change of Control, each Holder of the Notes will
have the right to require the Issuers to make an offer (a "Change of Control
Offer") to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of each Holder's Notes at a purchase price equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of purchase (the "Change of
Control Payment").  Within 10 days following any Change of Control, the Issuers
shall mail a notice to each Holder setting forth the procedures governing the
Change of Control Offer as required by the Indenture.

          (b) If the Issuers or a Subsidiary consummates any Asset Sales, within
five days of each date on which the aggregate amount of Excess Proceeds exceeds
$2.0 million, the Issuers shall commence an offer to all Holders of Notes (as
"Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the
maximum principal amount of Notes that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the date fixed for the closing of such offer in accordance with the
procedures set forth in the Indenture.  To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Issuers (or such Subsidiary) may use such deficiency for general
corporate purposes.  If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis.  Holders of Notes that are the
subject of an offer to purchase will receive an Asset Sale Offer from the
Issuers prior to any related purchase date and may elect to have such Notes
purchased by completing the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Notes.

                                     A-2-7

 
          8.   Notice of Redemption.  Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address.  Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed.  On and after the redemption date interest ceases to accrue on Notes
or portions thereof called for redemption.

          9.   Denominations, Transfer, Exchange.  The Notes are in registered
form in denominations of $1,000 and integral multiples of $1,000.  The transfer
of Notes may be registered and Notes may be exchanged as provided in the
Indenture.  The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuers may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture.  The Issuers need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part.  Also, the Issuers
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment

          This Regulation S Temporary Global Note is exchangeable in whole or in
part for one or more Global Notes only (i) on or after the termination of the
40-day restricted period (as defined in Regulation S) and (ii) upon presentation
of certificates (accompanied by an Opinion of Counsel, if applicable) required
by Article 2 of the Indenture.  Upon exchange of this Regulation S Temporary
Global Note for one or more Global Notes, the Trustee shall cancel this
Regulation S Temporary Global Note.

          10.  Persons Deemed Owners.  The registered Holder of a Note may be
treated as its owner for all purposes.

          11.  Amendment, Supplement and Waiver.  Subject to certain exceptions,
the Indenture, the Guarantees or the Notes may be amended or supplemented with
the consent of the Holders of at least a majority in principal amount of the
then outstanding Notes voting as a single class and any existing default or
compliance with any provision of the Indenture, the Guarantees or the Notes may
be waived with the consent of the Holders of a majority in principal amount of
the then outstanding Notes voting as a single class.  Without the consent of any
Holder of a Note, the Indenture, the Guarantees or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Issuers' or Guarantor's obligations to Holders
of the Notes in case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, or to comply with the requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture Act 

                                     A-2-8

 
or to allow any Guarantor to execute a supplemental indenture to the Indenture
and/or a Guarantee with respect to the Notes.

          12.  Defaults and Remedies.  Each of the following constitutes an
Event of Default: (a) default for 30 days in the payment when due of interest
on, or Liquidated Damages, if any, with respect to, the Notes; (b) default in
payment when due of the principal of or premium, if any, on the Notes; (c)
failure by the Company or any of its Subsidiaries to make the offer required or
to purchase any of the Notes as required under the provisions described under
Section 4.10 or Section 4.15; (d) failure by the Company or any of its
Subsidiaries for 30 days after notice to comply with the provisions of Section
4.07 or Section 4.09, or failure by the Company or any of its Subsidiaries for
60 days after notice to comply with any of its other agreements in the Indenture
or the Notes; (e) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or
is created after the date of this Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $25.0 million or more; (f) failure
by the Company or any of its Restricted Subsidiaries or any group of Restricted
Subsidiaries that, taken as a whole, would be a Significant Subsidiary to pay
final judgments aggregating in excess of $25.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days; (g) except as permitted by
the Indenture, any Guarantee of the Notes shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be in
full force and effect or any Guarantor, or any Person acting on behalf of any
Guarantor, shall deny or disaffirm its obligations under its Guarantee of the
Notes; and (h) certain events of bankruptcy or insolvency with respect to the
Company, any of its Significant Subsidiaries that are Restricted Subsidiaries or
any group of Restricted Subsidiaries that, taken as a whole, would be a
Significant Subsidiary.  If any Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Notes will become
due and payable without further action or notice.  Holders may not enforce the
Indenture or the Notes except as provided in the Indenture.  Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.  The Hold-

                                     A-2-9

 
ers of a majority in aggregate principal amount of the Notes then outstanding by
notice to the Trustee may on behalf of the Holders of all of the Notes waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of interest on,
or the principal of, the Notes. Each Issuer is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and each
Issuer is required upon becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of Default.

          13.  Trustee Dealings with Issuers.  The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Issuers or their Affiliates, and may otherwise deal with the
Issuers or their Affiliates, as if it were not the Trustee.

          14.  No Recourse Against Others.  A director, officer, employee,
incorporator or stockholder, of either Issuer, as such, shall not have any
liability for any obligations of the Issuers under the Notes or the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation.  Each Holder by accepting a Note waives and releases all such
liability.  The waiver and release are part of the consideration for the
issuance of the Notes.

          15.  Authentication.  This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.

          16.  Abbreviations.  Customary abbreviations may be used in the name
of a Holder or an assignee, such as:  TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).

          17.  Additional Rights of Holders of Restricted Global Notes and
Restricted Definitive Notes.  In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of December 14, 1998, between the Issuers, the Guarantors and
the parties named on the signature pages thereof (the "Registration Rights
Agreement").

          18.  CUSIP Numbers.  Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuers have caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders.  No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.

                                    A-2-10

 
          The Issuers will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:

          AEI Resources, Inc.
          1500 North Big Run Road
          Ashland, Kentucky  41102
          Attention: Chief Financial Officer

                                    A-2-11

 
                                ASSIGNMENT FORM

To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to


________________________________________________________________________________
                 (Insert assignee's soc. sec. or tax I.D. no.)


________________________________________________________________________________


________________________________________________________________________________


________________________________________________________________________________


________________________________________________________________________________
             (Print or type assignee's name, address and zip code)

and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Issuers.  The agent may substitute
another to act for him.

Date:____________________
                                       Your Signature: _________________________

                                       (Sign exactly as your name appears on 
                                       the face of this Note)

Signature Guarantee _________________________________

                                    A-2-12

 
                      OPTION OF HOLDER TO ELECT PURCHASE

          If you want to elect to have this Note purchased by the Issuers
pursuant to Section 4.10 or 4.15 of the Indenture, check the applicable box
below:

          [_] Section 4.10         [_] Section 4.15

          If you want to elect to have only part of the Note purchased by the
Issuers pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased: $________


________________________________________________________________________________

Date:____________________              Your Signature: _________________________
                                                    (Sign exactly as your name 
                                                       appears on the Note)

                                       Tax Identification No: __________________

Signature Guarantee _____________________________

                                    A-2-13

 
             SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE

          The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note, have
been made:



                                                               Principal Amount
                   Amount of decrease   Amount of increase   of this Global Note         Signature of
                           in              in Principal         following such        authorized officer
                    Principal Amount         Amount of           decrease (or           of Trustee or
Date of Exchange   of this Global Note   this Global Note         increase)             Note Custodian
- ----------------   -------------------  -------------------  -------------------     --------------------
                                                                          


                                    A-2-14

 
                                   EXHIBIT B

                        FORM OF CERTIFICATE OF TRANSFER

AEI Resources, Inc.
AEI Holding Company, Inc.
c/o AEI Resources, Inc.
1500 North Big Run Road
Ashland, Kentucky  41102

IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004

            Re:  AEI Resources, Inc. and AEI Holding Company, Inc.
                         10 1/2% Senior Notes Due 2005

          Reference is hereby made to the Indenture, dated as of December 14,
1998 (the "Indenture"), among AEI Resources, Inc. (the "Company"), AEI Holding
Company, Inc. ("Old AEI" and together with the Company, the "Issuers"), the
guarantors named therein and IBJ Schroder Bank & Trust Company, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.

          ______________, (the "Transferor") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
to  __________ (the "Transferee"), as further specified in Annex A hereto.  In
connection with the Transfer, the Transferor hereby certifies that:

[CHECK ALL THAT APPLY]

1.   [_]  CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A.  The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States.  Upon consummation of the proposed Transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or 

                                      B-1

 
Definitive Note will be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the 144A Global Note and/or the
Definitive Note and in the Indenture and the Securities Act.

2.   [_]  CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
          ----------------------------------------------------------------------
TEMPORARY REGULATION S GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A DEFINITIVE
- --------------------------------------------------------------------------------
NOTE PURSUANT TO REGULATION S.  The Transfer is being effected pursuant to and
- -----------------------------                                                 
in accordance with Rule 903 or Rule 904 under the Securities Act and,
accordingly, the Transferor hereby further certifies that (i) the Transfer is
not being made to a person in the United States and (x) at the time the buy
order was originated, the Transferee was outside the United States or such
Transferor and any Person acting on its behalf reasonably believed and believes
that the Transferee was outside the United States or (y) the transaction was
executed in, on or through the facilities of a designated offshore securities
market and neither such Transferor nor any Person acting on its behalf knows
that the transaction was prearranged with a buyer in the United States, (ii) no
directed selling efforts have been made in contravention of the requirements of
Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act and, (iii)
the transaction is not part of a plan or scheme to evade the registration
requirements of the Securities Act.

3.   [_]  CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
          -------------------------------------------------------------------
INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION
- ------------------------------------------------------------------------------
OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S.  The Transfer is
- ----------------------------------------------------------                  
being effected in compliance with the transfer restrictions applicable to
beneficial interests in Restricted Global Notes and Restricted Definitive Notes
and pursuant to and in accordance with the Securities Act and any applicable
blue sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):

          (a)  [_]  such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;

                                       or

          (b)  [_]  such Transfer is being effected to the Issuers or a
subsidiary thereof;

                                       or

          (c)  [_]  such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with the
prospectus delivery requirements of the Securities Act;

                                      B-2

 
                                       or

          (d)  [_]  such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904,
and the Transferor hereby further certifies that it has not engaged in any
general solicitation within the meaning of Regulation D under the Securities Act
and the Transfer complies with the transfer restrictions applicable to
beneficial interests in a Restricted Global Note or Restricted Definitive Notes
and the requirements of the exemption claimed, which certification is supported
by (1) a certificate executed by the Transferee in the form of Exhibit D to the
Indenture and (2) if such Transfer is in respect of a principal amount of Notes
at the time of transfer of less than $250,000, an Opinion of Counsel provided by
the Transferor or the Transferee (a copy of which the Transferor has attached to
this certification), to the effect that such Transfer is in compliance with the
Securities Act. Upon consummation of the proposed transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Definitive
Note will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the IAI Global Note and/or the Definitive Notes and
in the Indenture and the Securities Act.

4.   [_]  Check if Transferee will take delivery of a beneficial interest in an
Unrestricted Global Note or of an Unrestricted Definitive Note.

          (a)  [_]  CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer
is being effected pursuant to and in accordance with Rule 144 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.

          (b)  [_]  CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
state of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.

                                      B-3

 
          (c)  [_]  CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION.  (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule
903 or Rule 904 and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act.  Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will not be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes or Restricted Definitive Notes and in the Indenture.

          This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuers.


                                        _____________________________________

                                        [Insert Name of Transferor]


                                        By: _________________________________
                                             Name:
                                             Title:

Dated: ________, ___

                                      B-4

 
                      ANNEX A TO CERTIFICATE OF TRANSFER
                      ----------------------------------

1.   The Transferor owns and proposes to transfer the following:

                            CHECK ONE OF (a) OR (b)

          (a)  [_]   a beneficial interest in the:

               (i)   [_]  144A Global Note (CUSIP _________), or

               (ii)  [_]  Regulation S Global Note (CUSIP _________), or

               (iii) [_]  IAI Global Note (CUSIP ________); or

          (b)  [_]   a Restricted Definitive Note.

2.   After the Transfer the Transferee will hold:

                                   CHECK ONE

               (a)  [_]   a beneficial interest in the:

                    (i)   [_]  144A Global Note (CUSIP _________), or

                    (ii)  [_]  Regulation S Global Note (CUSIP _________), or

                    (iii) [_]  IAI Global Note (CUSIP ________); or

                    (iv)  [_]  Unrestricted Global Note (CUSIP ________); or

               (b)  [_]   a Restricted Definitive Note; or

               (c)  [_]   an Unrestricted Definitive Note,

          in accordance with the terms of the Indenture.

                                      B-5

 
                                   EXHIBIT C
                        FORM OF CERTIFICATE OF EXCHANGE

AEI Resources, Inc.
AEI Holding Company, Inc.
c/o AEI Resources, Inc.
1500 North Big Run Road
Ashland, Kentucky  41102

IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004

          Re:  AEI Resources, Inc. and AEI Holding Company, Inc.
               10 1/2% Senior Notes due 2005

                             (CUSIP______________)

          Reference is hereby made to the Indenture, dated as of December 14,
1998 (the "Indenture"), among AEI Resources, Inc. (the "Company"), AEI Holding
Company, Inc. ("Old AEI" and, together with the Company, the "Issuers"), the
guarantors named therein and IBJ Schroder Bank & Trust  Company, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.

          ____________, (the "Owner") owns and proposes to exchange the Note[s]
or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "Exchange").  In connection with
the Exchange, the Owner hereby certifies that:

1.   EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A
RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN AN UNRESTRICTED GLOBAL NOTE

          (a)  [_]  CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
                    --------------------------------------------------
RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In
- ----------------------------------------------------------------------------
connection with the Exchange of the Owner's beneficial interest in a Restricted
Global Note for a beneficial interest in an Unrestricted Global Note in an equal
principal amount, the Owner hereby certifies (i) the beneficial interest is
being acquired for the Owner's own account without transfer, (ii) such Exchange
has been effected in compliance with the transfer restrictions applicable to the
Global Notes and pursuant to and in accordance with the United States Securities
Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
beneficial interest in an 

                                      C-1

 
Unrestricted Global Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.

          (b)  [_]  CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
                    --------------------------------------------------
RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the
- ------------------------------------------------------
Exchange of the Owner's beneficial interest in a Restricted Global Note for an
Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the Definitive Note is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.

          (c)  [_]  CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
                    -------------------------------------------------------
BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the
- --------------------------------------------------
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.

          (d)  [_]  CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
                    -------------------------------------------------------
UNRESTRICTED DEFINITIVE NOTE.  In connection with the Owner's Exchange of a
- ----------------------------                                               
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.

2.   EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN RESTRICTED GLOBAL NOTES

          (a)  [_]  CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
                    --------------------------------------------------
RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the
- ----------------------------------------------------
Exchange of the Owner's beneficial interest in a Restricted Global Note for a
Restricted Definitive Note

                                      C-2

 
with an equal principal amount, the Owner hereby certifies that the Restricted
Definitive Note is being acquired for the Owner's own account without transfer.
Upon consummation

of the proposed Exchange in accordance with the terms of the Indenture, the
Restricted Definitive Note issued will continue to be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Definitive Note and in the Indenture and the Securities Act.

          (b)  [_]  CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
                    -------------------------------------------------------
BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange
- -----------------------------------------------
of the Owner's Restricted Definitive Note for a beneficial interest in the
[CHECK ONE] [_] 144A Global Note, [_] Regulation S Global Note, [_] IAI Global
Note with an equal principal amount, the Owner hereby certifies (i) the
beneficial interest is being acquired for the Owner's own account without
transfer and (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Restricted Global Notes and pursuant to
and in accordance with the Securities Act, and in compliance with any applicable
blue sky securities laws of any state of the United States. Upon consummation of
the proposed Exchange in accordance with the terms of the Indenture, the
beneficial interest issued will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the relevant Restricted
Global Note and in the Indenture and the Securities Act.

                                      C-3

 
          This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuers.

                              __________________________________________

                                  [Insert Name of Owner]

                              By: ______________________________________
                                  Name:
                                  Title:


Dated: ________________, ____

                                      C-4

 
                                   EXHIBIT D

                           FORM OF CERTIFICATE FROM
                  ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR

AEI Resources, Inc.
AEI Holding Company, Inc.
c/o AEI Resources, Inc.
1500 North Big Run Road
Ashland, Kentucky  41102

IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004

          Re:  AEI Resources, Inc. and AEI Holding Company, Inc.
               10 1/2% Senior Notes due 2005

          Reference is hereby made to the Indenture, dated as of December 14,
1998 (the "Indenture"), among AEI Resources, Inc. (the "Company"), AEI Holding
Company, Inc. ("Old AEI" and, together with the Company, the "Issuers"), the
guarantors named therein and IBJ Schroder Bank & Trust Company, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.

          In connection with our proposed purchase of $____________ aggregate
principal amount of:

          (a)  [_]  a beneficial interest in a Global Note, or

          (b)  [_]  a Definitive Note,

          we confirm that:

          1.   We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").

          2.   We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes and any interest therein
may not be offered or sold except as permitted in the following sentence.  We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell the Notes or any interest therein,
we will do so only (A) to the Issuers or any subsidiary thereof, (B) in
accordance with Rule 144A under the Securities Act to a 

                                      D-1

 
"qualified institutional buyer" (as defined therein), (c) to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to you and to the
Issuers a signed letter substantially in the form of this letter and an Opinion
of Counsel in form reasonably acceptable to the Issuers to the effect that such
transfer is in compliance with the Securities Act, (D) outside the United States
in accordance with Rule 904 of Regulation S under the Securities Act, (E)
pursuant to the provisions of Rule 144(k) under the Securities Act or (F)
pursuant to an effective registration statement under the Securities Act, and we
further agree to provide to any person purchasing the Definitive Note or
beneficial interest in a Global Note from us in a transaction meeting the
requirements of clauses (A) through (E) of this paragraph a notice advising such
purchaser that resales thereof are restricted as stated herein.

          3.   We understand that, on any proposed resale of the Notes or
beneficial interest therein, we will be required to furnish to you and the
Issuers such certifications, legal opinions and other information as you and the
Issuers may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions.  We further understand that the Notes purchased by
us will bear a legend to the foregoing effect.

          4.   We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.

          5.   We are acquiring the Notes or beneficial interest therein
purchased by us for our own account or for one or more accounts (each of which
is an institutional "accredited investor") as to each of which we exercise sole
investment discretion.

          You and the Issuers are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.

                              __________________________________________

                                  [Insert Name of Owner]
 
                              By: ______________________________________
                                  Name:
                                  Title:


Dated: ________________, ____

                              D-2               

 
                                   EXHIBIT E
                         FORM OF NOTATION OF GUARANTEE

                                   GUARANTEE
                         10 1/2% Senior Notes due 2005
             of AEI Resources, Inc. and AEI Holding Company, Inc.

     For value received, each Guarantor (which term includes any successor
Person under the Indenture) has, jointly and severally, unconditionally
guaranteed, to the extent set forth in the Indenture and subject to the
provisions in the Indenture dated as of December 14, 1998 (the "Indenture")
among AEI Resources, Inc., AEI Holding Company, Inc., the guarantors listed on
the signature pages thereto and IBJ Schroder Bank & Trust Company, as trustee
(the "Trustee"), (a) the due and punctual payment of the principal of, premium,
if any, and interest on the Notes (as defined in the Indenture), whether at
maturity, by acceleration, redemption or otherwise, the due and punctual payment
of interest on overdue principal and premium, and, to the extent permitted by
law, interest, and the due and punctual performance of all other obligations of
the Issuers to the Holders or the Trustee all in accordance with the terms of
the Indenture and (b) in case of any extension of time of payment or renewal of
any Notes or any of such other obligations, that the same will be promptly paid
in full when due or performed in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise. The
obligations of the Guarantors to the Holders of Notes and to the Trustee
pursuant to the Guarantee and the Indenture are expressly set forth in Article
10 of the Indenture and reference is hereby made to the Indenture for the
precise terms of the Guarantee. Each Holder of a Note, by accepting the same,
(a) agrees to and shall be bound by such provisions, (b) authorizes and directs
the Trustee, on behalf of such Holder, to take such action as may be necessary
or appropriate to effectuate the subordination as provided in the Indenture and
(c) appoints the Trustee attorney-in-fact of such Holder for such purpose;
provided, however, that the Indebtedness evidenced by this Guarantee shall cease
to be so subordinated and subject in right of payment upon any defeasance of
this Note in accordance with the provisions of the Indenture.

                                      E-1

 
                              Confirmed and agreed to as Guarantors:

                              17 WEST MINING, INC.,
                              ACECO, INC.,
                              ADDINGTON MINING, INC.,              
                              AEI COAL SALES COMPANY, INC.,        
                              AEI RESOURCES HOLDING, INC.,         
                              AMERICOAL DEVELOPMENT COMPANY,       
                              APPALACHIAN REALTY COMPANY,          
                              AYRSHIRE LAND COMPANY,               
                              BELLAIRE TRUCKING COMPANY,           
                              BLUEGRASS COAL DEVELOPMENT COMPANY,  
                              BOWIE RESOURCES LIMITED              
                              CC COAL COMPANY,                     
                              COAL VENTURES HOLDING                
                               COMPANY, INC.,                      
                              EAST KENTUCKY ENERGY CORPORATION,    
                              EMPLOYEE BENEFITS MANAGEMENT, INC.,   
                              ENCOAL CORPORATION,                   
                              ENERZ CORPORATION,                    
                              EVERGREEN MINING COMPANY,             
                              FAIRVIEW LAND COMPANY,                
                              FRANKLIN COAL SALES COMPANY,          
                              GRASSY COVE COAL MINING COMPANY,      
                              HERITAGE MINING COMPANY,              
                              HIGHLAND COAL, INC.,                  
                              IKERD-BANDY CO., INC.,                
                              KERMIT COAL COMPANY,                  
                              LESLIE RESOURCES, INC.,               
                              LESLIE RESOURCES MANAGEMENT, INC.,    
                              MEADOWLARK, INC.,                     
                              MEGA MINERALS, INC.,                  
                              MIDWEST COAL SALES COMPANY,           
                              MID-VOL LEASING, INC.                 
                              MINING TECHNOLOGIES, INC.,            
                              MOUNTAIN-CLAY, INCORPORATED (d/b/a    
                                Mountain Clay, Inc.),                
                              PHOENIX LAND COMPANY,                  
                              PREMIUM PROCESSING, INC.,              
                              PREMIUM COAL DEVELOPMENT COMPANY,      
                              PRO-LAND, INC. (d/b/a Kem Coal Company)
                              R. & F. COAL COMPANY,                  
                              RIVER COAL COMPANY, INC.,              
                              ROARING CREEK COAL COMPANY,             

                                      E-2

 
                              SHIPYARD RIVER COAL TERMINAL COMPANY,   
                              STRAIGHT CREEK COAL RESOURCES COMPANY,  
                              TENNESSEE MINING, INC.,                 
                              TURRIS COAL COMPANY,                    
                              WYOMING COAL TECHNOLOGY, INC.,          
                              ZEIGLER COAL HOLDING COMPANY,           
                              ZEIGLER ENVIRONMENTAL SERVICES COMPANY, 
                              ZENERGY, INC.,                          
                                each as Guarantor                      


                              By:  ___________________________________
                                   Name:
                                   Title:

                                      E-3

 
                              BEECH COAL COMPANY,
                              CANNELTON, INC.,
                              CANNELTON INDUSTRIES, INC.,
                              CANNELTON LAND COMPANY,
                              CANNELTON SALES COMPANY,
                              DUNN COAL & DOCK COMPANY,
                              HAYMAN HOLDINGS, INC.,
                              KANAWHA CORPORATION,
                              KINDILL HOLDING, INC.,
                              KINDILL MINING, INC.,
                              MIDWEST COAL COMPANY ,
                              MOUNTAINEER COAL DEVELOPMENT
                                COMPANY,
                              MOUNTAIN COALS CORPORATION,
                              OLD BEN COAL COMPANY,
                              WEST VIRGINIA-INDIANA COAL HOLDING
                                COMPANY, INC.,
                                each as Guarantor


                              By:_______________________________
                                 Name:
                                 Title:


                                      E-4

 
                              BENTLEY COAL COMPANY,
                              SKYLINE COAL COMPANY,
                              KENTUCKY PRINCE MINING COMPANY,
                                each as Guarantor

                              By: GRASSY COVE COAL MINING 
                                   COMPANY,
                                 ROARING CREEK COAL COMPANY,
                                   each as General Partner of each of the
                                   entities listed above

                              By:  ______________________________________
                                   Name:
                                   Title:

                                      E-5

 
                              NUCOAL, LLC,
                               as Guarantor

                              By:  AMERICOAL DEVELOPMENT 
                                   COMPANY
                                  ENCOAL CORPORATION
                                   each as Member

                              By:  _____________________________________
                                   Name:
                                   Title:

                                      E-6

 
                                  EXHIBIT F 
                        FORM OF SUPPLEMENTAL INDENTURE 
                   TO BE DELIVERED BY SUBSEQUENT GUARANTORS

          Supplemental Indenture (this "Supplemental Indenture"), dated as of
________________, among  __________________ (the "Subsidiary Guarantor"), a
subsidiary of AEI Resources, Inc., a Delaware corporation (the "Company"), the
Company, AEI Holding Company, Inc. ("Old AEI" and, together with the Company,
the "Issuers"), the other Guarantors (as defined in the Indenture referred to
herein) and IBJ Schroder Bank & Trust Company, as trustee under the indenture
referred to below (the "Trustee").

                             W I T N E S S E T H :
                             -------------------- 

          WHEREAS, the Issuers and the Guarantors have heretofore executed and
delivered to the Trustee an indenture (the "Indenture"), dated as of December
14, 1998 providing for the issuance of an aggregate principal amount of up to
$200.0 million of 10 1/2% Senior Notes due 2005 (the "Notes");

          WHEREAS, the Indenture provides that under certain circumstances the
Subsidiary Guarantor shall execute and deliver to the Trustee a supplemental
indenture pursuant to which the Subsidiary Guarantor shall unconditionally
guarantee all of the Issuers' Obligations under the Notes and the Indenture on
the terms and conditions set forth herein (the "Guarantee"); and

          WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.

          NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Subsidiary Guarantor and the Trustee mutually covenant and agree for the equal
and ratable benefit of the Holders of the Notes as follows:

          1.   Capitalized Terms.  Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.

          2.   Agreement to Guarantee.  The Subsidiary Guarantor hereby agrees
as follows:

          (a)  Along with all Guarantors named in the Indenture, to jointly and
               severally Guarantee to each Holder of a Note authenticated and
               delivered by the Trustee and to the Trustee and its successors
               and assigns the Notes or the obligations of the Issuers hereunder
               or thereunder, that:

                                      F-1

 
               (i)  the principal of and interest on the Notes will be promptly
                    paid in full when due, whether at maturity, by acceleration,
                    redemption or otherwise, and interest on the overdue
                    principal of and interest on the Notes, if any, if lawful,
                    and all other obligations of the Issuers to the Holders or
                    the Trustee hereunder or thereunder will be promptly paid in
                    full or performed, all in accordance with the terms hereof
                    and thereof; and

               (ii) in case of any extension of time of payment or renewal of
                    any Notes or any of such other obligations, that same will
                    be promptly paid in full when due or performed in accordance
                    with the terms of the extension or renewal, whether at
                    stated maturity, by acceleration or otherwise. Failing
                    payment when due of any amount so guaranteed or any
                    performance so guaranteed for whatever reason, the
                    Guarantors shall be jointly and severally obligated to pay
                    the same immediately.

          (b)  The obligations hereunder shall be unconditional, irrespective of
               the validity, regularity or enforceability of the Notes or the
               Indenture, the absence of any action to enforce the same, any
               waiver or consent by any Holder of the Notes with respect to any
               provisions hereof or thereof, the recovery of any judgment
               against the Issuers, any action to enforce the same or any other
               circumstance which might otherwise constitute a legal or
               equitable discharge or defense of a guarantor.

          (c)  The following is hereby waived: diligence presentment, demand of
               payment, filing of claims with a court in the event of insolvency
               or bankruptcy of either Issuer, any right to require a proceeding
               first against either Issuer, protest, notice and all demands
               whatsoever.

          (d)  This Subsidiary Guarantee shall not be discharged except by
               complete performance of the obligations contained in the Notes
               and the Indenture, and the Guaranteeing Subsidiary accepts all
               obligations of a Guarantor under the Indenture.

          (e)  If any Holder or the Trustee is required by any court or
               otherwise to return to the Issuers, the Guarantors, or any
               Custodian, Trustee, liquidator or other similar official acting
               in relation to either the Issuers or the Guarantors, any amount
               paid by either to the Trustee or such Holder, this Subsidiary
               Guarantee, to the extent theretofore discharged, shall be
               reinstated in full force and effect.

                                      F-2

 
          (f)  The Subsidiary Guarantor shall not be entitled to any right of
               subrogation in relation to the Holders in respect of any
               obligations guaranteed hereby until payment in full of all
               obligations guaranteed hereby.

          (g)  As between the Guarantors, on the one hand, and the Holders and
               the Trustee, on the other hand, (x) the maturity of the
               obligations guaranteed hereby may be accelerated as provided in
               Article 6 of the Indenture for the purposes of this Subsidiary
               Guarantee, notwithstanding any stay, injunction or other
               prohibition preventing such acceleration in respect of the
               obligations guaranteed hereby, and (y) in the event of any
               declaration of acceleration of such obligations as provided in
               Article 6 of the Indenture, such obligations (whether or not due
               and payable) shall forthwith become due and payable by the
               Guarantors for the purpose of this Subsidiary Guarantee.

          (h)  The Guarantors shall have the right to seek contribution from any
               non-paying Guarantor so long as the exercise of such right does
               not impair the rights of the Holders under the Guarantee.

          (i)  Pursuant to Section 10.02 of the Indenture, after giving effect
               to any maximum amount and any other contingent and fixed
               liabilities that are relevant under any applicable Bankruptcy or
               fraudulent conveyance laws, and after giving effect to any
               collections from, rights to receive contribution from or payments
               made by or on behalf of any other Guarantor in respect of the
               obligations of such other Guarantor under Article 10 of the
               Indenture, this Guarantee shall be limited to the maximum amount
               permissible such that obligations of such Guarantor under this
               Guarantee will not constitute a fraudulent transfer or
               conveyance.

          3    Execution and Delivery. Each Subsidiary Guarantor agrees that the
Subsidiary Guarantees shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Subsidiary Guarantee.

          4.   Subsidiary Guarantor May Consolidate, Etc. on Certain Terms.

          (a)  The Subsidiary Guarantor may not consolidate with or merge with
     or into (whether or not such Subsidiary Guarantor is the surviving Person)
     another corporation, Person or entity whether or not affiliated with such
     Subsidiary Guarantor unless:

               (i)    subject to Sections 10.04 and 10.05 of the Indenture, the
          Person formed by or surviving any such consolidation or merger (if
          other than such Subsidiary Guarantor) unconditionally assumes all the
          obligations of

                                      F-3

 
          such Subsidiary Guarantor pursuant to a supplemental indenture in form
          and substance reasonably satisfactory to the Trustee, under the Notes,
          the Indenture and the Registration Rights Agreement; and

               (ii)   immediately after giving effect to such transaction, no
          Default or Event of Default exists.

               (iii)  the Company would be permitted by virtue of the Company's
          pro forma Fixed Charge Coverage Ratio, immediately after giving effect
          to such transaction, to incur at least $1.00 of additional
          Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
          forth in the first paragraph of Section 4.09 hereof.

          (b)  In case of any such consolidation, merger, sale or conveyance and
     upon the assumption by the successor corporation, by supplemental
     indenture, executed and delivered to the Trustee and satisfactory in form
     to the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the
     due and punctual performance of all of the covenants and conditions of the
     Indenture to be performed by the Subsidiary Guarantor, such successor
     corporation shall succeed to and be substituted for the Subsidiary
     Guarantor with the same effect as if it had been named herein as a
     Subsidiary Guarantor. Such successor corporation thereupon may cause to be
     signed any or all of the Subsidiary Guarantees to be endorsed upon all of
     the Notes issuable hereunder which theretofore shall not have been signed
     by the Issuers and delivered to the Trustee. All the Subsidiary Guarantees
     so issued shall in all respects have the same legal rank and benefit under
     the Indenture as the Subsidiary Guarantees theretofore and thereafter
     issued in accordance with the terms of the Indenture as though all of such
     Subsidiary Guarantees had been issued at the date of the execution hereof.

          (c)  Except as set forth in Articles 4 and 5 of the Indenture, and
     notwithstanding clause (a) above, nothing contained in the Indenture or in
     any of the Notes shall prevent any consolidation or merger of a Subsidiary
     Guarantor with or into the Issuers or another Subsidiary Guarantor, or
     shall prevent any sale or conveyance of the property of a Subsidiary
     Guarantor as an entirety or substantially as an entirety to the Issuers or
     another Subsidiary Guarantor.

          5.   Releases.

          (a)  In the event of a sale or other disposition of all of the assets
     of any Subsidiary Guarantor, by way of merger, consolidation or otherwise,
     a sale or other disposition of all to the capital stock of any Subsidiary
     Guarantor or the designation of a Subsidiary Guarantor as an Unrestricted
     Subsidiary in accordance with the terms of the Indenture, then such
     Subsidiary Guarantor (in the event of a sale or

                                      F-4

 
     other disposition, by way of merger, consolidation or otherwise, of all of
     the capital stock of such Subsidiary Guarantor) or the corporation
     acquiring the property (in the event of a sale or other disposition of all
     or substantially all of the assets of such Subsidiary Guarantor) will be
     released and relieved of any obligations under its Subsidiary Guarantee;
     provided that the Net Proceeds of such sale or other disposition are
     applied in accordance with the applicable provisions of the Indenture,
     including without limitation Section 4.10 of the Indenture. Upon delivery
     by each Issuer to the Trustee of an Officers' Certificate and an Opinion of
     Counsel to the effect that such sale or other disposition was made by the
     Issuer in accordance with the provisions of the Indenture, including
     without limitation Section 4.10 of the Indenture, the Trustee shall execute
     any documents reasonably required in order to evidence the release of any
     Subsidiary Guarantor from its obligations under its Subsidiary Guarantee.

          (b)  Any Subsidiary Guarantor not released from its obligations under
     its Subsidiary Guarantee shall remain liable for the full amount of
     principal of and interest on the Notes and for the other obligations of any
     Subsidiary Guarantor under the Indenture as provided in Article 10 of the
     Indenture.

          6.   No Recourse Against Others. No past, present or future director,
officer, employee, incorporator, stockholder or agent of the Subsidiary
Guarantor, as such, shall have any liability for any obligations of the Issuers
or any Subsidiary Guarantor under the Notes, any Subsidiary Guarantees, the
Indenture or this Supplemental Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of the
Notes by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. Such waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the Commission that such a waiver is against public policy.

          7.   New York Law To Govern. THE INTERNAL LAW OF THE STATE OF NEW YORK
SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

          8.   Counterparts. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.

          9.   Effect of Headings. The Section headings herein are for
convenience only and shall not affect the construction hereof.

          10.  The Trustee. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or 

                                      F-5

 
for or in respect of the recitals contained herein, all of which recitals are
made solely by the Subsidiary Guarantor and the Issuers.

                                      F-6

 
          IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.

Dated:  _______________, ____

                                   [Subsidiary Guarantor]

                                   By: _________________________________________
                                       Name:
                                       Title:

                                   AEI RESOURCES, INC.

                                   By: _________________________________________
                                       Name:
                                       Title:

                                   AEI HOLDING COMPANY, INC.

                                   By: _________________________________________
                                       Name:
                                       Title:

                                   Confirmed and agreed to as Guarantors:

                                   17 WEST MINING, INC.,             
                                   ACECO, INC.,                      
                                   ADDINGTON MINING, INC.,           
                                   AEI COAL SALES COMPANY, INC.,     
                                   AEI RESOURCES HOLDING, INC.,      
                                   AMERICOAL DEVELOPMENT COMPANY,    
                                   APPALACHIAN REALTY COMPANY,       
                                   AYRSHIRE LAND COMPANY,            
                                   BELLAIRE TRUCKING COMPANY,        
                                   BLUEGRASS COAL DEVELOPMENT COMPANY,
                                   BOWIE RESOURCES LIMITED           
                                   CC COAL COMPANY,                  
                                   COAL VENTURES HOLDING              

                                      F-7

 
                                    COMPANY, INC.,                          
                                   EAST KENTUCKY ENERGY CORPORATION,       
                                   EMPLOYEE BENEFITS MANAGEMENT, INC.,     
                                   ENCOAL CORPORATION,                     
                                   ENERZ CORPORATION,                      
                                   EVERGREEN MINING COMPANY,               
                                   FAIRVIEW LAND COMPANY,                  
                                   FRANKLIN COAL SALES COMPANY,            
                                   GRASSY COVE COAL MINING COMPANY,        
                                   HERITAGE MINING COMPANY,                
                                   HIGHLAND COAL, INC.,                    
                                   IKERD-BANDY CO., INC.,                  
                                   KERMIT COAL COMPANY,                    
                                   LESLIE RESOURCES, INC.,                 
                                   LESLIE RESOURCES MANAGEMENT, INC.,      
                                   MEADOWLARK, INC.,                       
                                   MEGA MINERALS, INC.,                    
                                   MIDWEST COAL SALES COMPANY,             
                                   MID-VOL LEASING, INC.                   
                                   MINING TECHNOLOGIES, INC.,              
                                   MOUNTAIN-CLAY, INCORPORATED (d/b/a      
                                     Mountain Clay, Inc.),                 
                                   PHOENIX LAND COMPANY,                   
                                   PREMIUM PROCESSING, INC.,               
                                   PREMIUM COAL DEVELOPMENT COMPANY,       
                                   PRO-LAND, INC. (d/b/a Kem Coal Company) 
                                   R. & F. COAL COMPANY,                   
                                   RIVER COAL COMPANY, INC.,               
                                   ROARING CREEK COAL COMPANY,             
                                   SHIPYARD RIVER COAL TERMINAL COMPANY,   
                                   STRAIGHT CREEK COAL RESOURCES COMPANY,  
                                   TENNESSEE MINING, INC.,                 
                                   TURRIS COAL COMPANY,                    
                                   WYOMING COAL TECHNOLOGY, INC.,          
                                   ZEIGLER COAL HOLDING COMPANY,           
                                   ZEIGLER ENVIRONMENTAL SERVICES COMPANY, 
                                   ZENERGY, INC.,                          
                                     each as Guarantor                     
                                                                           
                                   By: _________________________________________
                                       Name:                      
                                       Title:                      

                                      F-8

 
                                   BEECH COAL COMPANY,  
                                   CANNELTON, INC.,                             
                                   CANNELTON INDUSTRIES, INC.,                  
                                   CANNELTON LAND COMPANY,                      
                                   CANNELTON SALES COMPANY,                     
                                   DUNN COAL & DOCK COMPANY,                    
                                   HAYMAN HOLDINGS, INC.,                       
                                   KANAWHA CORPORATION,                         
                                   KINDILL HOLDING, INC.,                       
                                   KINDILL MINING, INC.,                        
                                   MIDWEST COAL COMPANY ,                       
                                   MOUNTAINEER COAL DEVELOPMENT                 
                                     COMPANY,                                   
                                   MOUNTAIN COALS CORPORATION,                  
                                   OLD BEN COAL COMPANY,                        
                                   WEST VIRGINIA-INDIANA COAL HOLDING           
                                     COMPANY, INC.,                             
                                     each as Guarantor                          
                                                                                
                                   By: _________________________________________
                                       Name:                                    
                                       Title:                                   
                                                                                
                                   BENTLEY COAL COMPANY,                        
                                   SKYLINE COAL COMPANY,                        
                                   KENTUCKY PRINCE MINING COMPANY,              
                                     each as Guarantor                          
                                                                                
                                   By: GRASSY COVE COAL MINING COMPANY, 
                                       ROARING CREEK COAL COMPANY,              
                                        each as General Partner of each of the  
                                        entities listed above                   
                                                                                
                                   By: _________________________________________
                                       Name:                                    
                                       Title:                                   
                                                                                
                                   NUCOAL, LLC,                                 
                                    as Guarantor                             

                                      F-9

 
                                   By: AMERICOAL DEVELOPMENT COMPANY  
                                       ENCOAL CORPORATION             
                                        each as Member                
                                                                      
                                   By: _________________________________________
                                       Name:                          
                                       Title:                         
                                                                      
                                                                      
                                                                      
                                   IBJ SCHRODER BANK & TRUST          
                                       COMPANY, as Trustee            
                                                                      
                                   By: _________________________________________
                                       Name:                          
                                       Title:                          

                                     F-10

EX-4.1(C)

 
                                                                  Exhibit 4.1(c)

                             CROSS-REFERENCE SHEET
                             ---------------------


Trust Indenture Act Section                            Indenture Section
- ---------------------------                            -----------------

Section 310(a)(1)                                        Section 7.10    
Section 310(a)(2)                                        Section 7.10   
Section 310(a)(3)                                        N/A            
Section 310(a)(4)                                        N/A            
Section 310(a)(5)                                        Section 7.10   
Section 310(b)                                           Section 7.10   
Section 310(c)                                           N/A            
Section 311(a)                                           Section 7.11   
Section 311(b)                                           Section 7.11   
Section 311(c)                                           N/A            
Section 312(a)                                           Section 2.05   
Section 312(b)                                           Section 11.03  
Section 312(c)                                           Section 11.03  
Section 313(a)                                           Section 7.06   
Section 313(b)(1)                                        N/A            
Section 313(b)(2)                                        Section 7.06   
Section 313(c)                                           Section 7.06   
Section 313(d)                                           Section 7.06   
Section 314(a)                                           Section 4.03   
Section 314(b)                                           N/A            
Section 314(c)                                           Section 11.04  
Section 314(d)                                           N/A            
Section 314(e)                                           Section 11.05  
Section 314(f)                                           N/A            
Section 315(a)                                           Section 7.01(b)
Section 315(b)                                           Section 7.05   
Section 315(c)                                           Section 7.01(a)
Section 315(d)                                           Section 7.01(c)
Section 315(e)                                           Section 6.11   
Section 316(a)(1)                                        Sections 6.04, 6.05
Section 316(a)(2)                                        N/A           
Section 316(b)                                           Section 6.07  
Section 316(c)                                           N/A           
Section 317(a)(1)                                        Section 6.08  
Section 317(a)(2)                                        Section 6.09  
Section 317(b)                                           Section 2.04  
Section 318(a)                                           Section 11.01 

EX-4.2(B)

 
================================================================================

                             ____________________

                              AEI RESOURCES, INC.

                                   AS ISSUER



                                THE GUARANTORS

                                 NAMED HEREIN


                              UP TO $225,000,000

                  11 1/2% SENIOR SUBORDINATED NOTES DUE 2006

                                   INDENTURE


                        _______________________________


                         Dated as of December 14, 1998


                        _______________________________


                      State Street Bank and Trust Company

                                  as Trustee

================================================================================

 
                               TABLE OF CONTENTS

 
 
                                                                            Page
                                                                            ----

                                  ARTICLE ONE

                  DEFINITIONS AND INCORPORATION BY REFERENCE
                                                                            
                                                                            
                                                                         
SECTION 1.01.    Definitions...............................................   1
SECTION 1.02.    Other Definitions.........................................  26
SECTION 1.03.    TIA Terms.................................................  27
SECTION 1.04.    Rules of Construction.....................................  27

                                  ARTICLE TWO

                                   THE NOTES

SECTION 2.01.    Form and Dating...........................................  28
SECTION 2.02.    Execution and Authentication..............................  29
SECTION 2.03.    Registrar and Paying Agent................................  31
SECTION 2.04.    Paying Agent to Hold Money in Trust.......................  31
SECTION 2.05.    Holder Lists..............................................  31
SECTION 2.06.    Transfer and Exchange.....................................  32
SECTION 2.07.    Replacement Notes.........................................  47
SECTION 2.08.    Outstanding Notes.........................................  48
SECTION 2.09.    Treasury Notes............................................  48
SECTION 2.10.    Temporary Notes...........................................  49
SECTION 2.11.    Cancellation..............................................  49
SECTION 2.12.    Defaulted Interest........................................  49
SECTION 2.13.    CUSIP Number..............................................  50

                                 ARTICLE THREE

                           REDEMPTION AND PREPAYMENT

SECTION 3.01.    Notices to Trustee........................................  50
SECTION 3.02.    Selection of Notes to Be Redeemed.........................  50
SECTION 3.03.    Notice of Redemption......................................  51
SECTION 3.04.    Effect of Notice of Redemption............................  52
SECTION 3.05.    Deposit of Redemption Price...............................  52
SECTION 3.06.    Notes Redeemed in Part....................................  52
SECTION 3.07.    Optional Redemption.......................................  52
SECTION 3.08.    Mandatory Redemption......................................  54


                                      -i-

 
 
 
                                                                            Page
                                                                            ----
                                                                         
SECTION 3.09.    Offer to Purchase by Application of Excess Proceeds.......  54

                                  ARTICLE FOUR

                                   COVENANTS

SECTION 4.01.    Payment of Notes..........................................  56
SECTION 4.02.    Maintenance of Office or Agency...........................  57
SECTION 4.03.    Reports...................................................  57
SECTION 4.04.    Compliance Certificate....................................  58
SECTION 4.05.    Taxes.....................................................  59
SECTION 4.06.    Stay, Extension and Usury Laws............................  59
SECTION 4.07.    Restricted Payments.......................................  59
SECTION 4.08.    Dividend and Other Payment Restrictions Affecting 
                   Restricted Subsidiaries.................................  64
SECTION 4.09.    Incurrence of Indebtedness and Issuance of Preferred 
                   Stock...................................................  66
SECTION 4.10.    Asset Sales...............................................  69
SECTION 4.11.    Transactions with Affiliates..............................  70
SECTION 4.12.    Liens.....................................................  71
SECTION 4.13.    Business Activities.......................................  71
SECTION 4.14.    Corporate Existence.......................................  72
SECTION 4.15.    Offer to Repurchase upon Change of Control................  72
SECTION 4.16.    Limitation on Issuances and Sales of Equity Interests in 
                   Wholly Owned Subsidiaries...............................  73
SECTION 4.17.    Limitation on Layering....................................  73
SECTION 4.18.    Payments for Consent......................................  73
SECTION 4.19.    Additional Subsidiary Guarantees..........................  74

                                  ARTICLE FIVE

                                   SUCCESSORS

SECTION 5.01.    Merger, Consolidation, or Sale of Assets..................  74
SECTION 5.02.    Successor Corporation Substituted.........................  75

                                  ARTICLE SIX

                             DEFAULTS AND REMEDIES

SECTION 6.01.    Events of Default.........................................  76
SECTION 6.02.    Acceleration..............................................  78
 

                                     -ii-

 
 
 
                                                                            Page
                                                                            ----
                                                                         
SECTION 6.03.    Other Remedies............................................  78
SECTION 6.04.    Waiver of Past Defaults...................................  79
SECTION 6.05.    Control by Majority.......................................  79
SECTION 6.06.    Limitation on Suits.......................................  79
SECTION 6.07.    Rights of Holders of Notes to Receive Payment.............  80
SECTION 6.08.    Collection Suit by Trustee................................  80
SECTION 6.09.    Trustee May File Proofs of Claim..........................  80
SECTION 6.10.    Priorities................................................  81
SECTION 6.11.    Undertaking for Costs.....................................  81

                                 ARTICLE SEVEN

                                    TRUSTEE

SECTION 7.01.    Duties of Trustee.........................................  82
SECTION 7.02.    Rights of Trustee.........................................  83
SECTION 7.03.    Individual Rights of Trustee..............................  84
SECTION 7.04.    Trustee's Disclaimer......................................  84
SECTION 7.05.    Notice of Defaults........................................  85
SECTION 7.06.    Reports by Trustee to Holders of the Notes................  85
SECTION 7.07.    Compensation and Indemnity................................  85
SECTION 7.08.    Replacement of Trustee....................................  86
SECTION 7.09.    Successor Trustee by Merger, etc..........................  88
SECTION 7.10.    Eligibility; Disqualification.............................  88
SECTION 7.11.    Preferential Collection of Claims Against Company.........  88

                                 ARTICLE EIGHT

                    LEGAL DEFEASANCE AND COVENANT DEFEASANCE


SECTION 8.01.    Option to Effect Legal Defeasance or Covenant 
                   Defeasance..............................................  88
SECTION 8.02.    Legal Defeasance and Discharge............................  89
SECTION 8.03.    Covenant Defeasance.......................................  89
SECTION 8.04.    Conditions to Legal or Covenant Defeasance................  90
SECTION 8.05.    Deposited Money and Government Securities to Be Held 
                   in Trust; Other Miscellaneous Provisions................  91
SECTION 8.06.    Repayment to Company......................................  92
SECTION 8.07.    Reinstatement.............................................  92
 

                                     -iii-

 

 
                                                                            Page
                                                                            ----
                                 ARTICLE NINE

                       AMENDMENT, SUPPLEMENT AND WAIVER
                                                                         
SECTION 9.01.    Without Consent of Holders of Notes.......................  93
SECTION 9.02.    With Consent of Holders of Notes..........................  94
SECTION 9.03.    Compliance with Trust Indenture Act.......................  96
SECTION 9.04.    Revocation and Effect of Consents.........................  96
SECTION 9.05.    Notation on or Exchange of Notes..........................  96
SECTION 9.06.    Trustee to Sign Amendments, etc...........................  96

                                  ARTICLE TEN

                                   GUARANTEES

SECTION 10.01.    Guarantee................................................  97
SECTION 10.02.    Agreement to Subordinate.................................  98
SECTION 10.03.    Limitation on Liability of Holdings and Guarantors.......  98
SECTION 10.04.    Liquidation; Dissolution; Bankruptcy.....................  99
SECTION 10.05.    Holdings and Guarantors Not to Make Payments with 
                    Respect to Guarantees in Certain Circumstances.........  99
SECTION 10.06.    When Distribution Must Be Paid Over...................... 100
SECTION 10.07.    Subrogation.............................................. 100
SECTION 10.08.    Subordination May Not Be Impaired by
                    Holdings or Guarantors................................. 101
SECTION 10.09.    Distribution or Notice to Representative................. 101
SECTION 10.10.    Rights of Trustee and Paying Agent....................... 101
SECTION 10.11.    Officers' Certificate.................................... 102
SECTION 10.12.    Obligation of Holdings and Guarantors Unconditional...... 102
SECTION 10.13.    Article Ten Not To Prevent Events of Default............. 103
SECTION 10.14.    Execution and Delivery of Guarantee...................... 103
SECTION 10.15.    Guarantors May Consolidate, Etc., on Certain Terms....... 104
SECTION 10.16.    Releases Following Sale of Assets........................ 105

                                 ARTICLE ELEVEN

                                 SUBORDINATION


SECTION 11.01.    Agreement to Subordinate................................. 105
SECTION 11.02.    Liquidation; Dissolution; Bankruptcy..................... 106
SECTION 11.03.    Company Not to Make Payments with Respect to Notes 
                    in Certain Circumstances............................... 106
 


                                     -iv-

 
 
 
                                                                           Page
                                                                           ----
                                                                         
SECTION 11.04.    Acceleration of Notes.................................... 108
SECTION 11.05.    When Distribution Must Be Paid Over...................... 108
SECTION 11.06.    Notice by Company........................................ 108
SECTION 11.07.    Subrogation.............................................. 108
SECTION 11.08.    Relative Rights.......................................... 109
SECTION 11.09.    Subordination May Not Be Impaired by Company............. 109
SECTION 11.10.    Distribution or Notice to Representative................. 109
SECTION 11.11.    Rights of Trustee and Paying Agent....................... 109
SECTION 11.12.    Officers' Certificate.................................... 110
SECTION 11.13.    Obligation of Company Unconditional...................... 110
SECTION 11.14.    Article Eleven Not To Prevent Events of Default.......... 111
SECTION 11.15.    Trustee's Compensation Not Prejudiced.................... 111

                                 ARTICLE TWELVE

                                 MISCELLANEOUS


SECTION 12.01.    Trust Indenture Act Controls............................. 111
SECTION 12.02.    Notices.................................................. 111
SECTION 12.03.    Communication by Holders of Notes with Other Holders 
                    of Notes............................................... 113
SECTION 12.04.    Certificate and Opinion as to Conditions Precedent....... 113
SECTION 12.05.    Statements Required in Certificate or Opinion............ 113
SECTION 12.06.    Rules by Trustee and Agents.............................. 114
SECTION 12.07.    No Personal Liability of Directors, Officers, Employees 
                    and Stockholders....................................... 114
SECTION 12.08.    Governing Law............................................ 114
SECTION 12.09.    No Adverse Interpretation of Other Agreements............ 115
SECTION 12.10.    Successors............................................... 115
SECTION 12.11.    Severability............................................. 115
SECTION 12.12.    Counterpart Originals.................................... 115
SECTION 12.13.    Table of Contents, Headings, etc......................... 115
 

EXHIBITS

Exhibit A-1  Form of Note
Exhibit A-2  Form of Regulation S Temporary Global Note
Exhibit B    Form of Certificate of Transfer
Exhibit C    Form of Certificate of Exchange
Exhibit D    Form of Certificate of Acquiring Institutional Accredited Investor
Exhibit E    Form of Senior Subordinated Guarantee
Exhibit F    Form of Supplemental Indenture

                                      -v-

 
          INDENTURE dated as of December 14, 1998 among AEI Resources, Inc., a
Delaware corporation (the "Company"), AEI Resources Holding, Inc. ("Holdings"),
as a guarantor, the subsidiary guarantors named herein (the "Guarantors") and
State Street Bank and Trust Company, as trustee (the "Trustee").

          The Company, Holdings, the Guarantors and the Trustee agree as follows
for the benefit of each other and for the equal and ratable benefit of the
Holders of the 11 1/2% Series A Senior Subordinated Notes due 2006 (the "Series
A Notes") and the 11 1/2% Series B Senior Subordinated Notes due 2006 (the
"Series B Notes" and, together with the Series A Notes, the "Notes"):


                                  ARTICLE ONE

                  DEFINITIONS AND INCORPORATION BY REFERENCE

          SECTION 1.01.  Definitions.
                         ----------- 

          "144A Global Note" means a global note in the form of Exhibit A-1
hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold in reliance on Rule 144A.

          "Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.

          "Acquisitions" means the acquisition by the Company of: (i) all of the
outstanding capital stock of Zeigler Coal Holding Company, (ii) all of the
outstanding capital stock of certain subsidiaries of Cyprus Amax Coal Company
and certain mining equipment used by such subsidiaries together with an
agreement to pay Cyprus Amax Coal Company or its affiliate certain royalties,
(iii) all of the outstanding capital stock of Mid-Vol Leasing, Inc., Mega
Minerals, Inc. and Premium Processing, Inc. together with an agreement to pay
the former owners of Mid-Vol Leasing, Inc. certain royalties, (iv) all of the
outstanding capital stock of Kindill and Heyman Holding, Inc., (v) certain of
the assets of The Battle Ridge Companies, (vi) the stock of Leslie Resources,
Inc. and Leslie Resources Manage-

 
                                      -2-

ment, Inc., (vii) certain facilities, equipment and intellectual property
through the purchase of a substantial portion of the assets of the Mining
Technologies Division of Addington Enterprises, Inc., (viii) all of the
outstanding capital stock of Martiki Coal Corporation and (ix) all of the
outstanding capital stock of Ikerd-Bandy Coal, Inc.

          "Additional Assets" means (i) any property or assets (other than
Capital Stock, Indebtedness or rights to receive payments over a period greater
than 180 days, other than with respect to coal supply contract restructurings)
that are usable by the Company or a Restricted Subsidiary in a Permitted
Business or (ii) the Capital Stock of a Person that is at the time, or becomes,
a Restricted Subsidiary as a result of the acquisition of such Capital Stock by
the Company or another Restricted Subsidiary.

          "Additional Notes" means up to $75.0 million in aggregate principal
amount of Notes (other than the Initial Notes) issued under this Indenture
subsequent to the date of this Indenture in accordance with Sections 2.02 and
4.09 hereof, as part of the same series of the Initial Notes.

          "Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person.  For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided  that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control.

          "Agent" means any Registrar, Paying Agent or co-registrar.

          "Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer or
exchange.

          "Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback) other than sales of coal or rights to acquire coal or sales
of mining equipment and related parts and services, in each case, in the
ordinary course of business (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Restricted Subsidiaries taken as a whole will be governed by the provisions of
Section 4.15 and/or the provisions described under Section 5.01 and not by the
provisions of Section 4.10), and (ii) the issue or sale by the Company or any of
its Restricted Subsidiaries of 

 
                                      -3-

Equity Interests of any of the Company's Restricted Subsidiaries, in the case of
either clause (i) or (ii), whether in a single transaction or a series of
related transactions, (a) that have a fair market value in excess of $2.0
million or (b) for Net Proceeds in excess of $2.0 million. Notwithstanding the
foregoing, the following items shall not be deemed to be Asset Sales: (i) a
transfer of assets by the Company to a Guarantor Restricted Subsidiary or by a
Guarantor Restricted Subsidiary to the Company or to another Restricted
Subsidiary, (ii) an issuance of Equity Interests by a Restricted Subsidiary to
the Company or to another Restricted Subsidiary, (iii) a Restricted Payment that
is permitted by, or an Investment that is not prohibited by, the covenant
described under Section 4.07, (iv) a disposition of Cash Equivalents or obsolete
equipment, (v) foreclosures on assets, (vi) the sale or discount, in each case
without recourse, of accounts receivable arising in the ordinary course of
business, but only in connection with the compromise or collection thereof,
(vii) the factoring of accounts receivable arising in the ordinary course of
business pursuant to arrangements customary in the industry and (viii) the sale
or disposition by the Company or a Restricted Subsidiary of its Equity Interest
in, or all or substantially all of the assets of, an Unrestricted Subsidiary.

          "Assets Held for Sale" means assets of the Company that are reported
on the pro forma financial statements of the Company contained in the Offering
Memorandum as assets held for sale in accordance with GAAP.

          "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.

          "Board of Directors" means the board of directors of AEI Resources,
Inc. or any authorized committee of the Board of Directors.

          "Business Day" means any day other than a Legal Holiday.

          "Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.

          "Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.

 
                                      -4-

          "Cash Equivalents" means (a) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed or insured by the
U.S. Government or any agency thereof, (b) certificates of deposit and time
deposits with maturities of one year or less from the date of acquisition and
overnight bank deposits of any lender under the Senior Credit Facilities or of
any commercial bank having capital and surplus in excess of $500.0 million and a
Thompson Bank Watch Rating of "B" or better, except that up to $10.0 million of
such certificates of deposit, time deposits and overnight deposits may be of or
with the Kentucky Bank and Trust Company at any one time, (c) repurchase
obligations of any lender under the Senior Credit Facilities or of any
commercial bank satisfying the requirements of clause (b) of this definition,
having a term of not more than 90 days with respect to securities issued or
fully guaranteed or insured by the United States Government, (d) commercial
paper of a domestic issuer rated at least A-2 by Standard & Poor's Rating Group
("S&P") or P-2 by Moody's Investors Service, Inc. ("Moody's"), or carrying an
equivalent rating by a nationally recognized rating agency if both of S&P and
Moody's cease publishing ratings of investments, (e) securities with maturities
of one year or less from the date of acquisition issued or fully guaranteed by
any state, commonwealth or territory of the United States, by any political
subdivision or taxing authority of any such state, commonwealth or territory or
by any foreign government, the securities of which state, commonwealth,
territory, political subdivision, taxing authority or foreign government (as the
case may be) are rated at least A by S&P or A by Moody's, (f) securities with
maturities of one year or less from the date of acquisition backed by standby
letters of credit issued by any lender under the Senior Credit Facilities or any
commercial bank satisfying the requirements of clause (b) of this definition or
(g) shares of money market mutual or similar funds which invest exclusively in
assets satisfying the requirements of clauses (a) through (f) of this
definition.

          "Cedel" means Cedel Bank, S.A.

          "Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than a Principal or a Related Party of a Principal, (ii) the adoption
of a plan relating to the liquidation or dissolution of the Company, (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than the Principals and their Related Parties or (prior to the
establishment of a Public Market) a Permitted Group, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is

 
                                      -5-

currently exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 50% of the Voting Stock of the
Company (measured by voting power rather than number of shares), or (iv) the
Company consolidates with, or merges with or into, any Person, or any Person
consolidates with, or merges with or into, the Company, in any such event
pursuant to a transaction in which any of the outstanding Voting Stock of the
Company is converted into or exchanged for cash, securities or other property,
other than any such transaction where the Voting Stock of the Company
outstanding immediately prior to such transaction is converted into or exchanged
for Voting Stock (other than Disqualified Stock) of the surviving or transferee
Person constituting a majority of the outstanding shares of such Voting Stock of
such surviving or transferee Person (immediately after giving effect to such
issuance). For purposes of this definition, any transfer of an equity interest
of an entity that was formed for the purpose of acquiring Voting Stock of the
Company will be deemed to be a transfer of such portion of such Voting Stock as
corresponds to the portion of the equity of such entity that has been so
transferred.

          "Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i)
provision for taxes based on income or profits of such Person and its Restricted
Subsidiaries for such period, to the extent that such provision for taxes was
included in computing such Consolidated Net Income, plus (ii) consolidated
interest expense of such Person and its Restricted Subsidiaries for such period,
whether paid or accrued and whether or not capitalized (including, without
limitation, amortization of debt issuance costs, deferred financing fees and
original issue discount, noncash interest payments, the interest component of
any deferred payment obligations (other than employee benefit obligations), the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iii) depreciation, depletion,
amortization (including amortization of goodwill and other intangibles) and
other noncash charges and expenses (including, without limitation, writedowns
and impairment of property, plant and equipment and intangibles and other long-
lived assets) (excluding any such noncash expense for periods after the date of
this Indenture to the extent that it represents an accrual of or reserve for
cash expenses in any future period or amortization of a prepaid cash expense
that was paid in a prior period) of such Person and its Restricted Subsidiaries
for such period to the extent that such depreciation, depletion, amortization
and other noncash expenses were deducted in computing such Consolidated Net
Income, plus (v) unusual or nonrecurring charges incurred either (A) prior to
the date of this Indenture or (B) within twelve months thereafter and in
connection with any of the transactions contemplated by the Transaction
Documents, in each case to the extent deducted in computing such Consolidated
Net Income, minus (vi) noncash items increasing such Consolidated Net Income for
such

 
                                      -6-

period (other than accruals in accordance with GAAP), plus (vii) noncash items
decreasing such Consolidated Net Income for such period (other than accruals in
accordance with GAAP), in each case, on a consolidated basis and determined in
accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on
the income or profits of, and the depreciation, depletion and amortization and
other noncash expenses of, a Restricted Subsidiary that is not a Guarantor shall
be added to Consolidated Net Income to compute Consolidated Cash Flow only to
the extent that a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior governmental approval (that has not been obtained), and without
direct or indirect restriction pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Restricted Subsidiary or its
stockholders.

          "Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income of any Person that is not a Subsidiary or that
is accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Restricted Subsidiary thereof, (ii) the Net Income of any
Restricted Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary of
that Net Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded, (v) the Net Income (or loss) of any
Unrestricted Subsidiary shall be excluded, whether or not distributed to the
Company or one of its Restricted Subsidiaries, (vi) any non-cash expense related
to employee equity participation programs or stock option or similar plans shall
be disregarded, and (vii) losses of Tek-Kol Partnership prior to the date of
this Indenture shall be disregarded.

          "Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.02 hereof or such other address as to which the
Trustee may give notice to the Company.

          "Credit Facilities" means, with respect to the Company or any of its
Restricted Subsidiaries, one or more debt facilities (including, without
limitation, the Senior Credit Facilities) or commercial paper facilities with
banks or other institutional lenders providing for revolving credit loans, term
loans, receivables financing (including through 

 
                                      -7-

the sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time.

          "Custodian" means the Trustee, as custodian with respect to the Notes
in global form, or any successor entity thereto.

          "Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.

          "Definitive Note" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.06 hereof, in the
form of Exhibit A-1 hereto except that such Note shall not bear the Global Note
Legend and shall not have the "Schedule of Exchanges of Interests in the Global
Note" attached thereto.

          "Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.

          "Designated Noncash Consideration" means the fair market value of
noncash consideration received by the Company or one of its Restricted
Subsidiaries in connection with an Asset Sale that is so designated as
Designated Noncash Consideration pursuant to an Officers' Certificate, setting
forth the basis of such valuation, executed by the principal executive officer
and the principal financial officer of the Company, less the amount of cash or
Cash Equivalents received in connection with a sale of such Designated Noncash
Consideration.

          "Designated Senior Indebtedness" means (i) any Indebtedness
outstanding under the Senior Credit Facility and (ii) any Indebtedness
outstanding under the Senior Notes Indenture.

          "Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the right
to require the Company to repurchase such Capital Stock upon the occurrence of a
Change of

 
                                      -8-

Control or an Asset Sale shall not constitute Disqualified Stock if the terms of
such Capital Stock provide that the Company may not repurchase or redeem any
such Capital Stock pursuant to such provisions unless such repurchase or
redemption complies with Section 4.07.

          "Domestic Subsidiary" means a Restricted Subsidiary that is (i) formed
under the laws of the United States of America or a state or territory thereof
or (ii) as of the date of determination, treated as a domestic entity or a
partnership or a division of a domestic entity for United States federal income
tax purposes.

          "Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

          "Equity Offering" means any public or private sale of equity
securities (excluding Disqualified Stock) of the Company or Holdings (to the
extent that the net proceeds therefrom are contributed to the Company as common
equity capital), other than any private sales to an Affiliate of the Company.

          "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.

          "Exchange Act" means the Securities Exchange Act of 1934, as amended.

          "Exchange Notes" means the Notes issued in the Exchange Offer pursuant
to Section 2.06(f) hereof.

          "Exchange Offer" has the meaning set forth in the Registration Rights
Agreement.

          "Exchange Offer Registration Statement" has the meaning set forth in
the Registration Rights Agreement.

          "Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the Senior Credit
Facilities, the Senior Notes, the Notes and related Guarantees) in existence on
the date of this Indenture, including, without duplication, outstanding letters
of credit which support such Indebtedness, until such amounts are repaid.

          "fair market value" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction.  Unless the TIA
otherwise requires, fair market 

 
value shall be determined by the Board of Directors of the Company acting
reasonably and in good faith and shall be evidenced by a Board Resolution of the
Board of Directors of the Company delivered to the Trustee.

          "Fixed Charge Coverage Ratio" means with respect to any Person and its
Restricted Subsidiaries for any period, the ratio of the Consolidated Cash Flow
of such Person and its Restricted Subsidiaries for such period to the Fixed
Charges of such Person and its Restricted Subsidiaries for such period. In the
event that the referent Person or any of its Restricted Subsidiaries incurs,
assumes, Guarantees or redeems any Indebtedness (other than revolving credit
borrowings) or issues or redeems preferred stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Company or any of its Restricted Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, (ii) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date or held for sale as of the date of this Indenture,
shall be excluded and (iii) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, but only to the
extent that the obligations giving rise to such Fixed Charges will not be
obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.

          "Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of (i) the consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and original
issue discount, noncash interest payments, the interest component of any
deferred payment obligations (other than employee benefit obligations), the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letters
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to 

 
                                     -10-

Hedging Obligations, but excluding amortization of debt issuance costs), and
(ii) the consolidated interest of such Person and its Restricted Subsidiaries
that was capitalized during such period, and (iii) any interest expense on the
portion of Indebtedness of another Person that is Guaranteed by such Person or
one of its Restricted Subsidiaries or secured by a Lien on assets of such Person
or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is
called upon) and (iv) the product of (a) all dividend payments, whether or not
in cash, on any series of preferred stock of such Person or any of its
Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests of the Company (other than Disqualified
Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the effective combined federal, state and local tax rate of such Person
for such period, expressed as a decimal, in each case, for the Company and its
Restricted Subsidiaries on a consolidated basis and in accordance with GAAP.

          "Foreign Subsidiaries" means Subsidiaries of the Company that are not
Domestic Subsidiaries.

          "GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of this Indenture.

          "Global Note Legend" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Notes issued under
this Indenture.

          "Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes, in the form of
Exhibit A hereto issued in accordance with Section 2.01, 2.06(b)(iv),
2.06(d)(ii) or 2.06(f) hereof.

          "Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.

          "Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.

 
                                     -11-

          "Guarantors" means each of (i) the Company's Domestic Subsidiaries at
the date of the closing of the Acquisitions, other than Yankeetown Dock
Corporation and the respective Subsidiaries of Yankeetown Dock Corporation at
the date of this Indenture and (ii) any other subsidiary that executes a
Subsidiary Guarantee in accordance with the provisions of this Indenture, and
their respective successors and assigns.

          "Guarantor Senior Indebtedness" means, with respect to any Guarantor,
at any date, (a) all Obligations, if any, of such Guarantor under the Credit
Facilities; (b) all Obligations of such Guarantor under Hedging Obligations
(including Post-Petition Interest); (c) all Obligations of such Guarantor under
stand-by letters of credit; and (d) all other Indebtedness of such Guarantor for
borrowed money, including principal, premium, if any, and interest (including
Post-Petition Interest) on such Indebtedness unless the instrument under which
such Indebtedness of such Guarantor for money borrowed is incurred expressly
provides that such Indebtedness for money borrowed is not senior or superior in
right of payment to such Guarantor's Subsidiary Guarantee, and all renewals,
extensions, modifications, amendments or refinancings thereof. Notwithstanding
the foregoing, Guarantor Senior Indebtedness shall not include (a) to the extent
that it may constitute Indebtedness, any Obligation for federal, state, local or
other taxes; (b) any Indebtedness among or between such Guarantor and any
Subsidiary of such Guarantor; (c) to the extent that it may constitute
Indebtedness, any Obligation in respect of any trade payable incurred for the
purchase of goods or materials, or for services obtained, in the ordinary course
of business; (d) Indebtedness evidenced by such Guarantor's Subsidiary
Guarantee; (e) Indebtedness of such Guarantor that is expressly subordinate or
junior in right of payment to any other Indebtedness of such Guarantor; (f) to
the extent that it may constitute Indebtedness, any obligation owing under
leases (other than Capital Lease Obligations); and (g) any obligation that by
operation of law is subordinate to any general unsecured obligations of such
Guarantor.

          "Haulage and Delivery Agreement" means that certain agreement dated as
of October 22, 1997 between the Company and TASK, as the same may be extended or
renewed from time to time without alteration of the material terms thereof.

          "Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) currency exchange, interest rate or
commodity swap agreements, currency exchange, interest rate or commodity cap
agreements and currency exchange, interest rate or commodity collar agreements
and (ii) other agreements or arrangements designed to protect such Person
against fluctuations in currency exchange, interest rates or commodity prices,
in each case for the purpose of risk management and not for speculation.

          "Holder" means a Person in whose name a Note is registered.

 
                                     -12-

          "Holdings" means AEI Resources Holding, Inc., a Delaware corporation
and the 100% parent of the Company.

          "IAI Global Note" means the global Note in the form of Exhibit A-1
hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold to Institutional Accredited Investors.

          "Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations, if
and to the extent any of the foregoing (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others secured
by a Lien on any asset of such Person (whether or not such Indebtedness is
assumed by such Person) and, to the extent not otherwise included, the Guarantee
by such Person of any indebtedness of any other Person, but excluding from the
definition of "Indebtedness," any of the foregoing that constitutes (1) an
accrued expense, (2) trade payables, (3) Obligations in respect of reclamation,
workers' compensation, including black lung, pensions and retiree health care,
in each case to the extent not overdue for more than 90 days and (4) agreements
to make royalty payments, including minimum royalty payments, that are entered
into in connection with the acquisition of assets to be used in a Permitted
Business and which comprise part of the purchase price of the assets acquired.
The amount of any Indebtedness outstanding as of any date shall be (i) the
accreted value thereof, in the case of any Indebtedness issued with original
issue discount, and (ii) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any other
Indebtedness.

          "Indenture" means this Indenture, as amended or supplemented from time
to time.

          "Indirect Participant" means a Person who holds a beneficial interest
in a Global Note through a Participant.

          "Initial Notes" means the first $150.0 million in aggregate principal
amount of Notes issued under this Indenture on the date hereof.

          "Initial Purchaser" means Warburg Dillon Read LLC.

 
                                     -13-

          "Insolvency or Liquidation Proceeding" means, with respect to any
Person, any liquidation, dissolution or winding up of such Person, or any
bankruptcy, reorganization, insolvency, receivership or similar proceeding with
respect to such Person, whether voluntary or involuntary.

          "Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act that is not also a PIB.

          "Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the form of direct or
indirect loans (including guarantees of any portion of Indebtedness or other
obligations), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, such Person is no longer a Restricted Subsidiary of the Company,
the Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Equity Interests of
such Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described under Section 4.07.

          "Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York, or the city in which the principal
corporate trust office of the Trustee is located, or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue on such payment for the intervening period.

          "Letter of Transmittal" means the letter of transmittal to be prepared
by the Company and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.

          "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financ-

 
                                     -14-

ing statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).

          "Manufacture and Service Agreement" means that certain agreement dated
as of November 12, 1998 between Addington Enterprises or its affiliate and MTI,
as the same may be extended or renewed from time to time without alteration of
the material terms thereof.

          "Marketable Securities" means, with respect to any Asset Sale, any
readily marketable equity securities that are (i) traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market; and (ii)
issued by a corporation having a total equity market capitalization of not less
than $250.0 million; provided that the excess of (A) the aggregate amount of
securities of any one such corporation held by the Company and any Restricted
Subsidiary over (B) ten times the average daily trading volume of such
securities during the 20 immediately preceding trading days shall be deemed not
to be Marketable Securities; as determined on the date of the contract relating
to such Asset Sale.

          "MMI Leases" means all equipment leases between the Company and its
Subsidiaries and MMI in existence as of the date of this Indenture; provided
that MMI Leases shall not include any extension, renewal, exercise of option or
modification of any equipment lease between the Company and its Subsidiaries and
MMI.

          "MMI Service Agreement" means that certain agreement dated as of
October 22, 1997 between MMI and the Company, as the same may be extended or
renewed from time to time without alteration of the material terms thereof.

          "Net Income" means, with respect to any Person, the net income or loss
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain or loss,
together with any related provision for or benefit related to taxes on such gain
or loss, realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring item,
together with any related provision or benefit for taxes on such extraordinary
or nonrecurring item.

          "Net Proceeds" means the aggregate proceeds (cash or property)
received by the Company or any of its Restricted Subsidiaries in respect of any
Asset Sale (including, without limitation, any cash received upon the sale or
other disposition of any noncash consideration received in any Asset Sale) or
the sale or disposition of any Investment, net of

 
                                     -15-

the direct costs relating to such Asset Sale, sale or disposition (including,
without limitation, legal, accounting and investment banking fees, and sales
commissions), and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements), and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.

          "Non-Guarantor Subsidiaries" means (i) Yankeetown Dock Corporation and
its direct and indirect Subsidiaries, (ii) the Company's future Unrestricted
Subsidiaries and (iii) the Company's current and future Foreign Subsidiaries.

          "Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness) other than a pledge of the Equity Interests of any
Unrestricted Subsidiaries, (b) is directly or indirectly liable (as a guarantor
or otherwise) other than by virtue of a pledge of the Equity Interests of any
Unrestricted Subsidiaries, or (c) constitutes the lender; and (ii) no default
with respect to which (including any rights that the holders thereof may have to
take enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Notes) of the Company or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.

          "Non-U.S. Person" means a Person who is not a U.S. Person. The Initial
Notes and the Additional Notes shall be treated as a single class for all
purposes under this Indenture.

          "Notes" has the meaning assigned to it in the preamble to this
Indenture.  The Initial Notes and the Additional Notes shall be treated as a
single class for all purposes under this Indenture.

          "Obligations" means any principal, premium (if any), interest,
penalties, fees, charges, expenses, indemnifications, reimbursement obligations,
damages, Guarantees and other liabilities and amounts payable under the
documentation governing any Indebtedness or in respect thereto.

          "Offering" means the offering of the Notes by the Company.

          "Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial

 
                                     -16-

Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary
or any Vice-President of such Person.

          "Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 11.05 hereof.

          "Opinion of Counsel" means an opinion in form and substance reasonably
satisfactory to the Trustee and from legal counsel who is reasonably acceptable
to the Trustee, that meets the requirements of Section 11.05 hereof.  The
counsel may be an employee of or counsel to the Company, any Subsidiary of the
Company or the Trustee.

          "Participant" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to The Depository Trust Company, shall include
Euroclear and Cedel).

          "Participating Broker-Dealer" has the meaning set forth in the
Registration Rights Agreement.

          "Permitted Business" means coal production, coal mining, coal
brokering, coal transportation, mine development, energy related businesses,
coal, natural gas, petroleum or other fossil fuel exploration, production,
marketing, transportation and distribution and other related businesses and
activities of the Company and its Subsidiaries as of the date of this Indenture
and any business or activity that is reasonably similar to any of the foregoing
or a reasonable extension, development or expansion thereof or ancillary to any
of the foregoing.

          "Permitted Group" means any group of investors that is deemed to be a
"person" (as such term is used in Section 13(d)(3) of the Exchange Act) by
virtue of any agreement or arrangement among two or more Persons, provided that
no single Person (together with its Affiliates), other than the Principals and
their Related Parties, is the "beneficial owner" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition, and beneficial ownership
shall be determined without regard to such agreement or arrangement), directly
or indirectly, of (A) more than 50% of the Voting Stock of the Company that is
"beneficially owned" (as defined above) by such group of investors and (B) more
of the Voting Stock of the Company than is at the time "beneficially owned" (as
defined above) by the Principals

 
                                     -17-

and their Related Parties in the aggregate (Voting Stock, in each case, measured
by voting power rather than number of shares).

          "Permitted Investments" means (a) any Investment in the Company or in
a Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Restricted Subsidiary of the Company in
a Person, if as a result of such Investment (i) such Person becomes a Restricted
Subsidiary of the Company or (ii) such Person, in one transaction or a series of
related transactions, is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Restricted Subsidiary of the Company; (d) any acquisition of
assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Company; (e) any Investment existing on the date of
this Indenture (an "Existing Investment") and any Investment that replaces,
refinances or refunds an Existing Investment, provided that the new Investment
is in an amount that does not exceed the amount replaced, refinanced or refunded
and is made in the same Person as the Investment replaced, refinanced or
refunded; (f) advances to employees not in excess of $5.0 million outstanding at
any one time; (g) Hedging Obligations permitted under clause (vii) of Section
4.09; (h) loans and advances to officers, directors and employees for business-
related travel expenses, moving expenses and other similar expenses, in each
case incurred in the ordinary course of business; (i) any Investment in a
Permitted Business (whether or not an Investment in an Unrestricted Subsidiary)
having an aggregate fair market value that, when taken together with all other
Investments made pursuant to this clause (i), does not exceed in aggregate
amount the sum of (1) 5% of Total Assets at the time of such Investment (with
the fair market value of each Investment being measured at the time made and
without giving effect to subsequent changes in value) plus (2) 100% of the Net
Proceeds from the sale or disposition of any Investment previously made pursuant
to this clause (i) or 100% of the amount of any dividend, distribution or
payment from any such Investment, net of income taxes paid or payable in respect
thereof, in each case up to the amount of the Investment that was made pursuant
to this clause (i) and 50% of the amount of such Net Proceeds or 50% of such
dividends, distributions or payments, in each case received in excess of the
amount of the Investments made pursuant to this clause (i); (j) guarantees
(including Guarantees) of Indebtedness permitted under Section 4.09; (k) any
Investment acquired by the Company or any of its Restricted Subsidiaries (A) in
exchange for any other Investment or accounts receivable held by the Company or
any such Restricted Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer of such
other Investment or accounts receivable or (B) as a result of the transfer of
title with respect to any secured Investment in default as a result of a
foreclosure by the Company or any of its Restricted Subsidiaries with respect to
such secured Investment; (l) that portion of any Investment by the Company or a
Restricted Subsidiary in a Permitted Business to the extent that the Company or
such Restricted Subsidiary will re-

 
                                     -18-

ceive in a substantially concurrent transaction an amount in cash equal to the
amount of such Investment (or the fair market value of such Investment), net of
any obligation to pay taxes or other amounts in respect of the receipt of such
cash; and (m) any Investment made by the Company or any Restricted Subsidiary in
an Unrestricted Subsidiary with the proceeds of any equity contribution to or
sale of Equity Interest by the Company or any Restricted Subsidiary, provided
that such proceeds shall not increase the amount available pursuant to clause
(c) of the first paragraph of the covenant described under Section 4.07;
provided that the receipt of such cash does not carry any obligation by the
Company or such Restricted Subsidiary to repay or return such cash; provided,
however, that with respect to any Investment, the Company may, in its sole
discretion, allocate all or any portion of any Investment to one or more of the
above clauses so that the entire Investment would be a Permitted Investment.

          "Permitted Junior Securities" means any securities of the Company or
any other Person that are (i) equity securities without covenants or (ii)
subordinated in right of payment to all Senior Indebtedness that may at the time
be outstanding, to substantially the same extent as, or to a greater extent
than, the Notes are subordinated as provided in this Indenture, in any event
pursuant to a court order so providing and as to which (a) the rate of interest
on such securities shall not exceed the effective rate of interest on the Notes
on the date of this Indenture, (b) such securities shall not be entitled to the
benefits of covenants or defaults materially more beneficial to the holders of
such securities than those in effect with respect to the Notes on the date of
this Indenture and (c) such securities shall not provide for amortization
(including sinking fund and mandatory prepayment provisions) commencing prior to
the date six months following the final scheduled maturity date of the Senior
Indebtedness (as modified by the plan of reorganization or readjustment pursuant
to which such securities are issued).

          "Permitted Liens" means (i) Liens securing Indebtedness under Credit
Facilities that was permitted by the terms of this Indenture to be incurred;
(ii) Liens in favor of the Company; (iii) Liens on property of a Person existing
at the time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary of the Company; provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) Liens incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance or other kinds of social security; (vii) Liens exist-

 
                                     -19-

ing on the date of this Indenture; (viii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (ix)
Liens on assets of Guarantors to secure Guarantor Senior Indebtedness of such
Guarantors that was permitted by this Indenture to be incurred; (x) Liens
incurred in the ordinary course of business of the Company or any Restricted
Subsidiary of the Company with respect to obligations that (a) are not incurred
in connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Restricted Subsidiary; (xi) Liens on assets of Foreign Subsidiaries to secure
Indebtedness that was permitted by this Indenture to be incurred; (xii)
statutory liens of landlords, mechanics, suppliers, vendors, warehousemen,
carriers or other like Liens arising in the ordinary course of business; (xiii)
judgment Liens not giving rise to an Event of Default so long as any appropriate
legal proceeding that may have been duly initiated for the review of such
judgment shall not have been finally terminated or the period within which such
legal proceeding may be initiated shall not have expired; (xiv) easements,
rights-of-way, zoning and similar restrictions and other similar encumbrances or
title defects incurred or imposed, as applicable, in the ordinary course of
business and consistent with industry practices which, in the aggregate, are not
substantial in amount, and which do not in any case materially detract from the
value of the property subject thereto (as such property is used by the Company
or its Subsidiaries) or interfere with the ordinary conduct of the business of
the Company or such Subsidiaries; provided, however, that any such Liens are not
incurred in connection with any borrowing of money or any commitment to loan any
money or to extend any credit; (xv) Liens to secure Indebtedness (including
Capital Lease Obligations) permitted by clause (iv) of the second paragraph of
the covenant in Section 4.09 and other purchase money Liens to finance property
or assets of the Company or any Restricted Subsidiary acquired in the ordinary
course of business; provided that such Liens are only secured by such property
or assets so acquired or improved (including, in the case of the acquisition of
Capital Stock of a Person who becomes a Restricted Subsidiary, Liens on the
assets of the Person whose Capital Stock was so acquired); (xvi) Liens securing
Indebtedness under Hedging Obligations, provided that such Liens are only
secured by property or assets that secure the Indebtedness subject to the
Hedging Obligation; (xvii) Liens to secure Indebtedness permitted by clause (xi)
of the second paragraph of the covenant in Section 4.09; and (xviii) Liens on
the Equity Interests of Unrestricted Subsidiaries securing obligations of
Unrestricted Subsidiaries not otherwise prohibited by this Indenture.

 
                                     -20-

          "Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest and premium, if any, on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.

          "Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any subdivision
or ongoing business of any such entity or substantially all of the assets of any
such entity, subdivision or business).

          "Post-Petition Interest" means, with respect to any Indebtedness of
any Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument creating,
evidencing or governing such Indebtedness, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency or Liquidation Proceeding.

          "Principals" means Larry Addington, Bruce Addington and Robert
Addington.

          "Private Placement Legend" means the legend set forth in Section
2.06(g)(i) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.

 
                                     -21-

          "Public Equity Offering" means an underwritten primary public offering
of common stock of the Company pursuant to an effective registration statement
under the Securities Act.

          A "Public Market" shall be deemed to exist if (i) a Public Equity
Offering has been consummated and (ii) at least 35% of the total issued and
outstanding common stock of the Company immediately prior to the consummation of
such Public Equity Offering has been distributed by means of an effective
registration statement under the Securities Act.

          "QIB" means a "qualified institutional buyer" as defined in Rule 144A.

          "Registration Rights Agreement" means the Registration Rights
Agreement, dated as of December 14, 1998, by and among the Company, Holdings,
the Guarantors and the Initial Purchaser, as such agreement may be amended,
modified or supplemented from time to time, and, with respect to any Additional
Notes, one or more registration rights agreements among the Company, Holdings,
the Guarantors and the other parties thereto, as such agreement(s) may be
amended, modified or supplemented from time to time, relating to rights given by
the Company to the purchasers of Additional Notes to register such Additional
Notes under the Securities Act.

          "Regulation S" means Regulation S promulgated under the Securities
Act.

          "Regulation S Global Note" means a Regulation S Temporary Global Note
or Regulation S Permanent Global Note, as appropriate.

          "Regulation S Permanent Global Note" means a permanent global Note in
the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with or on behalf of and registered in the name
of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount of the Regulation S Temporary Global Note upon
expiration of the Restricted Period.

          "Regulation S Temporary Global Note" means a temporary global Note in
the form of Exhibit A-2 hereto bearing the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee, issued in a denomination equal to the outstanding principal amount
of the Notes initially sold in reliance on Rule 903 of Regulation S.

          "Related Party" with respect to any Principal means (A) any
controlling stockholder of such Principal, any Subsidiary of such Principal or,
in the case of an individual, any spouse or immediate family member of such
Principal or (B) any trust, corpo-

 
                                     -22-

ration, partnership or other entity, the beneficiaries, stockholders, partners,
owners or Persons beneficially holding a more than 50% controlling interest of
which consist of such Principal and/or such other Persons referred to in the
immediately preceding clause (A).

          "Representative" means the indenture trustee or other trustee, agent
or representative for an issue of Senior Indebtedness.

          "Responsible Officer," when used with respect to the Trustee, means
any officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.

          "Restricted Definitive Note" means a Definitive Note bearing the
Private Placement Legend.

          "Restricted Global Note" means a Global Note bearing the Private
Placement Legend.

          "Restricted Investment" means an Investment other than a Permitted
Investment.

          "Restricted Period" means the 40-day restricted period as defined in
Regulation S.

          "Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.

          "Rule 144" means Rule 144 promulgated under the Securities Act.

          "Rule 144A" means Rule 144A promulgated under the Securities Act.

          "Rule 903" means Rule 903 promulgated under the Securities Act.

          "Rule 904" means Rule 904 promulgated the Securities Act.

          "SEC" means the Securities and Exchange Commission.

          "Securities Act" means the Securities Act of 1933, as amended.

 
                                     -23-

          "Senior Credit Facilities" means that certain Senior Credit Agreement,
dated as of September 2, 1998, by and among the Company, the Guarantors, Warburg
Dillon Read LLC, as Arranger and Syndication Agent, UBS AG, Stamford Branch, as
Administrative Agent, and the other lenders party thereto, including any related
notes, guarantees, collateral documents, letters of credit, instruments and
agreements executed in connection therewith (and any appendices, exhibits or
schedules to any of the foregoing), and in each case as amended, modified,
supplemented, restated, renewed, refunded, replaced, restructured, repaid or
refinanced from time to time (whether with the original agents and lenders or
other agents and lenders or otherwise, and whether provided under the original
credit agreement or other credit agreements or otherwise).

          "Senior Indebtedness" means, at any date, (a) all Obligations of the
Company under the Credit Facilities; (b) all Indebtedness outstanding under the
Senior Notes Indenture; (c) all Obligations of the Company under Hedging
Obligations (including Post-Petition Interest); (d) all Obligations of the
Company under stand-by letters of credit; and (e) all other Indebtedness of the
Company for borrowed money, including principal, premium, if any, and interest
(including Post-Petition Interest) on such Indebtedness, unless the instrument
under which such Indebtedness of the Company for money borrowed is incurred
expressly provides that such Indebtedness for money borrowed is not senior or
superior in right of payment to the Notes, and all renewals, extensions,
modifications, amendments or refinancings thereof.  Notwithstanding the
foregoing, Senior Indebtedness shall not include (a) to the extent that it may
constitute Indebtedness, any Obligation for federal, state, local or other
taxes; (b) any Indebtedness among or between the Company and any Subsidiary of
the Company, unless and for so long as such Indebtedness has been pledged to
secure Obligations under the Credit Facilities; (c) to the extent that it may
constitute Indebtedness, any Obligation in respect of any trade payable incurred
for the purchase of goods or materials, or for services obtained, in the
ordinary course of business; (d) Indebtedness evidenced by the Notes and the
Guarantees; (e) Indebtedness of the Company that is expressly subordinate or
junior in right of payment to any other Indebtedness of the Company; (f) to the
extent that it may constitute Indebtedness, any obligation owing under leases
(other than Capital Lease Obligations) or management agreements; and (g) any
obligation that by operation of law is subordinate to any general unsecured
obligations of the Company.

          "Senior Notes" means up to $200,000,000 in aggregate principal amount
of Senior Notes issued by the Company pursuant to the Senior Notes Indenture.

          "Senior Notes Indenture" means the indenture dated December 14, 1998,
among the Company, AEI Holding Company, Inc., Holdings, the Guarantors and IBJ
Schroder Bank and Trust Company, as Trustee, governing the Senior Notes.

 
                                     -24-

          "Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.

          "Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.

          "Stated Maturity" means, with respect to any installment of interest
or principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.

          "Subordinated Indebtedness" means any Indebtedness of the Company
which is expressly subordinated in right of payment to the Notes.

          "Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof).

          "Subsidiary Guarantees" mean the guarantees endorsed on the Notes by
the Guarantors.

          "Technology Sharing Agreement" means that certain agreement dated as
of April 29, 1998 between the Company and Addington Enterprises, Inc., as the
same may be extended or renewed from time to time without alteration of the
material terms thereof.

          "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
77bbbb) as in effect on the date on which this Indenture is qualified under the
TIA.

          "Total Assets" means the total assets of the Company and its
Restricted Subsidiaries on a consolidated basis determined in accordance with
GAAP, as shown on the most recently available consolidated balance sheet of the
Company and its Restricted Subsidiaries.

 
                                     -25-

          "Transaction Documents" means the documents related to (i) the
Acquisitions, (ii) the Senior Credit Facilities and (iii) the offering of the
Senior Notes and the Notes.

          "Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.

          "Unrestricted Definitive Note" means one or more Definitive Notes that
do not bear and are not required to bear the Private Placement Legend.

          "Unrestricted Global Note" means a permanent global Note in the form
of Exhibit A-1 attached hereto that bears the Global Note Legend and that has
the "Schedule of Exchanges of Interests in the Global Note" attached thereto,
and that is deposited with or on behalf of and registered in the name of the
Depositary, representing a series of Notes that do not bear the Private
Placement Legend.

          "Unrestricted Subsidiary" means any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Person: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any obligation (x) to
subscribe for additional Equity Interests in Unrestricted Subsidiaries or (y) to
maintain or preserve such Person's net worth; and (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries; provided, however, that the
Company and its Restricted Subsidiaries may guarantee the performance of
Unrestricted Subsidiaries in the ordinary course of business except for
guarantees of Obligations in respect of borrowed money.  Any such designation by
the Board of Directors shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by the covenant
described under Section 4.07.

          "U.S. Person" means a U.S. person as defined in Rule 902(o) under the
Securities Act.

 
                                     -26-

          "Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.

          "Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.

          "Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.

          "Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.

          SECTION 1.02.  Other Definitions.
                         ----------------- 

                                                         
          "Affiliate Transaction"............................  4.11
          "Asset Sale".......................................  4.10
          "Asset Sale Offer".................................  3.09
          "Authentication Order".............................  2.02
          "Bankruptcy Law"...................................  4.01
          "Change of Control Offer"..........................  4.15
          "Change of Control Payment"........................  4.15
          "Change of Control Payment Date"...................  4.15
          "Covenant Defeasance"..............................  8.03
          "Event of Default".................................  6.01
          "Excess Proceeds"..................................  4.10
          "incur"............................................  4.09
          "Legal Defeasance".................................  8.02
          "Make Whole Premium"...............................  3.07
          "Offer Amount".....................................  3.09

           

 
                                     -27-

                                                   
          "Offer Period".....................................  3.09
          "Paying Agent".....................................  2.03
          "Permitted Debt"...................................  4.09
          "Purchase Date"....................................  3.09
          "Registrar"........................................  2.03
          "Restricted Payments"..............................  4.07
 
          


          SECTION 1.03.    TIA Terms
                           ---------

          Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.

          The following TIA terms used in this Indenture have the following
meanings:

          "indenture securities" means the Notes;

          "indenture security holder" means a Holder of a Note;

          "indenture to be qualified" means this Indenture;

          "indenture trustee" or "institutional trustee" means the Trustee; and

          "obligor" on the Notes and the Guarantees means the Company and
Holdings and the Guarantors, respectively, and any successor obligor upon the
Notes and the Guarantees, respectively.

          All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.

          SECTION 1.04.  Rules of Construction.
                         --------------------- 

               (1)  a term has the meaning assigned to it;

               (2)  an accounting term not otherwise defined has the meaning
     assigned to it in accordance with GAAP;

               (3)  "or" is not exclusive;

               (4)  words in the singular include the plural, and in the plural
     include the singular;

 
                                     -28-

               (5)  provisions apply to successive events and transactions; and

               (6)  references to sections of or rules under the Securities Act
     shall be deemed to include substitute, replacement or successor sections or
     rules adopted by the SEC from time unless the context otherwise requires:

                                  ARTICLE TWO

                                   THE NOTES

          SECTION 2.01.  Form and Dating.
                         --------------- 

          (a)  General.  The Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto.  The
Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage.  Each Note shall be dated the date of its
authentication.  The Notes shall be in denominations of $1,000 and integral
multiples thereof.

          The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Company, Holdings,
the Guarantors and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
However, to the extent any provision of any Note conflicts with the express
provisions of this Indenture, the provisions of this Indenture shall govern and
be controlling.

          (b)  Global Notes.  Notes issued in global form shall be substantially
in the form of Exhibit A-1 or A 2 attached hereto (including the Global Note
Legend thereon and the "Schedule of Exchanges of Interests in the Global Note"
attached thereto).  Notes issued in definitive form shall be substantially in
the form of Exhibit A-1 attached hereto (but without the Global Note Legend
thereon and without the "Schedule of Exchanges of Interests in the Global Note"
attached thereto).  Each Global Note shall represent such of the outstanding
Notes as shall be specified therein and each shall provide that it shall
represent the aggregate principal amount of outstanding Notes from time to time
endorsed thereon and that the aggregate principal amount of outstanding Notes
represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions.  Any endorsement of a Global
Note to reflect the amount of any increase or decrease in the aggregate
principal amount of outstanding Notes represented thereby shall be made by the
Trustee or the Note Custodian, at the direction of the Trustee, in accordance
with instructions given by the Holder thereof as required by Section 2.06
hereof.

 
                                     -29-

          (c)  Temporary Global Note.  Notes offered and sold in reliance on
Regulation S shall be issued initially in the form of the Regulation S Temporary
Global Note, which shall be deposited on behalf of the purchasers of the Notes
represented thereby with the Trustee, at its New York office, as custodian for
the Depositary, and registered in the name of the Depositary or the nominee of
the Depositary for the accounts of designated agents holding on behalf of
Euroclear or Cedel Bank, duly executed by the Company and authenticated by the
Trustee as hereinafter provided.  The Restricted Period shall be terminated upon
the receipt by the Trustee of (i) a written certificate from the Depositary,
together with copies of certificates from Euroclear and Cedel Bank certifying
that they have received certification of non-United States beneficial ownership
of 100% of the aggregate principal amount of the Regulation S Temporary Global
Note (except to the extent of any beneficial owners thereof who acquired an
interest therein during the Restricted Period pursuant to another exemption from
registration under the Securities Act and who will take delivery of a beneficial
ownership interest in a 144A Global Note or an IAI Global Note bearing a Private
Placement Legend, all as contemplated by Section 2.06(a)(ii) hereof), and (ii)
an Officers' Certificate from the Company.  Following the termination of the
Restricted Period, beneficial interests in the Regulation S Temporary Global
Note shall be exchanged for beneficial interests in Regulation S Permanent
Global Notes pursuant to the Applicable Procedures.  Simultaneously with the
authentication of Regulation S Permanent Global Notes, the Trustee shall cancel
the Regulation S Temporary Global Note.  The aggregate principal amount of the
Regulation S Temporary Global Note and the Regulation S Permanent Global Notes
may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depositary or its nominee, as the case may be, in
connection with transfers of interest as hereinafter provided.

          (d)  Euroclear and Cedel Procedures Applicable.  The provisions of the
"Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank"
and "Customer Handbook" of Cedel Bank shall be applicable to transfers of
beneficial interests in the Regulation S Temporary Global Note and the
Regulation S Permanent Global Notes that are held by Participants through
Euroclear or Cedel Bank.

          SECTION 2.02.  Execution and Authentication.
                         ---------------------------- 

          Two Officers shall sign the Notes for the Company by manual or
facsimile signature.

          If an Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.

 
                                     -30-

          A Note shall not be valid until authenticated by the manual signature
of the Trustee.  The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.

          The Trustee shall authenticate (i) Notes for original issue on the
date of this Indenture in an aggregate principal amount not to exceed
$150,000,000 and (ii) one or more series of 11 1/2% Senior Subordinated Notes
due 2006 (such Additional Notes to be substantially in the form of Exhibit A-1
or Exhibit A-2, as the case may be) in an aggregate principal amount not to
exceed $75,000,000 (and the same principal amount of securities in exchange
therefor upon consummation of a registered exchange offer) for original issue
after the date of this Indenture, in each case upon a written order of the
Company signed by an Officer of the Company (an "Authentication Order").  With
respect to authentication pursuant to clause (ii) above, the first such
Authentication Order shall be accompanied by an Opinion of Counsel of the
Company in a form reasonably satisfactory to the Trustee stating that the
issuance of the Additional Notes does not give rise to an Event of Default,
complies with this Indenture and has been duly authorized by the Company.  After
the date of this Indenture and in accordance with (ii) above, Additional Notes
may be issued from time to time subject to the limitations set forth in Section
4.09.  The aggregate principal amount of Notes outstanding at any time may not
exceed $225,000,000, except as provided in Sections 2.07.

          The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes.  An authenticating agent may authenticate Notes
whenever the Trustee may do so.  Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or
Affiliates of the Company.

          In the event that the Company shall issue and the Trustee shall
authenticate any Notes issued under this Indenture subsequent to the Issue Date
pursuant to this Section 2.02, the Company shall use its best efforts to obtain
the same "CUSIP" number for such Notes as is printed on the Notes outstanding at
such time; provided, however, that if any series of Notes issued under this
Indenture subsequent to the Issue Date is determined, pursuant to an Opinion of
Counsel of the Company in a form reasonably satisfactory to the Trustee to be a
different class of security than the Notes outstanding at such time for federal
income tax purposes, the Company may obtain a "CUSIP" number for such Notes that
is different than the "CUSIP" number printed on the Notes then outstanding.
Notwithstanding the foregoing, all Notes issued under this Indenture shall vote
and consent together on all matters as one class and no series of Notes will
have the right to vote or consent as a separate class on any matter.

 
                                     -31-

          SECTION 2.03.  Registrar and Paying Agent.
                         -------------------------- 

          The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent").  The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents.  The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent.  The Company may change any
Paying Agent or Registrar without notice to any Holder.  The Company shall
notify the Trustee in writing of the name and address of any Agent not a party
to this Indenture.  If the Company fails to appoint or maintain another entity
as Registrar or Paying Agent, the Trustee shall act as such.  The Company or any
of its Subsidiaries may act as Paying Agent or Registrar.

          The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes.

          The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes.

          SECTION 2.04.  Paying Agent to Hold Money in Trust.
                         ----------------------------------- 

          The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Liquidated Damages, if any, or interest on the Notes, and
will notify the Trustee of any default by the Company in making any such
payment.  While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee.  The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee.  Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary
of the Company) shall have no further liability for the money.  If the Company
or a Subsidiary of the Company acts as Paying Agent, it shall segregate and hold
in a separate trust fund for the benefit of the Holders all money held by it as
Paying Agent.  Upon any bankruptcy or reorganization proceedings relating to the
Company, the Trustee, and not the Company or any Affiliate of the Company, shall
serve as Paying Agent for the Notes.

          SECTION 2.05.  Holder Lists.
                         ------------ 

          The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA (S) 312(a).  If the Trustee is
not the Registrar, the Company shall 

 
                                     -32-

furnish to the Trustee at least seven Business Days before each interest payment
date and at such other times as the Trustee may request in writing, a list in
such form and as of such date as the Trustee may reasonably require of the names
and addresses of the Holders of Notes and the Company shall otherwise comply
with TIA (S) 312(a).

          SECTION 2.06.  Transfer and Exchange.
                         --------------------- 

          (a)  Transfer and Exchange of Global Notes.  A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary or by the Depositary or any such nominee to a successor Depositary or
a nominee of such successor Depositary.  All Global Notes will be exchanged by
the Company for Definitive Notes if (i) the Company delivers to the Trustee
notice from the Depositary that it is unwilling or unable to continue to act as
Depositary or that it is no longer a clearing agency registered under the
Exchange Act and, in either case, a successor Depositary is not appointed by the
Company within 120 days after the date of such notice from the Depositary or
(ii) the Company in its sole discretion determines that the Global Notes (in
whole but not in part) should be exchanged for Definitive Notes and delivers a
written notice to such effect to the Trustee; provided that in no event shall
the Regulation S Temporary Global Note be exchanged by the Company for
Definitive Notes prior to (x) the expiration of the Restricted Period and (y)
the receipt by the Registrar of any certificates required pursuant to Rule
903(c)(3)(ii)(B) under the Securities Act. Upon the occurrence of either of the
preceding events in (i) or (ii) above, Definitive Notes shall be issued in such
names as the Depositary shall instruct the Trustee.  Global Notes also may be
exchanged or replaced, in whole or in part, as provided in Sections 2.07 and
2.10 hereof.  Every Note authenticated and delivered in exchange for, or in lieu
of, a Global Note or any portion thereof, pursuant to this Section 2.06 or
Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form
of, and shall be, a Global Note.  A Global Note may not be exchanged for another
Note other than as provided in this Section 2.06(a); however, beneficial
interests in a Global Note may be transferred and exchanged as provided in
Section 2.06(b),(c) or (f) hereof.

          (b)  Transfer and Exchange of Beneficial Interests in the Global
Notes. The transfer and exchange of beneficial interests in the Global Notes
shall be effected through the Depositary, in accordance with the provisions of
this Indenture and the Applicable Procedures. Beneficial interests in the
Restricted Global Notes shall be subject to restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (i) or (ii) below, as applicable, as well as
one or more of the other following subparagraphs, as applicable:

 
                                     -33-

               (i)    Transfer of Beneficial Interests in the Same Global Note.
     Beneficial interests in any Restricted Global Note may be transferred to
     Persons who take delivery thereof in the form of a beneficial interest in
     the same Restricted Global Note in accordance with the transfer
     restrictions set forth in the Private Placement Legend; provided, however,
     that prior to the expiration of the Restricted Period, transfers of
     beneficial interests in the Temporary Regulation S Global Note may not be
     made to a U.S. Person or for the account or benefit of a U.S. Person (other
     than the Initial Purchaser.)  Beneficial interests in any Unrestricted
     Global Note may be transferred to Persons who take delivery thereof in the
     form of a beneficial interest in an Unrestricted Global Note.  No written
     orders or instructions shall be required to be delivered to the Registrar
     to effect the transfers described in this Section 2.06(b)(i).

               (ii)   All Other Transfers and Exchanges of Beneficial Interests
     in Global Notes. In connection with all transfers and exchanges of
     beneficial interests that are not subject to Section 2.06(b)(i) above, the
     transferor of such beneficial interest must deliver to the Registrar either
     (A) (1) a written order from a Participant or an Indirect Participant given
     to the Depositary in accordance with the Applicable Procedures directing
     the Depositary to credit or cause to be credited a beneficial interest in
     another Global Note in an amount equal to the beneficial interest to be
     transferred or exchanged and (2) instructions given in accordance with the
     Applicable Procedures containing information regarding the Participant
     account to be credited with such increase or (B) (1) a written order from a
     Participant or an Indirect Participant given to the Depositary in
     accordance with the Applicable Procedures directing the Depositary to cause
     to be issued a Definitive Note in an amount equal to the beneficial
     interest to be transferred or exchanged and (2) instructions given by the
     Depositary to the Registrar containing information regarding the Person in
     whose name such Definitive Note shall be registered to effect the transfer
     or exchange referred to in (1) above; provided that in no event shall
     Definitive Notes be issued upon the transfer or exchange of beneficial
     interests in the Regulation S Temporary Global Note prior to (x) the
     expiration of the Restricted Period and (y) the receipt by the Registrar of
     any certificates required pursuant to Rule 903 under the Securities Act.
     Upon consummation of an Exchange Offer by the Company in accordance with
     Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall
     be deemed to have been satisfied upon receipt by the Registrar of the
     instructions contained in the Letter of Transmittal delivered by the Holder
     of such beneficial interests in the Restricted Global Notes. Upon
     satisfaction of all of the requirements for transfer or exchange of
     beneficial interests in Global Notes contained in this Indenture and the
     Notes or otherwise applicable under the Securities Act, the Trustee shall
     adjust the principal amount of the relevant Global Note(s) pursuant to
     Section 2.06(h) hereof.

 
                                     -34-

          (iii)  Transfer of Beneficial Interests to Another Restricted Global
     Note. A beneficial interest in any Restricted Global Note may be
     transferred to a Person who takes delivery thereof in the form of a
     beneficial interest in another Restricted Global Note if the transfer
     complies with the requirements of Section 2.06(b)(ii) above and the
     Registrar receives the following:

                 (A)  if the transferee will take delivery in the form of a
          beneficial interest in the 144A Global Note, then the transferor must
          deliver a certificate in the form of Exhibit B hereto, including the
          certifications in item (1) thereof;

                 (B)  if the transferee will take delivery in the form of a
          beneficial interest in the Regulation S Temporary Global Note or the
          Regulation S Global Note, then the transferor must deliver a
          certificate in the form of Exhibit B hereto, including the
          certifications in item (2) thereof; and

                 (C)  if the transferee will take delivery in the form of a
          beneficial interest in the IAI Global Note, then the transferor must
          deliver a certificate in the form of Exhibit B hereto, including the
          certifications and certificates and Opinion of Counsel required by
          item (3) thereof, if applicable.

          (iv)   Transfer and Exchange of Beneficial Interests in a
     Restricted Global Note for Beneficial Interests in the Unrestricted Global
     Note. A beneficial interest in any Restricted Global Note may be exchanged
     by any holder thereof for a beneficial interest in an Unrestricted Global
     Note or transferred to a Person who takes delivery thereof in the form of a
     beneficial interest in an Unrestricted Global Note if the exchange or
     transfer complies with the requirements of Section 2.06(b)(ii) above and:

                 (A)  such exchange or transfer is effected pursuant to the
          Exchange Offer in accordance with the Registration Rights Agreement
          and the holder of the beneficial interest to be transferred, in the
          case of an exchange, or the transferee, in the case of a transfer,
          certifies in the applicable Letter of Transmittal that it is not (1) a
          broker-dealer, (2) a Person participating in the distribution of the
          Exchange Notes or (3) a Person who is an affiliate (as defined in Rule
          144) of the Company;

                 (B)  such transfer is effected pursuant to the Shelf
          Registration Statement in accordance with the Registration Rights
          Agreement;

 
                                     -35-

                 (C)  such transfer is effected by a Participating Broker-Dealer
          pursuant to the Exchange Offer Registration Statement in accordance
          with the Registration Rights Agreement; or

                 (D)  the Registrar receives the following:

                      (1)  if the holder of such beneficial interest in a
                 Restricted Global Note proposes to exchange such beneficial
                 interest for a beneficial interest in an Unrestricted Global
                 Note, a certificate from such holder in the form of Exhibit C
                 hereto, including the certifications in item (1)(a) thereof; or

                      (2)  if the holder of such beneficial interest in a
                 Restricted Global Note proposes to transfer such beneficial
                 interest to a Person who shall take delivery thereof in the
                 form of a beneficial interest in an Unrestricted Global Note, a
                 certificate from such holder in the form of Exhibit B hereto,
                 including the certifications in item (4) thereof;

          and, in each such case set forth in this subparagraph (D), if the
          Company or the Registrar so requests or if the Applicable Procedures
          so require, an Opinion of Counsel in form reasonably acceptable to the
          Registrar to the effect that such exchange or transfer is in
          compliance with the Securities Act and that the restrictions on
          transfer contained herein and in the Private Placement Legend are no
          longer required in order to maintain compliance with the Securities
          Act.

          If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Note has not yet been issued, the
Company shall issue and, upon receipt of an Authentication Order in accordance
with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.

          Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.

 
                                     -36- 

          (c)  Transfer or Exchange of Beneficial Interests for Definitive
Notes.

          (i)  Beneficial Interests in Restricted Global Notes to Restricted
     Definitive Notes.  If any holder of a beneficial interest in a Restricted
     Global Note proposes to exchange such beneficial interest for a Restricted
     Definitive Note or to transfer such beneficial interest to a Person who
     takes delivery thereof in the form of a Restricted Definitive Note, then,
     upon receipt by the Registrar of the following documentation:

               (A)  if the holder of such beneficial interest in a Restricted
          Global Note proposes to exchange such beneficial interest for a
          Restricted Definitive Note, a certificate from such holder in the form
          of Exhibit C hereto, including the certifications in item (2)(a)
          thereof;

               (B)  if such beneficial interest is being transferred to a QIB in
          accordance with Rule 144A under the Securities Act, a certificate to
          the effect set forth in Exhibit B hereto, including the certifications
          in item (1) thereof;

               (C)  if such beneficial interest is being transferred to a Non-
          U.S. Person in an offshore transaction in accordance with Rule 903 or
          Rule 904 under the Securities Act, a certificate to the effect set
          forth in Exhibit B hereto, including the certifications in item (2)
          thereof;

               (D)  if such beneficial interest is being transferred pursuant to
          an exemption from the registration requirements of the Securities Act
          in accordance with Rule 144 under the Securities Act, a certificate to
          the effect set forth in Exhibit B hereto, including the certifications
          in item (3)(a) thereof;

               (E)  if such beneficial interest is being transferred to an
          Institutional Accredited Investor in reliance on an exemption from the
          registration requirements of the Securities Act other than those
          listed in subparagraphs (B) through (D) above, a certificate to the
          effect set forth in Exhibit B hereto, including the certifications,
          certificates and Opinion of Counsel required by item (3) thereof, if
          applicable;

               (F)  if such beneficial interest is being transferred to the
          Company or any of its Subsidiaries, a certificate to the effect set
          forth in Exhibit B hereto, including the certifications in item (3)(b)
          thereof; or

               (G)  if such beneficial interest is being transferred pursuant to
          an effective registration statement under the Securities Act, a
          certificate to the 

 
                                     -37-

          effect set forth in Exhibit B hereto, including the certifications in
          item (3)(c) thereof,

     the Trustee shall cause the aggregate principal amount of the applicable
     Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof,
     and the Company shall execute and the Trustee shall authenticate and
     deliver to the Person designated in the instructions a Definitive Note in
     the appropriate principal amount.  Any Definitive Note issued in exchange
     for a beneficial interest in a Restricted Global Note pursuant to this
     Section 2.06(c) shall be registered in such name or names and in such
     authorized denomination or denominations as the holder of such beneficial
     interest shall instruct the Registrar through instructions from the
     Depositary and the Participant or Indirect Participant.  The Trustee shall
     deliver such Definitive Notes to the Persons in whose names such Notes are
     so registered.  Any Definitive Note issued in exchange for a beneficial
     interest in a Restricted Global Note pursuant to this Section 2.06(c)(i)
     shall bear the Private Placement Legend and shall be subject to all
     restrictions on transfer contained therein.

     Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a beneficial
     interest in the Regulation S Temporary Global Note may not be exchanged for
     a Definitive Note or transferred to a Person who takes delivery thereof in
     the form of a Definitive Note prior to (x) the expiration of the Restricted
     Period and (y) the receipt by the Registrar of any certificates required
     pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act, except in the
     case of a transfer pursuant to an exemption from the registration
     requirements of the Securities Act other than Rule 903 or Rule 904.

            (ii)  Beneficial Interests in Restricted Global Notes to
     Unrestricted Definitive Notes. A holder of a beneficial interest in a
     Restricted Global Note may exchange such beneficial interest for an
     Unrestricted Definitive Note or may transfer such beneficial interest to a
     Person who takes delivery thereof in the form of an Unrestricted Definitive
     Note only if:

                  (A)  such exchange or transfer is effected pursuant to the
          Exchange Offer in accordance with the Registration Rights Agreement
          and the holder of such beneficial interest, in the case of an
          exchange, or the transferee, in the case of a transfer, certifies in
          the applicable Letter of Transmittal that it is not (1) a broker-
          dealer, (2) a Person participating in the distribution of the Exchange
          Notes or (3) a Person who is an affiliate (as defined in Rule 144) of
          the Company;

                  (B)  such transfer is effected pursuant to the Shelf
          Registration Statement in accordance with the Registration Rights
          Agreement;

 
                                     -38-

                  (C)  such transfer is effected by a Participating Broker-
          Dealer pursuant to the Exchange Offer Registration Statement in
          accordance with the Registration Rights Agreement; or

                  (D)  the Registrar receives the following:

                       (1)  if the holder of such beneficial interest in a
                  Restricted Global Note proposes to exchange such beneficial
                  interest for a Definitive Note that does not bear the Private
                  Placement Legend, a certificate from such holder in the form
                  of Exhibit C hereto, including the certifications in item
                  (1)(b) thereof; or

                       (2)  if the holder of such beneficial interest in a
                 Restricted Global Note proposes to transfer such beneficial
                 interest to a Person who shall take delivery thereof in the
                 form of a Definitive Note that does not bear the Private
                 Placement Legend, a certificate from such holder in the form of
                 Exhibit B hereto, including the certifications in item (4)
                 thereof;

          and, in each such case set forth in this subparagraph (D), if the
          Company or the Registrar so requests or if the Applicable Procedures
          so require, an Opinion of Counsel in form reasonably acceptable to the
          Registrar to the effect that such exchange or transfer is in
          compliance with the Securities Act and that the restrictions on
          transfer contained herein and in the Private Placement Legend are no
          longer required in order to maintain compliance with the Securities
          Act.

          (iii)  Beneficial Interests in Unrestricted Global Notes to
     Unrestricted Definitive Notes. If any holder of a beneficial interest in an
     Unrestricted Global Note proposes to exchange such beneficial interest for
     a Definitive Note or to transfer such beneficial interest to a Person who
     takes delivery thereof in the form of a Definitive Note, then, upon
     satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof, the
     Trustee shall cause the aggregate principal amount of the applicable Global
     Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the
     Company shall execute and the Trustee shall authenticate and deliver to the
     Person designated in the instructions a Definitive Note in the appropriate
     principal amount. Any Definitive Note issued in exchange for a beneficial
     interest pursuant to this Section 2.06(c)(iii) shall be registered in such
     name or names and in such authorized denomination or denominations as the
     holder of such beneficial interest shall instruct the Registrar through
     instructions from the Depositary and the Participant or Indirect
     Participant. The Trustee shall deliver such Definitive Notes to the Persons
     in whose 

 
                                     -39-

     names such Notes are so registered. Any Definitive Note issued in exchange
     for a beneficial interest pursuant to this Section 2.06(c)(iii) shall not
     bear the Private Placement Legend.

          (d)  Transfer and Exchange of Definitive Notes for Beneficial
     Interests.

          (i)  Restricted Definitive Notes to Beneficial Interests in
     Restricted Global Notes.  If any Holder of a Restricted Definitive Note
     proposes to exchange such Note for a beneficial interest in a Restricted
     Global Note or to transfer such Restricted Definitive Notes to a Person who
     takes delivery thereof in the form of a beneficial interest in a Restricted
     Global Note, then, upon receipt by the Registrar of the following
     documentation:

               (A)  if the Holder of such Restricted Definitive Note proposes to
          exchange such Note for a beneficial interest in a Restricted Global
          Note, a certificate from such Holder in the form of Exhibit C hereto,
          including the certifications in item (2)(b) thereof;

               (B)  if such Restricted Definitive Note is being transferred to a
          QIB in accordance with Rule 144A under the Securities Act, a
          certificate to the effect set forth in Exhibit B hereto, including the
          certifications in item (1) thereof;

               (C)  if such Restricted Definitive Note is being transferred to a
          Non-U.S. Person in an offshore transaction in accordance with Rule 903
          or Rule 904 under the Securities Act, a certificate to the effect set
          forth in Exhibit B hereto, including the certifications in item (2)
          thereof;

               (D)  if such Restricted Definitive Note is being transferred
          pursuant to an exemption from the registration requirements of the
          Securities Act in accordance with Rule 144 under the Securities Act, a
          certificate to the effect set forth in Exhibit B hereto, including the
          certifications in item (3)(a) thereof;

               (E)  if such Restricted Definitive Note is being transferred to
          an Institutional Accredited Investor in reliance on an exemption from
          the registration requirements of the Securities Act other than those
          listed in subparagraphs (B) through (D) above, a certificate to the
          effect set forth in Exhibit B hereto, including the certifications,
          certificates and Opinion of Counsel required by item (3) thereof, if
          applicable;

 
                                     -40-

               (F)  if such Restricted Definitive Note is being transferred to
          the Company or any of its Subsidiaries, a certificate to the effect
          set forth in Exhibit B hereto, including the certifications in item
          (3)(b) thereof; or

               (G)  if such Restricted Definitive Note is being transferred
          pursuant to an effective registration statement under the Securities
          Act, a certificate to the effect set forth in Exhibit B hereto,
          including the certifications in item (3)(c) thereof,

     the Trustee shall cancel the Restricted Definitive Note, increase or cause
     to be increased the aggregate principal amount of, in the case of clause
     (A) above, the appropriate Restricted Global Note, in the case of clause
     (B) above, the 144A Global Note, in the case of clause (c) above, the
     Regulation S Global Note, and in all other cases, the IAI Global Note.

          (ii) Restricted Definitive Notes to Beneficial Interests in
     Unrestricted Global Notes.  A Holder of a Restricted Definitive Note may
     exchange such Note for a beneficial interest in an Unrestricted Global Note
     or transfer such Restricted Definitive Note to a Person who takes delivery
     thereof in the form of a beneficial interest in an Unrestricted Global Note
     only if:

               (A)  such exchange or transfer is effected pursuant to the
          Exchange Offer in accordance with the Registration Rights Agreement
          and the Holder, in the case of an exchange, or the transferee, in the
          case of a transfer, certifies in the applicable Letter of Transmittal
          that it is not (1) a broker-dealer, (2) a Person participating in the
          distribution of the Exchange Notes or (3) a Person who is an affiliate
          (as defined in Rule 144) of the Company;

               (B)  such transfer is effected pursuant to the Shelf Registration
          Statement in accordance with the Registration Rights Agreement;

               (C)  such transfer is effected by a Participating Broker-Dealer
          pursuant to the Exchange Offer Registration Statement in accordance
          with the Registration Rights Agreement; or

               (D)  the Registrar receives the following:

                    (1)  if the Holder of such Definitive Notes proposes to
               exchange such Notes for a beneficial interest in the Unrestricted
               Global Note, a certificate from such Holder in the form of
               Exhibit C hereto, including the certifications in item (1)(c)
               thereof; or

 
                                     -41-

                    (2)  if the Holder of such Definitive Notes proposes to
               transfer such Notes to a Person who shall take delivery thereof
               in the form of a beneficial interest in the Unrestricted Global
               Note, a certificate from such Holder in the form of Exhibit B
               hereto, including the certifications in item (4) thereof;

          and, in each such case set forth in this subparagraph (D), if the
          Company or the Registrar so requests or if the Applicable Procedures
          so require, an Opinion of Counsel in form reasonably acceptable to the
          Registrar to the effect that such exchange or transfer is in
          compliance with the Securities Act and that the restrictions on
          transfer contained herein and in the Private Placement Legend are no
          longer required in order to maintain compliance with the Securities
          Act.

     Upon satisfaction of the conditions of any of the subparagraphs in this
     Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and
     increase or cause to be increased the aggregate principal amount of the
     Unrestricted Global Note.

          (iii)  Unrestricted Definitive Notes to Beneficial Interests in
     Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may
     exchange such Note for a beneficial interest in an Unrestricted Global Note
     or transfer such Definitive Notes to a Person who takes delivery thereof in
     the form of a beneficial interest in an Unrestricted Global Note at any
     time. Upon receipt of a request for such an exchange or transfer, the
     Trustee shall cancel the applicable Unrestricted Definitive Note and
     increase or cause to be increased the aggregate principal amount of one of
     the Unrestricted Global Notes.

     If any such exchange or transfer from a Definitive Note to a beneficial
interest is effected pursuant to subparagraph (ii)(B), (ii)(D) or (iii) above at
a time when an Unrestricted Global Note has not yet been issued, the Company
shall issue and, upon receipt of an Authentication Order in accordance with
Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted
Global Notes in an aggregate principal amount equal to the principal amount of
Definitive Notes so transferred.

          (e)    Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such Holder's compliance with
the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder shall present or surrender to the Registrar
the Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by its attorney, duly authorized in writing. In addition, the requesting

 
                                     -42-

Holder shall provide any additional certifications, documents and information,
as applicable, required pursuant to the following provisions of this Section
2.06(e).

          (i)  Restricted Definitive Notes to Restricted Definitive Notes. Any
     Restricted Definitive Note may be transferred to and registered in the name
     of Persons who take delivery thereof in the form of a Restricted Definitive
     Note if the Registrar receives the following:

               (A)  if the transfer will be made pursuant to Rule 144A under the
          Securities Act, then the transferor must deliver a certificate in the
          form of Exhibit B hereto, including the certifications in item (1)
          thereof;

               (B)  if the transfer will be made pursuant to Rule 903 or Rule
          904, then the transferor must deliver a certificate in the form of
          Exhibit B hereto, including the certifications in item (2) thereof;
          and

               (C)  if the transfer will be made pursuant to any other exemption
          from the registration requirements of the Securities Act, then the
          transferor must deliver a certificate in the form of Exhibit B hereto,
          including the certifications, certificates and Opinion of Counsel
          required by item (3) thereof, if applicable.

          (ii) Restricted Definitive Notes to Unrestricted Definitive Notes. Any
     Restricted Definitive Note may be exchanged by the Holder thereof for an
     Unrestricted Definitive Note or transferred to a Person or Persons who take
     delivery thereof in the form of an Unrestricted Definitive Note if:

               (A)  such exchange or transfer is effected pursuant to the
          Exchange Offer in accordance with the Registration Rights Agreement
          and the Holder, in the case of an exchange, or the transferee, in the
          case of a transfer, certifies in the applicable Letter of Transmittal
          that it is not (1) a broker-dealer, (2) a Person participating in the
          distribution of the Exchange Notes or (3) a Person who is an affiliate
          (as defined in Rule 144) of the Company;

               (B)  any such transfer is effected pursuant to the Shelf
          Registration Statement in accordance with the Registration Rights
          Agreement;

               (C)  any such transfer is effected by a Participating Broker-
          Dealer pursuant to the Exchange Offer Registration Statement in
          accordance with the Registration Rights Agreement; or

               (D)  the Registrar receives the following:

 
                                     -43-

                    (1)  if the Holder of such Restricted Definitive Notes
                proposes to exchange such Notes for an Unrestricted Definitive
                Note, a certificate from such Holder in the form of Exhibit C
                hereto, including the certifications in item (1)(d) thereof; or

                    (2)  if the Holder of such Restricted Definitive Notes
                proposes to transfer such Notes to a Person who shall take
                delivery thereof in the form of an Unrestricted Definitive Note,
                a certificate from such Holder in the form of Exhibit B hereto,
                including the certifications in item (4) thereof;

          and, in each such case set forth in this subparagraph (D), if the
          Company or the Registrar so requests, an Opinion of Counsel in form
          reasonably acceptable to the Company to the effect that such exchange
          or transfer is in compliance with the Securities Act and that the
          restrictions on transfer contained herein and in the Private Placement
          Legend are no longer required in order to maintain compliance with the
          Securities Act.

          (iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes.
     A Holder of Unrestricted Definitive Notes may transfer such Notes to a
     Person who takes delivery thereof in the form of an Unrestricted Definitive
     Note. Upon receipt of a request to register such a transfer, the Registrar
     shall register the Unrestricted Definitive Notes pursuant to the
     instructions from the Holder thereof.

          (f)   Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons that
certify in the applicable Letters of Transmittal that (x) they are not broker-
dealers, (y) they are not participating in a distribution of the Exchange Notes
and (z) they are not affiliates (as defined in Rule 144) of the Company, and
accepted for exchange in the Exchange Offer and (ii) Definitive Notes in an
aggregate principal amount equal to the principal amount of the Restricted
Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with
the issuance of such Notes, the Trustee shall cause the aggregate principal
amount of the applicable Restricted Global Notes to be reduced accordingly, and
the Company shall execute and the Trustee shall authenticate and deliver to the
Persons designated by the Holders of Definitive Notes so accepted Definitive
Notes in the appropriate principal amount.

 
                                     -44-


          (g)  Legends. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.

          (i)  Private Placement Legend.

               (A)  Except as permitted by subparagraph (B) below, each Global
          Note and each Definitive Note (and all Notes issued in exchange
          therefor or substitution thereof) shall bear the legend in
          substantially the following form:

     THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT
     OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
     NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE
     ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY
     ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS
     A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
     THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS
     ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
     RULE 904 UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT
     PRIOR TO THE DATE THAT IS TWO YEARS AFTER THE LATER OF THE
     ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY
     OR ANY AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS
     NOTE RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO AN
     ISSUER OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED
     INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
     SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR (AS
     DEFINED IN RULE 501(a)(1), (2), (3), OR (7) UNDER THE SECURITIES
     ACT) (AN "ACCREDITED INVESTOR") THAT, PRIOR TO SUCH TRANSFER,
     FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-
     DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
     REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
     TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED
     FROM THE TRUSTEE FOR THIS NOTE), (D) OUTSIDE THE UNITED STATES IN
     AN OFFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
     SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
     PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR
     (F) PURSUANT TO AN EFFEC-

 
                                -45-

     TIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND (3)
     AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS
     TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
     IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN TWO YEARS
     AFTER THE ORIGINAL ISSUANCE OF THIS NOTE, IF THE PROPOSED
     TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO
     SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH
     CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF
     THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS
     BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
     SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
     AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES"
     AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S
     UNDER THE SECURITIES ACT.

               (B)  Notwithstanding the foregoing, any Global Note or Definitive
          Note issued pursuant to subparagraphs (b)(iv), (c)(ii), (c)(iii),
          (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.06 (and
          all Notes issued in exchange therefor or substitution thereof) shall
          not bear the Private Placement Legend.

          (ii) Global Note Legend. Each Global Note shall bear a legend in
     substantially the following form:

     "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
     INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE
     BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE
     TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE
     MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO
     SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
     EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF
     THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE
     TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE
     INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A
     SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF AEI
     RESOURCES, INC."

 
                                -46-

          (iii) Regulation S Temporary Global Note Legend. The Regulation S
     Temporary Global Note shall bear a legend in substantially the following
     form:

     "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE,
     AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR
     CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED
     HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS
     REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE
     PAYMENT OF INTEREST HEREON."

          (h)   Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for or transferred to a Person who will take delivery thereof in
the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note, such other Global Note shall be increased accordingly
and an endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.

          (i)   General Provisions Relating to Transfers and Exchanges.

          (i)   To permit registrations of transfers and exchanges, the Company
     shall execute and the Trustee shall authenticate Global Notes and
     Definitive Notes upon the Company's order or at the Registrar's request.

          (ii)  No service charge shall be made to a holder of a beneficial
     interest in a Global Note or to a Holder of a Definitive Note for any
     registration of transfer or exchange, but the Company may require payment
     of a sum sufficient to cover any transfer tax or similar governmental
     charge payable in connection therewith (other than any such transfer taxes
     or similar governmental charge payable upon exchange or transfer pursuant
     to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).

 
                                     -47-

          (iii)  The Registrar shall not be required to register the transfer
     of or exchange any Note selected for redemption in whole or in part, except
     the unredeemed portion of any Note being redeemed in part.

          (iv)   All Global Notes and Definitive Notes issued upon any
     registration of transfer or exchange of Global Notes or Definitive Notes
     shall be the valid obligations of the Company, evidencing the same debt,
     and entitled to the same benefits under this Indenture, as the Global Notes
     or Definitive Notes surrendered upon such registration of transfer or
     exchange.

          (v)    The Company shall not be required (A) to issue, to register the
     transfer of or to exchange any Notes during a period beginning at the
     opening of business 15 days before the day of any selection of Notes for
     redemption under Section 3.02 hereof and ending at the close of business on
     the day of selection, (B) to register the transfer of or to exchange any
     Note so selected for redemption in whole or in part, except the unredeemed
     portion of any Note being redeemed in part or (c) to register the transfer
     of or to exchange a Note between a record date and the next succeeding
     Interest Payment Date.

          (vi)   Prior to due presentment for the registration of a transfer of
     any Note, the Trustee, any Agent and the Company may deem and treat the
     Person in whose name any Note is registered as the absolute owner of such
     Note for the purpose of receiving payment of principal of and interest on
     such Notes and for all other purposes, and none of the Trustee, any Agent
     or the Company shall be affected by notice to the contrary.

          (vii)  The Trustee shall authenticate Global Notes and Definitive
     Notes in accordance with the provisions of Section 2.02 hereof.

          (viii) All certifications, certificates and Opinions of Counsel
     required to be submitted to the Registrar pursuant to this Section 2.06 to
     effect a registration of transfer or exchange may be submitted by
     facsimile.

          SECTION 2.07.  Replacement Notes.
                         ----------------- 

          If any mutilated Note is surrendered to the Trustee or the Company and
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon receipt of an
Authentication Order, shall authenticate a replacement Note if the Trustee's
requirements are met. If required by the Trustee or the Company, an indemnity
bond must be supplied by the Holder that is sufficient in the judgment of the
Trustee and the Company to protect the Company, the Trustee,

 
                                     -48-

any Agent and any authenticating agent from any loss that any of them may suffer
if a Note is replaced. The Company may charge for its expenses in replacing a
Note.

          Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.

          SECTION 2.08.  Outstanding Notes.
                         ----------------- 

          The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note; however, Notes held by the Company or a Subsidiary of
the Company shall not be deemed to be outstanding for purposes of Section
3.07(b) hereof.

          If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.

          If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.

          If the Paying Agent (other than the Company, a Subsidiary of the
Company or an Affiliate of any thereof) holds, on a redemption date or maturity
date, money sufficient to pay Notes payable on that date, then on and after that
date such Notes shall be deemed to be no longer outstanding and shall cease to
accrue interest.

          SECTION 2.09.  Treasury Notes.
                         -------------- 

          In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that the Trustee knows are so owned shall be so disregarded.

 
                                     -49-

          SECTION 2.10.  Temporary Notes.
                         --------------- 

          Until certificates representing Notes are ready for delivery, the
Company may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes. Temporary Notes shall be substantially in
the form of certificated Notes but may have variations that the Company
considers appropriate for temporary Notes and as shall be reasonably acceptable
to the Trustee. Without unreasonable delay, the Company shall prepare and the
Trustee shall, as soon as practicable upon its receipt of an Authentication
Order, authenticate Definitive Notes in exchange for temporary Notes.

          Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.

          SECTION 2.11.  Cancellation.
                         ------------ 

          The Company at any time may deliver Notes to the Trustee for
cancellation.  The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee and no one else shall cancel all Notes surrendered for registration
of transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes (subject to the record retention requirement of the Exchange
Act).  Certification of the destruction of all canceled Notes shall be delivered
to the Company.  The Company may not issue new Notes to replace Notes that it
has paid or that have been delivered to the Trustee for cancellation.

          SECTION 2.12.  Defaulted Interest.
                         ------------------ 

          If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such special record date and payment date, provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or cause to be mailed to Holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.

 
                                     -50-

          SECTION 2.13.  CUSIP Number.
                         ------------ 

          The Company in issuing the Notes may use one or more "CUSIP" numbers,
and if so, the appropriate CUSIP number(s) shall be included in all notices of
redemption or exchange as a convenience to Holders; provided that any such
notice may state that no representation is made by the Trustee as to the
correctness or accuracy of any CUSIP number(s) printed in the notice or on the
Notes, and that reliance may be placed only on the other identification numbers
printed on the Notes. The Company shall promptly notify the Trustee of any
change in the CUSIP number.

                                 ARTICLE THREE

                           REDEMPTION AND PREPAYMENT

          SECTION 3.01.  Notices to Trustee.
                         ------------------

          If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Notes to be redeemed and (iv) the redemption price.

          SECTION 3.02.  Selection of Notes to Be Redeemed.
                         --------------------------------- 

          If less than all of the Notes are to be redeemed or purchased in an
offer to purchase at any time, the Trustee shall select the Notes to be redeemed
or purchased among the Holders of the Notes in compliance with the requirements
of the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not so listed, on a pro rata basis, by lot or in
accordance with any other method the Trustee considers fair and appropriate. In
the event of partial redemption by lot, the particular Notes to be redeemed
shall be selected, unless otherwise provided herein, not less than 30 nor more
than 60 days prior to the redemption date by the Trustee from the outstanding
Notes not previously called for redemption.

          The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000 except
that if all of the Notes of a Holder are to be redeemed, the entire outstanding
amount of Notes held by such Holder, even if not a multiple of $1,000, shall be
redeemed. Except as provided in the preceding sentence,

 
                                     -51-

provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.

          SECTION 3.03.  Notice of Redemption.
                         -------------------- 

          Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address.

          The notice shall identify the Notes to be redeemed and shall state:

          (a)  the redemption date;

          (b)  the redemption price;

          (c)  if any Note is being redeemed in part, the portion of the
     principal amount of such Note to be redeemed and that, after the redemption
     date upon surrender of such Note, a new Note or Notes in principal amount
     equal to the unredeemed portion shall be issued upon cancellation of the
     original Note;

          (d)  the name and address of the Paying Agent;

          (e)  that Notes called for redemption must be surrendered to the
     Paying Agent to collect the redemption price;

          (f)  that, unless the Company defaults in making such redemption
     payment, interest on Notes called for redemption ceases to accrue on and
     after the redemption date;

          (g)  the paragraph of the Notes and/or Section of this Indenture
     pursuant to which the Notes called for redemption are being redeemed;

          (h)  that no representation is made as to the correctness or accuracy
     of the CUSIP number, if any, listed in such notice or printed on the Notes;
     and

          (i)  the Make Whole Premium.

          At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certifi-

 
                                     -52-

cate requesting that the Trustee give such notice and setting forth the
information to be stated in such notice as provided in the preceding paragraph.

          SECTION 3.04.  Effect of Notice of Redemption.
                         ------------------------------ 

          Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price.  A notice of redemption may not be
conditional.

          SECTION 3.05.  Deposit of Redemption Price.
                         --------------------------- 

          One Business Day prior to the redemption date, the Company shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on all Notes to be redeemed on that
date.  The Trustee or the Paying Agent shall promptly return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess of
the amounts necessary to pay the redemption price of, and accrued interest on,
all Notes to be redeemed.

          If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption.  If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date.  If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.01 hereof.

          SECTION 3.06.  Notes Redeemed in Part.
                         ---------------------- 

          Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon receipt of the Company's written request, the Trustee shall, as
soon as practicable, authenticate for the Holder at the expense of the Company a
new Note equal in principal amount to the unredeemed portion of the Note
surrendered.

          SECTION 3.07.  Optional Redemption.
                         --------------------

          (a) The Notes will be subject to redemption at any time at the option
of the Company, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages
thereon to the applicable redemption 

 
                                     -53-

date, if redeemed during the twelve-month period beginning on each December 15
of the years indicated below:



          YEAR                                      PERCENTAGE
          ----                                      ----------
                                                 
          2002....................................  105.750%
          2003....................................  103.833%
          2004....................................  101.917%
          2005 and thereafter.....................  100.000%


          In addition, prior to December 15, 2002, the Notes will be redeemable
at a price equal to 100% of the principal amount thereof plus an applicable Make
Whole Premium, plus, to the extent not included in the Make Whole Premium,
accrued and unpaid interest and Liquidated Damages, if any, to the date of
redemption.

          For purposes of the foregoing, the "Make Whole Premium" means, with
respect to a Note, an amount equal to the greater of (A) the redemption price of
such Note on December 15, 2002 and (B) the excess of, if any, (1) the present
value of the remaining interest, premium, if any, and principal payments due on
such Note as if such Note were redeemed on December 15, 2002, computed using a
discount rate equal to the Treasury Rate plus 100 basis points, over (2) the
outstanding principal amount of such Note.

          "Treasury Rate" means the yield to maturity at the time of computation
of United States Treasury securities with a constant maturity (as compiled by,
and published in, the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the date
fixed for redemption of the Notes (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the then remaining Weighted Average Life to Maturity of the Notes;
provided, however, that if the Weighted Average Life to Maturity of the Notes is
not equal to the constant maturity of a United States Treasury security for
which a weekly average yield is given, the Treasury Rate shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such yields
are given, except that if Weighted Average Life to Maturity of the Notes is less
than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.

          (b) Notwithstanding the foregoing, at any time on or before December
15, 2001, the Company may on any one or more occasions redeem up to 35% of the
aggregate principal amount of Notes ever issued under this Indenture at a
redemption price equal to 111 1/2% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages thereon, if any, to the redemption
date, with the net cash proceeds of 

 
                                     -54-

an initial public offering of common stock of the Company or Holdings (to the
extent that the net proceeds therefrom are contributed to the Company as common
equity capital); provided that at least 65% of the aggregate principal amount of
Notes issued on the date of this Indenture remains outstanding immediately after
the occurrence of such redemption (excluding Notes held by Holdings or the
Company and their Subsidiaries) and provided, further, that such redemption
shall occur within 45 days of the date of the closing of such initial public
offering.

          (c)  Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.

          SECTION 3.08.  Mandatory Redemption.
                         --------------------

          The Company shall not be required to make mandatory redemption
payments with respect to the Notes.

          SECTION 3.09.  Offer to Purchase by Application of Excess Proceeds.
                         ---------------------------------------------------

          In the event that, pursuant to Section 4.10 hereof, the Company shall
be required to commence an offer to all Holders to purchase Notes (an "Asset
Sale Offer"), it shall follow the procedures specified below.

          The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later than
five Business Days after the termination of the Offer Period (the "Purchase
Date"), the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer. Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.

          If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.

          Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee.  The notice shall contain all instructions and materials
necessary to enable such Holders to 

 
                                     -55-

tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be
made to all Holders. The notice, which shall govern the terms of the Asset Sale
Offer, shall state:

          (a)  that the Asset Sale Offer is being made pursuant to this Section
     3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer
     shall remain open;

          (b)  the Offer Amount, the purchase price and the Purchase Date;

          (c)  that any Note not tendered or accepted for payment shall continue
     to accrue interest;

          (d)  that, unless the Company defaults in making such payment, any
     Note accepted for payment pursuant to the Asset Sale Offer shall cease to
     accrue interest after the Purchase Date;

          (e)  that Holders electing to have a Note purchased pursuant to an
     Asset Sale Offer may only elect to have all of such Note purchased and may
     not elect to have only a portion of such Note purchased;

          (f)  that Holders electing to have a Note purchased pursuant to any
     Asset Sale Offer shall be required to surrender the Note, with the form
     entitled "Option of Holder to Elect Purchase" on the reverse of the Note
     completed, or transfer by book-entry transfer, to the Company, a
     depositary, if appointed by the Company, or a Paying Agent at the address
     specified in the notice at least three days before the Purchase Date;

          (g)  that Holders shall be entitled to withdraw their election if the
     Company, the depositary or the Paying Agent, as the case may be, receives,
     not later than the expiration of the Offer Period, a telegram, telex,
     facsimile transmission or letter setting forth the name of the Holder, the
     principal amount of the Note the Holder delivered for purchase and a
     statement that such Holder is withdrawing his election to have such Note
     purchased;

          (h)  that, if the aggregate principal amount of Notes surrendered by
     Holders exceeds the Offer Amount, the Company shall select the Notes to be
     purchased on a pro rata basis (with such adjustments as may be deemed
     appropriate by the Company so that only Notes in denominations of $1,000,
     or integral multiples thereof, shall be purchased); and

 
                                     -56-

          (i)  that Holders whose Notes were purchased only in part shall be
     issued new Notes equal in principal amount to the unpurchased portion of
     the Notes surrendered (or transferred by book-entry transfer).

          On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in accordance
with the terms of this Section 3.09.  The Company, the Depositary or the Paying
Agent, as the case may be, shall promptly (but in any case not later than five
days after the Purchase Date) mail or deliver to each tendering Holder an amount
equal to the purchase price of the Notes tendered by such Holder and accepted by
the Company for purchase, and the Company shall promptly issue a new Note, and
the Trustee, upon written request from the Company shall authenticate and mail
or deliver such new Note to such Holder, in a principal amount equal to any
unpurchased portion of the Note surrendered.  Any Note not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof.  The Company
shall publicly announce the results of the Asset Sale Offer on the Purchase
Date.

          Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.

                                 ARTICLE FOUR

                                   COVENANTS

          SECTION 4.01.  Payment of Notes.
                         ---------------- 

          The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Notes on the dates and in the manner provided in the
Notes.  Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent (other than the Company or a Subsidiary thereof)
(i) holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due and (ii) is not prohibited
from paying such money to the Holders pursuant to the terms of this Indenture or
the Notes.  The Company shall pay all Liquidated Damages, if any, in the 

 
                                     -57-

same manner on the dates and in the amounts set forth in the Registration Rights
Agreement.

          The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in excess of the then applicable interest rate on the Notes to
the extent lawful; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace period) at the same
rate to the extent lawful.

          SECTION 4.02.  Maintenance of Office or Agency.
                         ------------------------------- 

          The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served.  The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency.  If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.

          The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes.  The Company shall give
prompt written notice to the Trustee of any such designation or rescission and
of any change in the location of any such other office or agency.

          The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03.

          SECTION 4.03.  Reports.
                         ------- 

          (a)  Whether or not required by the rules and regulations of the SEC,
so long as any Notes are outstanding, the Company shall furnish to the Holders
of Notes (i) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of 

 
                                     -58-

Operations" that describes the financial condition and results of operations of
the Company and its consolidated Subsidiaries (showing in reasonable detail,
either on the face of the financial statements or in the footnotes thereto and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, the financial condition and results of operations of the Company and
its Restricted Subsidiaries separate from the financial condition and results of
operations of the Unrestricted Subsidiaries of the Company) and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the SEC on Form 8-K if the Company were required to file such
reports, in each case within the time periods specified in the SEC's rules and
regulations. In addition, whether or not required by the rules and regulations
of the SEC, the Company shall file a copy of all such information and reports
with the SEC for public availability within the time periods specified in the
SEC's rules and regulations (unless the SEC will not accept such a filing) and
make such information available to securities analysts and prospective investors
upon request. The Company shall at all times comply with TIA (S) 314(a).

          (b)  In addition, the Company, Holdings and the Guarantors have agreed
that, for so long as any Notes remain outstanding, they shall furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.

          SECTION 4.04.  Compliance Certificate.
                         ---------------------- 

          (a)  The Company, Holdings and each Guarantor (to the extent that
Holdings and such Guarantor are so required under the TIA) shall deliver to the
Trustee, within 90 days after the end of each fiscal year, an Officers'
Certificate stating that a review of the activities of the Company and its
Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture, and further stating, as to each such Officer signing such
certificate, that to the best of his or her knowledge the Company has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance of any of the
terms, provisions and conditions of this Indenture (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which he or she may have knowledge and what action the Company is taking or
proposes to take with respect thereto) and that to the best of his or her
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action the Company is taking or proposes to take with respect thereto.

 
                                     -59-

          (b)  So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article Four or Article Five hereof or, if any such violation
has occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.

          (c)  The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.

          SECTION 4.05.  Taxes.
                         ----- 

          The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate proceedings
or where the failure to effect such payment is not adverse in any material
respect to the Holders of the Notes.

          SECTION 4.06.  Stay, Extension and Usury Laws.
                         ------------------------------ 

          The Company, Holdings and each of the Guarantors covenant (to the
extent that they may lawfully do so) that they shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Company, Holdings and each of the Guarantors (to the extent
that they may lawfully do so) hereby expressly waive all benefit or advantage of
any such law, and covenants that they shall not, by resort to any such law,
hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as though
no such law has been enacted.

          SECTION 4.07.  Restricted Payments.
                         ------------------- 

          The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make
any other payment or distribution on account of the Company's or any of its
Restricted Subsidiaries' Equity Inter-

 
                                     -60-

ests (including, without limitation, any payment in connection with any merger
or consolidation involving the Company or any of its Restricted Subsidiaries) or
to the direct or indirect holders of the Company's or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such (other than dividends
or distributions payable in Equity Interests (other than Disqualified Stock) of
the Company); (ii) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company or any direct or
indirect parent of the Company; (iii) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the Notes or any Subsidiary Guarantee,
except a payment of interest or principal at Stated Maturity; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:

          (a)  no Default or Event of Default shall have occurred and be
     continuing or would occur as a consequence thereof; and

          (b)  the Company would, at the time of such Restricted Payment and
     after giving pro forma effect thereto as if such Restricted Payment had
     been made at the beginning of the applicable four-quarter period, have been
     permitted to incur at least $1.00 of additional Indebtedness pursuant to
     the Fixed Charge Coverage Ratio test set forth in the first paragraph of
     the covenant under Section 4.09; and

          (c)  such Restricted Payment, together with the aggregate amount of
     all other Restricted Payments made by the Company and its Subsidiaries
     after the date of this Indenture (excluding Restricted Payments permitted
     by clauses (ii), (iii), (iv), (v), (vii), (viii) and (ix) of the next
     succeeding paragraph), is less than the sum, without duplication, of (i)
     50% of the Consolidated Net Income of the Company for the period (taken as
     one accounting period) from the date of this Indenture to the end of the
     Company's most recently ended fiscal quarter for which internal financial
     statements are available at the time of such Restricted Payment (or, if
     such Consolidated Net Income for such period is a deficit, less 100% of
     such deficit), plus (ii) 100% of the aggregate net cash proceeds received
     by the Company since the date of this Indenture as a contribution to its
     common equity capital or from the issue or sale of Equity Interests of the
     Company (other than Disqualified Stock) or from the issue or sale of
     Disqualified Stock or debt securities of the Company that have been
     converted into such Equity Interests (other than Equity Interests (or
     Disqualified Stock or convertible debt securities) sold to a Subsidiary of
     the Company), plus (iii) to the extent that any Restricted Investment that
     reduced the amount available for Restricted Payments under this clause (c)
     is sold for cash or otherwise liquidated or repaid for cash or any dividend
     or payment is received by the Company or a Re-

 
                                     -61-

     stricted Subsidiary after the date of the closing of the Acquisitions in
     respect of such Investment, 100% of the amount of Net Proceeds or dividends
     or payments (including the fair market value of property) received in
     connection therewith, up to the amount of the Restricted Investment that
     reduced this clause (c), and thereafter 50% of the amount of Net Proceeds
     or dividends or payments (including the fair market value of property)
     received in connection therewith (except that the amount of dividends or
     payments received in respect of payments of Obligations in respect of such
     Investments, such as taxes, shall not increase the amounts under this
     clause (c)), plus (iv) to the extent that any Unrestricted Subsidiary of
     the Company is redesignated as a Restricted Subsidiary after the date of
     this Indenture, 100% of the fair market value of the Company's Investment
     in such Subsidiary as of the date of such redesignation up to the amount of
     the Restricted Investments made in such Subsidiary that reduced this clause
     (c) and 50% of the excess of the fair market value of the Company's
     Investment in such Subsidiary as of the date of such redesignation over (1)
     the amount of the Restricted Investment that reduced this clause (c) and
     (2) any amounts that increased the amount available as a Permitted
     Investment provided that with respect to any redesignation pursuant to this
     clause (iv) the Company shall deliver to the Trustee (I) in the case of any
     such redesignation involving aggregate fair market value greater than $2.0
     million, a resolution of the Board of Directors set forth in an Officers'
     Certificate certifying such value or (II) in the case of any such
     redesignation involving aggregate fair market value greater than $10.0
     million, an independent appraisal or valuation opinion issued by an
     accounting, appraisal or investment banking firm of national standing;
     provided that any amounts that increase this clause (c) shall not
     duplicatively increase amounts available as Permitted Investments.

          The foregoing provisions shall not prohibit:

            (i)    the payment of any dividend within 60 days after the date of
     declaration thereof, if at said date of declaration such payment would have
     complied with the provisions of this Indenture;

            (ii)   the redemption, repurchase, retirement, defeasance or other
     acquisition of any subordinated Indebtedness or Equity Interests of the
     Company in exchange for, or out of the net cash proceeds of the
     substantially concurrent sale (other than to a Restricted Subsidiary of the
     Company) of, other Equity Interests of the Company (other than any
     Disqualified Stock); provided that the amount of any such net cash proceeds
     that are utilized for any such redemption, repurchase, retirement,
     defeasance or other acquisition shall be excluded from clause (c)(ii) of
     the preceding paragraph;

 
                                     -62-

            (iii)  the defeasance, redemption, repurchase or other acquisition
     of subordinated Indebtedness with the net cash proceeds from an incurrence
     of Permitted Refinancing Indebtedness;

            (iv)   dividends or distributions by a Restricted Subsidiary of the
     Company so long as, in the case of any dividend or distribution payable on
     or in respect of any class or series of securities issued by a Restricted
     Subsidiary, the Company or a Restricted Subsidiary receives at least its
     pro rata share of such dividend or distribution in accordance with its
     Equity Interests in such class or series of securities;

            (v)    Investments in Unrestricted Subsidiaries having an aggregate
     fair market value not to exceed the amount, at the time of such Investment,
     substantially concurrently contributed in cash or Cash Equivalents to the
     common equity capital of the Company after the date of the closing of the
     Acquisitions; provided that any such amount contributed shall be excluded
     from the calculation made pursuant to clause (c) of the preceding
     paragraph;

            (vi)   the payment of dividends on the Company's Common Stock,
     following the first public offering of the Company's Common Stock after the
     date of the closing of the Acquisitions, of up to 6% per annum of the net
     proceeds received by the Company in such public offering, other than public
     offerings with respect to the Company's Common Stock registered on Form S-
     8;

            (vii)  the repurchase, redemption or other acquisition or retirement
     for value of any Equity Interests of the Company or any Restricted
     Subsidiary of the Company held by any present or former employee or
     director of the Company (or any of its Restricted Subsidiaries), other than
     Equity Interests held by the Principals or any of their Related Parties,
     pursuant to any management equity subscription agreement or stock option
     agreement or any other management or employee benefit plan; provided that
     (A) the a ggregate price paid for all such repurchased, redeemed, acquired
     or retired Equity Interests shall not exceed $2.0 million in any calendar
     year (with unused amounts in any calendar year being carried over to
     succeeding calendar years subject to a maximum (without giving effect to
     the following proviso) of $5.0 million in any calendar year); provided
     further that such amount in any calendar year may be increased by an amount
     not to exceed (x) the cash proceeds from the sale of Equity Interests (not
     including Disqualified Stock) of the Company or a Restricted Subsidiary to
     members of management and directors of the Company and its Subsidiaries
     that occurs after the date of this Indenture, plus (y) the cash proceeds of
     key-man life insurance policies received by the Company and its Restricted
     Subsidiaries after the date of this Indenture, less (z) the amount of any
     Restricted Payments previously made pursuant to clauses (x) and (y) of this
     subparagraph (vii) and

 
                                     -63-

     (B) no Default or Event of Default shall have occurred and be continuing
     immediately after such transaction; and, provided further, that
     cancellation of Indebtedness owing to the Company from members of
     management of the Company or any of its Restricted Subsidiaries (other than
     the Principals or any of their Related Parties) in connection with a
     repurchase of Equity Interests of the Company or a Restricted Subsidiary
     pursuant to any employment agreement or arrangement or any stock option or
     similar plan shall not be deemed to constitute a Restricted Payment for
     purposes of this covenant or any other provision of this Indenture;

            (viii)  repurchases of Equity Interests deemed to occur upon
     exercise of stock options if such Equity Interests represent a portion of
     the exercise price of such options; and

            (ix)    the payment of dividends or distributions to Holdings (I)
     pursuant to a tax allocation agreement in effect on the date of this
     Indenture, in amounts required by Holdings to pay income taxes; (II) in
     amounts required by Holdings to pay administrative expenses not to exceed
     $500,000 in any calendar year; and (III) in order to permit Holdings to
     repay Indebtedness under the Senior Credit Agreement, dated September 2,
     1998, among Holdings, Warburg Dillon Read LLC, as Arranger and Syndication
     Agent, UBS AG, Stamford Branch, as Administrative Agent, and the lenders
     party thereto.

          As of the date of this Indenture, all of the Company's Subsidiaries
will be Restricted Subsidiaries. The Board of Directors may designate any
Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would
not cause a Default.  For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such Restricted Payment
would be permitted at such time and if such Restricted Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary.

          If, at any time, any Unrestricted Subsidiary would fail to meet the
requirements in the definition of "Unrestricted Subsidiary" as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of this Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
(and, if such Indebtedness is not permitted to be incurred as of such date under
the covenant described in Section 4.09, the Company shall be in default of such
covenant). The Board of Directors of the Company may at any time designate any
Un-

 
                                     -64-

restricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under the covenant described in Section 4.09, calculated on a pro
forma basis as if such designation had occurred at the beginning of the four-
quarter reference period, and (ii) no Default or Event of Default would be in
existence following such designation.

          The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment or any adjustment made
pursuant to clause (c) of the first paragraph of this covenant shall be
determined by the Board of Directors whose resolution with respect thereto shall
be delivered to the Trustee, such determination to be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if such fair market value exceeds $10.0 million. Not later
than the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
Section 4.07 were computed.

          If any Restricted Investment is sold or otherwise liquidated or repaid
or any dividend or payment is received by the Company or a Restricted Subsidiary
and such amounts may be credited to clause (c) of the first paragraph of this
covenant, then such amounts will be credited only to the extent of amounts not
otherwise included in Consolidated Net Income and that do not otherwise increase
the amount available as a Permitted Investment.

          SECTION 4.08.  Dividend and Other Payment Restrictions 
                         Affecting Restricted Subsidiaries.
                         ---------------------------------------

          The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to
the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or
(2) with respect to any other interest or participation in, or measured by, its
profits, or (b) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets to
the Company or any of its Restricted Subsidiaries. However, the foregoing
restrictions shall not apply to encumbrances or restrictions existing under or
by reason of (a) Existing Indebtedness as in effect on the 

 
                                     -65-

date of this Indenture, (b) the Senior Credit Facilities as in effect as of the
date of this Indenture, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other payment
restrictions than those contained in the Senior Credit Facilities as in effect
on the date of this Indenture, (c) the Senior Note Indenture, this Indenture,
the Senior Notes and the Notes, (d) applicable law or any applicable rule,
regulation or order, (e) any instrument governing Indebtedness or Capital Stock
of a Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of this Indenture to be incurred, (f)
customary non-assignment provisions in leases and other agreements entered into
in the ordinary course of business and consistent with past practices, (g)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired, (h) any agreement for the sale of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary pending
its sale, (i) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Indebtedness
are no more restrictive, taken as a whole, than those contained in the
agreements governing the Indebtedness being refinanced, (j) secured Indebtedness
otherwise permitted to be incurred pursuant to the provisions of the covenant
described in Section 4.12 that limits solely the right of the debtor to dispose
of the assets securing such Indebtedness, (k) provisions with respect to the
disposition or distribution of assets or property in joint venture agreements
and other similar agreements entered into in the ordinary course of business,
(l) restrictions on cash or other deposits or net worth imposed by customers or
lessors under contracts or leases entered into in the ordinary course of
business and (m) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of the contracts, instruments or obligations
referred to in clauses (a) through (l) above, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are, in the good faith judgment of the Company's
Board of Directors, not materially more restrictive in the aggregate with
respect to such dividend and other payment restrictions than those (considered
as a whole) contained in the dividend or other payment restrictions prior to
such amendment, modification, restatement, renewal, increase, supplement,
refunding, replacement or refinancing.

 
                                     -66-

          SECTION 4.09.  Incurrence of Indebtedness and Issuance of 
                         Preferred Stock.
                         ------------------------------------------

          The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and the
Company shall not issue any Disqualified Stock and shall not permit any of its
Subsidiaries to issue any shares of preferred stock; provided, however, that the
Company may incur Indebtedness (including Acquired Debt) or issue shares of
Disqualified Stock and the Guarantors may incur Indebtedness or issue
Disqualified Stock or preferred stock if the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock or preferred
stock is issued would have been at least 2.0 to 1.0, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock or
preferred stock had been issued, as the case may be, at the beginning of such
four-quarter period.

          The provisions of the first paragraph of this covenant shall not apply
to the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Indebtedness"):

            (i)   the incurrence by the Company of Indebtedness under Credit
     Facilities (and the Guarantee thereof by the Guarantors); provided that the
     aggregate principal amount of all Indebtedness outstanding under this
     clause (i) after giving effect to such incurrence does not exceed an amount
     equal to $875.0 million (with letters of credit being deemed to have a
     principal amount equal to the maximum potential liability of the Company
     and its Restricted Subsidiaries thereunder) less the amount of proceeds of
     Asset Sales applied to repay any such term Indebtedness or revolving
     Indebtedness if such repayment of revolving Indebtedness resulted in a
     corresponding commitment reduction (excluding any such payments to the
     extent refinanced at the time of repayment);

            (ii)  the incurrence by the Company and its Subsidiaries of Existing
     Indebtedness, the Senior Notes and the Guarantees thereof;

            (iii) (A) the guarantee by the Company or any of the Guarantors of
     Indebtedness of the Company or a Restricted Subsidiary of the Company or
     (B) the incurrence of Indebtedness of a Restricted Subsidiary to the extent
     that such Indebted-

 
                                     -67-

     ness is supported by a letter of credit, in each case that was permitted to
     be incurred by another provision of this covenant;

            (iv)   the incurrence by the Company or any of its Restricted
     Subsidiaries of Indebtedness (including Capital Lease Obligations) to
     finance the acquisition (including by direct purchase, by lease or
     indirectly by the acquisition of the Capital Stock of a Person that becomes
     a Restricted Subsidiary as a result of such acquisition) or improvement of
     assets or property (real or personal) in an aggregate principal amount
     which, when aggregated with the principal amount of all other Indebtedness
     then outstanding pursuant to this clause (iv) and including all Permitted
     Refinancing Indebtedness incurred to refund, refinance or replace any
     Indebtedness incurred pursuant to this clause (iv), does not exceed an
     amount equal to 5% of Total Assets at the time of such incurrence;

            (v)    the incurrence by the Company or any of its Restricted
     Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
     net proceeds of which are used to refund, refinance or replace Indebtedness
     (other than intercompany Indebtedness) that was permitted by this Indenture
     to be incurred under the first paragraph hereof or clause (ii), (iii) or
     (iv) of this paragraph;

            (vi)   the incurrence by the Company or any of its Restricted
     Subsidiaries of intercompany Indebtedness between or among the Company and
     any of its Restricted Subsidiaries; provided, however, that (i) if the
     Company is the obligor on such Indebtedness, such Indebtedness is expressly
     subordinated to the prior payment in full in cash of all Obligations with
     respect to the Notes and (ii)(A) any subsequent issuance or transfer of
     Equity Interests that results in any such Indebtedness being held by a
     Person other than the Company or a Restricted Subsidiary thereof and (B)
     any sale or other transfer of any such Indebtedness to a Person that is not
     either the Company or a Restricted Subsidiary thereof shall be deemed, in
     each case, to constitute an incurrence of such Indebtedness by the Company
     or such Restricted Subsidiary, as the case may be, that was not permitted
     by this clause (vi);

            (vii)  the incurrence by the Company or any of its Restricted
     Subsidiaries of Hedging Obligations that are incurred in the ordinary
     course of business for the purpose of risk management and not for the
     purpose of speculation;

            (viii) the incurrence by the Company's Unrestricted Subsidiaries
     of Non-Recourse Debt, provided, however, that if any such Indebtedness
     ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event
     shall be deemed to constitute an incurrence of Indebtedness by a Restricted
     Subsidiary of the Company that 

 
                                     -68-

     was not permitted by this clause (viii), and the issuance of preferred
     stock by Unrestricted Subsidiaries;

            (ix)  the incurrence of Indebtedness solely in respect of
     performance, surety and similar bonds or completion or performance
     guarantees (including, without limitation, performance guarantees pursuant
     to coal supply agreements or equipment leases and including letters of
     credit issued in support of such performance, surety and similar bonds), to
     the extent that such incurrence does not result in the incurrence of any
     obligation for the payment of borrowed money to others;

            (x)   the incurrence of Indebtedness arising from agreements of the
     Company or a Restricted Subsidiary providing for indemnification,
     adjustment of purchase price or similar obligations, in each case, incurred
     or assumed in connection with the disposition of any business, assets or a
     Subsidiary; provided, however, that (i) such Indebtedness is not reflected
     on the balance sheet of the Company or any Restricted Subsidiary
     (contingent obligations referred to in a footnote to financial statements
     and not otherwise reflected on the balance sheet shall not be deemed to be
     reflected on such balance sheet for purposes of this clause (i)) and (ii)
     the maximum assumable liability in respect of all such Indebtedness shall
     at no time exceed the gross proceeds including noncash proceeds (the fair
     market value of such noncash proceeds being measured at the time received
     and without giving effect to any subsequent changes in value) actually
     received by the Company and its Restricted Subsidiaries in connection with
     such disposition; and

            (xi)  the incurrence by the Company or any of its Restricted
     Subsidiaries of additional Indebtedness in an aggregate principal amount
     (or accreted value, as applicable) at any time outstanding, including all
     Permitted Refinancing Indebtedness incurred to refund, refinance or replace
     any Indebtedness incurred pursuant to this clause (xi), not to exceed the
     greater of (i)(x) $25.0 million and (y) 1% of Total Assets if incurred on
     or prior to December 15, 2000 or (ii) (x) $50.0 million and (y) 2% of Total
     Assets if incurred thereafter.

          The Company shall not incur, and shall not permit its Restricted
Subsidiaries to incur, any Indebtedness (including Permitted Indebtedness) that
is contractually subordinated in right of payment to any other Indebtedness of
the Company or such Restricted Subsidiary unless such Indebtedness is also
contractually subordinated in right of payment to the Notes or the Subsidiary
Guarantees, as the case may be, on substantially identical terms; provided,
however, that no Indebtedness of the Company or any Restricted Subsidiary shall
be deemed to be contractually subordinated in right of payment to any other
Indebtedness of the Company or any Restricted Subsidiary solely by virtue of
being unsecured.

 
                                     -69-

          For purposes of determining compliance with this covenant, in the
event that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xi) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify or reclassify such item of
Indebtedness in any manner that complies with this covenant. Accrual of
interest, accretion or amortization of original issue discount, the payment of
interest on any Indebtedness in the form of additional Indebtedness with the
same terms, and the payment of dividends on Disqualified Stock in the form of
additional shares of the same class of Disqualified Stock, shall not be deemed
to be an incurrence of Indebtedness or an issuance of Disqualified Stock for
purposes of this covenant; provided, in each such case, that the amount thereof
is included in Fixed Charges of the Company as accrued.

          SECTION 4.10.  Asset Sales.
                         ----------- 

          The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time of
such Asset Sale at least equal to the fair market value as determined in good
faith by the Company (evidenced by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee with respect to any
Asset Sale determined to have a value greater than $25.0 million) of the assets
or Equity Interests issued or sold or otherwise disposed of and (ii) except in
the case of Assets Held for Sale, at least 75% of the consideration therefor
received by the Company or such Subsidiary is in the form of cash, Cash
Equivalents or Marketable Securities; provided that the following amounts shall
be deemed to be cash: (w) any liabilities (as shown on the Company's or such
Restricted Subsidiary's most recent balance sheet), of the Company or any
Restricted Subsidiary (other than contingent liabilities and liabilities that
are by their terms subordinated to the Notes or any guarantee thereof) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases the Company or such Restricted Subsidiary from further
liability, (x) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received), (y) any Designated Noncash Consideration received by the Company or
any of its Restricted Subsidiaries in such Asset Sale; provided that the
aggregate fair market value (as determined above) of such Designated Noncash
Consideration, taken together with the fair market value at the time of receipt
of all other Designated Noncash Consideration received pursuant to this clause
(y) less the amount of Net Proceeds previously realized in cash from prior
Designated Noncash Consideration is less than 5% of Total Assets at the time of
the receipt of such Designated Noncash Consideration (with the fair market value
of each item of Designated Noncash Consideration being measured at the time
received and without 

 
                                     -70-

giving effect to subsequent changes in value) and (z) Additional Assets received
in an exchange of assets transaction.

          Within 360 days after the receipt of any cash Net Proceeds from an
Asset Sale, the Company or such Restricted Subsidiary, at its option, may apply
such cash Net Proceeds, at its option, (a) to repay Indebtedness of the Company
or any Restricted Subsidiary that is not subordinated in right of payment to the
Notes or to repay debt under one or more Credit Facilities and, if such debt is
revolving debt, to effect a corresponding commitment reduction thereunder, (b)
to the acquisition of all or a portion of the assets of, or a majority of the
Voting Stock of, another Permitted Business, the making of a capital expenditure
or the acquisition of other assets or Investments that are used or useful in a
Permitted Business or (c) to an Investment in Additional Assets. Any cash Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph shall be deemed to constitute "Excess
Proceeds."  When the aggregate amount of Excess Proceeds exceeds $15.0 million,
the Company will be required to make an offer to all Holders of Notes and all
holders of other Indebtedness that ranks pari passu with the Notes containing
provisions similar to those set forth in this Indenture with respect to offers
to purchase or redeem with the proceeds of sales of assets (an "Asset Sale
Offer") to purchase the maximum principal amount of Notes and such other
Indebtedness that may be purchased out of the Excess Proceeds, at an offer price
in cash in an amount equal to 100% of the principal amount thereof plus accrued
and unpaid interest and Liquidated Damages thereon, if any, to the date of
purchase, in accordance with the procedures set forth in this Indenture and such
other Indebtedness.  To the extent that any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Company may use such Excess Proceeds
for any purpose not otherwise prohibited by this Indenture.  If the aggregate
principal amount of Notes and such other Indebtedness tendered into such Asset
Sale Offer surrendered by Holders thereof exceeds the amount of Excess Proceeds,
the Trustee shall select the Notes and such other Indebtedness to be purchased
on a pro rata basis. Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset at zero.

          SECTION 4.11.  Transactions with Affiliates.
                         ---------------------------- 

          The Company shall not, and shall not permit any of its Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is
on terms that are materially no less favorable to the Company or the relevant
Subsidiary than those that would have been obtained in a comparable transaction
by the Company or such Subsidiary with an unrelated Person and (ii) the Company
delivers to the Trustee (a) with respect to any Affiliate Transaction or series
of related Affiliate Trans-

 
                                     -71-

actions involving aggregate consideration in excess of $2.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of national
standing. Notwithstanding the foregoing, the following items shall not be deemed
to be Affiliate Transactions: (i) transactions entered into pursuant to the
terms of (a) the Haulage and Delivery Agreement, (b) the MMI Service Agreement,
(c) the MMI Leases, (d) the Bowie Sales Agency Agreement, (e) the Manufacture
and Service Agreement and (f) the Technology Sharing Agreement, each as in
effect on the date of this Indenture or as thereafter amended, provided any such
amendment does not materially and adversely affect the rights of the Holders of
the Notes under this Indenture, (ii) any employment agreement or arrangement
entered into by the Company or any of its Subsidiaries or any employee benefit
plan available to employees of the Company and its Subsidiaries generally, in
each case in the ordinary course of business and consistent with the past
practice of the Company or such Subsidiary, (iii) transactions between or among
the Company and/or its Subsidiaries, (iv) payment of reasonable directors fees
to Persons who are not otherwise Affiliates of the Company, (v) Restricted
Payments that are permitted by Section 4.07 or pursuant to the definition of
Permitted Investments, (vi) indemnification payments made to officers, directors
and employees of the Company or any Restricted Subsidiary pursuant to charter,
bylaw, statutory or contractual provisions, and (vii) transactions pursuant to
the terms of the Transaction Documents in effect on the dates of the closings of
the Acquisitions.

          SECTION 4.12.  Liens.
                         ----- 

          The Company shall not and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or otherwise
cause or suffer to exist or become effective any Lien of any kind (other than
Permitted Liens) upon any of their property or assets, now owned or hereafter
acquired, unless all payments due under this Indenture and the Notes are secured
on an equal and ratable basis with the obligations so secured until such time as
such obligations are no longer secured by a Lien.

          SECTION 4.13.  Business Activities.
                         ------------------- 

          The Company shall not, and shall not permit any Restricted Subsidiary
to, engage in any business other than Permitted Businesses, except to such
extent as would not be material to the Company and its Restricted Subsidiaries
taken as a whole.

 
                                     -72-

          SECTION 4.14.  Corporate Existence.
                         ------------------- 

          Subject to Article Five hereof, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time) of it or any such Subsidiary and
(ii) the rights (charter and statutory), licenses and franchises of it and its
Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any of its Subsidiaries, if its Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of it and its Subsidiaries, taken as a whole, and that the loss
thereof is not adverse in any material respect to the Holders of the Notes.

          SECTION 4.15.  Offer to Repurchase upon Change of Control.
                         ------------------------------------------ 

          (a)  Upon the occurrence of a Change of Control, each Holder of Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to
the offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of purchase
(the "Change of Control Payment"). Within ten days following any Change of
Control, the Company shall mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by this Indenture and described in such notice. The Company shall
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.

          On the Change of Control Payment Date, the Company shall, to the
extent lawful, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note 

 
                                     -73-

equal in principal amount to any unpurchased portion of the Notes surrendered,
if any; provided that each such new Note will be in a principal amount of $1,000
or an integral multiple thereof. The Company shall publicly announce the results
of the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.

          (b)  The Company shall not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Indenture applicable to a Change of Control Offer
made by the Company and purchases all Notes validly tendered and not withdrawn
under such Change of Control Offer.

          SECTION 4.16.  Limitation on Issuances and Sales of Equity 
                         Interests in Wholly Owned Subsidiaries.
                         -------------------------------------------

          The Company (i) shall not, and shall not permit any Wholly Owned
Restricted Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Equity Interests in a Wholly Owned Restricted
Subsidiary of the Company to any Person (other than the Company or a Wholly
Owned Subsidiary of the Company), unless (1) such transfer, conveyance, sale,
lease or other disposition is of all the Equity Interests in such Wholly Owned
Restricted Subsidiary and (2) the cash Net Proceeds from such transfer,
conveyance, sale, lease or other disposition are applied in accordance with the
covenant described in Section 4.10, and (ii) shall not permit any Wholly Owned
Restricted Subsidiary of the Company to issue any of its Equity Interests (other
than, if necessary, shares of its Capital Stock constituting directors'
qualifying shares) to any Person other than to the Company or a Wholly Owned
Restricted Subsidiary of the Company.

          SECTION 4.17.  Limitation on Layering.
                         ---------------------- 

          The Company shall not, directly or indirectly, incur any Indebtedness
that by its terms would expressly rank senior in right of payment to the Notes
and expressly rank subordinate in right of payment to any other Indebtedness of
the Company.

          The Company shall not permit any Guarantor to, and no Guarantor shall,
directly or indirectly, incur any Indebtedness that by its terms would expressly
rank senior in right of payment to the Guarantee of such Guarantor and expressly
rank subordinate in right of payment to any Guarantor Senior Indebtedness of
such Guarantor.

          SECTION 4.18.  Payments for Consent.
                         -------------------- 

          Neither the Company nor any of its Restricted Subsidiaries shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or 

 
                                     -74-

otherwise, to any Holder of any Notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of this Indenture or the
Notes unless such consideration is offered to be paid or is paid to all Holders
of the Notes that consent, waive or agree to amend in the time frame set forth
in the solicitation documents relating to such consent, waiver or agreement.

          SECTION 4.19.  Additional Subsidiary Guarantees.
                         -------------------------------- 

          If the Company or any of its Domestic Subsidiaries shall acquire or
create another Domestic Subsidiary after the date of this Indenture and such
Domestic Subsidiary provides a guarantee of the Senior Credit Facilities, then
such newly acquired or created Domestic Subsidiary shall execute a supplemental
indenture in form and substance satisfactory to the Trustee providing that such
Domestic Subsidiary shall become a Guarantor under this Indenture, provided,
however, this covenant shall not apply to any Domestic Subsidiary that has been
properly designated as an Unrestricted Subsidiary in accordance with this
Indenture for so long as it continues to constitute an Unrestricted Subsidiary.

                                 ARTICLE FIVE

                                  SUCCESSORS

          SECTION 5.01.  Merger, Consolidation, or Sale of Assets.
                         ---------------------------------------- 

          The Company may not consolidate or merge with or into (whether or not
the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another corporation, Person or
entity unless (i) the Company is the surviving corporation or the entity or the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of the Company under the
Registration Rights Agreement, the Notes and this Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction no Default or Event of Default exists; and
(iv) except in the case of a merger of the Company with or into a Wholly Owned
Restricted Subsidiary of the Company, immediately after giving pro forma effect
to such transaction, as if such transaction 

 
                                     -75-

had occurred at the beginning of the applicable four-quarter period, (A) the
entity surviving such consolidation or merger would be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described in Section
4.09 or (B) the Fixed Charge Coverage Ratio for the Company or the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made would, immediately after giving pro forma
effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, not be less than such Fixed Charge Coverage
Ratio for the Company and its Restricted Subsidiaries immediately prior to such
transaction. The Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. The provisions of this covenant are not
applicable to a sale, assignment, transfer, conveyance or other disposition of
assets between or among the Company and its Restricted Subsidiaries.

          Notwithstanding the foregoing clause (iv), (i) any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company and (ii) the Company may merge with an
Affiliate that has no significant assets or liabilities and was formed solely
for the purpose of changing the jurisdiction of organization of the Company in
another State of the United States or the form of organization of the Company so
long as the amount of Indebtedness of the Company and its Restricted
Subsidiaries is not increased thereby and provided that the successor assumes
all the obligations of the Company under the Registration Rights Agreement, the
Notes and this Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee.

          SECTION 5.02.  Successor Corporation Substituted.
                         --------------------------------- 

          Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale of all of
the Company's assets that meets the requirements of Section 5.01 hereof.

 
                                     -76-

                                  ARTICLE SIX

                             DEFAULTS AND REMEDIES

          SECTION 6.01.  Events of Default.
                         ----------------- 

          Each of the following constitutes an "Event of Default":

          (a)  default for 30 days in the payment when due of interest on, or
     Liquidated Damages, if any, with respect to, the Notes;

          (b)  default in payment when due of the principal of or premium, if
     any, on the Notes;

          (c)  failure by the Company or any of its Subsidiaries to make the
     offer required or to purchase any of the Notes as required under the
     provisions described in  Section 4.10 or Section 4.15;

          (d)  failure by the Company or any of its Subsidiaries for 30 days
     after notice to comply with the provisions of the covenants in Section 4.07
     or Section 4.09 or failure by the Company or any of its Subsidiaries for 60
     days after notice to comply with any of its other agreements in this
     Indenture or the Notes;

          (e)  default under any mortgage, indenture or instrument under which
     there may be issued or by which there may be secured or evidenced any
     Indebtedness for money borrowed by the Company or any of its Restricted
     Subsidiaries (or the payment of which is guaranteed by the Company or any
     of its Restricted Subsidiaries) whether such Indebtedness or guarantee now
     exists, or is created after the date of this Indenture, which default (i)
     is caused by a failure to pay principal of or premium, if any, or interest
     on such Indebtedness prior to the expiration of the grace period provided
     in such Indebtedness on the date of such default (a "Payment Default") or
     (ii) results in the acceleration of such Indebtedness prior to its express
     maturity and, in each case, the principal amount of any such Indebtedness,
     together with the principal amount of any other such Indebtedness under
     which there has been a Payment Default or the maturity of which has been so
     accelerated, aggregates $25.0 million or more;

          (f)  failure by the Company or any of its Restricted Subsidiaries or
     any group of Restricted Subsidiaries that, taken as a whole, would be a
     Significant Subsidiary to pay final judgments aggregating in excess of
     $25.0 million, which judgments are not paid, discharged or stayed for a
     period of 60 days;

 
                                     -77-

          (g)  except as permitted by this Indenture, any Subsidiary Guarantee
     shall be held in any judicial proceeding to be unenforceable or invalid or
     shall cease for any reason to be in full force and effect or any Guarantor,
     or any Person acting on behalf of any Guarantor, shall deny or disaffirm
     its obligations under its Subsidiary Guarantee;

          (h)  the Company, any of its Significant Subsidiaries that are
     Restricted Subsidiaries or any group of Restricted Subsidiaries that, taken
     as a whole, would be a Significant Subsidiary pursuant to or within the
     meaning of Bankruptcy Law:

               (i)   commences a voluntary case,

               (ii)  consents to the entry of an order for relief against it in
          an involuntary case,

               (iii) consents to the appointment of a custodian of it or for
          all or substantially all of its property,

               (iv)  makes a general assignment for the benefit of its
          creditors, or

               (v)   generally is not paying its debts as they become due; or

          (i)  a court of competent jurisdiction enters an order or decree under
     any Bankruptcy Law that:

               (i)   is for relief against the Company, any of its Significant
          Subsidiaries that are Restricted Subsidiaries or any group of
          Restricted Subsidiaries that, taken as a whole, would be a Significant
          Subsidiary in an involuntary case;

               (ii)  appoints a custodian of the Company, any of its
          Significant Subsidiaries that are Restricted Subsidiaries or any group
          of Restricted Subsidiaries that, taken as a whole, would be a
          Significant Subsidiary or for all or substantially all of the property
          of the Company, any of its Significant Subsidiaries that are
          Restricted Subsidiaries or any group of Restricted Subsidiaries that,
          taken as a whole, would be a Significant Subsidiary; or

               (iii) orders the liquidation of the Company, any of its
          Significant Subsidiaries that are Restricted Subsidiaries or any group
          of Restricted Subsidiaries that, taken as a whole, would be a
          Significant Subsidiary;

     and the order or decree remains unstayed and in effect for 60 consecutive
     days.

 
                                     -78-

          SECTION 6.02.  Acceleration.
                         ------------ 

          If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately.  Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary that is a Restricted Subsidiary or any group of Restricted
Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding Notes will become due and payable without further action or
notice.  Holders of the Notes may not enforce this Indenture or the Notes except
as provided in this Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power.  The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.

          In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of this Indenture, the Holders of a majority in
principal amount of the then outstanding Notes may direct the Trustee that an
equivalent premium shall also become and be immediately due and payable to the
extent permitted by law upon the acceleration of the Notes.  If an Event of
Default occurs prior to December 15, 2002 by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Company with the intention
of avoiding paying the premium upon redemption of the Notes prior to December
15, 2002, then the Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee that the premium specified in the event
of an optional redemption using the net cash proceeds of an Equity Offering
shall also become immediately due and payable to the extent permitted by law
upon the acceleration of the Notes.

          SECTION 6.03.  Other Remedies.
                         -------------- 

          If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision of
the Notes or this Indenture.

          The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding.  A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event 

 
                                     -79-

of Default shall not impair the right or remedy or constitute a waiver of or
acquiescence in the Event of Default. All remedies are cumulative to the extent
permitted by law.

          SECTION 6.04.  Waiver of Past Defaults.
                         ----------------------- 

          The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive an existing Default or Event of Default and its consequences
hereunder, except a continuing Default or Event of Default in the payment of the
principal of, premium and Liquidated Damages, if any, or interest on, the Notes
(including in connection with an offer to purchase) (provided, however, that the
Holders of a majority in aggregate principal amount of the then outstanding
Notes may rescind an acceleration and its consequences, including any related
payment default that resulted from such acceleration).  Upon any such waiver,
such Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured for every purpose of this Indenture; but no
such waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.

          SECTION 6.05.  Control by Majority.
                         ------------------- 

          Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it.  However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may result in the
incurrence of liability by the Trustee.

          SECTION 6.06.  Limitation on Suits.
                         ------------------- 

          Holders of the Notes may not enforce this Indenture or the Notes
except as provided herein. A Holder of a Note may pursue a remedy with respect
to this Indenture or the Notes only if:

          (a)  the Holder of a Note gives to the Trustee written notice of a
     continuing Event of Default;

          (b)  the Holders of at least 25% in principal amount of the then
     outstanding Notes make a written request to the Trustee to pursue the
     remedy;

          (c)  such Holder of a Note or Holders of Notes offer and, if
     requested, provide to the Trustee indemnity satisfactory to the Trustee
     against any loss, liability or expense;

 
                                     -80-

          (d)  the Trustee does not comply with the request within 60 days after
     receipt of the request and the offer and, if requested, the provision of
     indemnity; and

          (e)  during such 60-day period the Holders of a majority in principal
     amount of the then outstanding Notes do not give the Trustee a direction
     inconsistent with the request.

          A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.

          SECTION 6.07.  Rights of Holders of Notes to Receive Payment.
                         --------------------------------------------- 

          Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium and Liquidated
Damages, if any, and interest on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.

          SECTION 6.08.  Collection Suit by Trustee.
                         -------------------------- 

          If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent lawful,
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.

          SECTION 6.09.  Trustee May File Proofs of Claim.
                         -------------------------------- 

          The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the 

 
                                     -81-

reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof.  To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise.  Nothing herein contained shall
be deemed to authorize the Trustee to authorize or consent to or accept or adopt
on behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.

          SECTION 6.10.  Priorities.
                         ---------- 

          If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:

          First: to the Trustee, its agents and attorneys for amounts due under
     Section 7.07 hereof, including payment of all compensation, expense and
     liabilities incurred, and all advances made, by the Trustee and the costs
     and expenses of collection;

          Second: to Holders of Notes for amounts due and unpaid on the Notes
     for principal, premium and Liquidated Damages, if any, and interest,
     ratably, without preference or priority of any kind, according to the
     amounts due and payable on the Notes for principal, premium and Liquidated
     Damages, if any and interest, respectively; and

          Third: to the Company or to such party as a court of competent
     jurisdiction shall direct.

          The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.

          SECTION 6.11.  Undertaking for Costs.
                         --------------------- 

          In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, in-

 
                                     -82-

cluding reasonable attorneys' fees, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made by
the party litigant. This Section does not apply to a suit by the Trustee, a suit
by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of
more than 10% in principal amount of the then outstanding Notes.

                                 ARTICLE SEVEN

                                    TRUSTEE

          SECTION 7.01.  Duties of Trustee.
                         ----------------- 

          (a)  If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.

          (b)  Except during the continuance of an Event of Default:

          (i)  the duties of the Trustee shall be determined solely by the
     express provisions of this Indenture and the Trustee need perform only
     those duties that are specifically set forth in this Indenture and no
     others, and no implied covenants or obligations shall be read into this
     Indenture against the Trustee; and

          (ii) in the absence of bad faith on its part, the Trustee may
     conclusively rely, as to the truth of the statements and the correctness of
     the opinions expressed therein, upon certificates or opinions furnished to
     the Trustee and conforming to the requirements of this Indenture.  However,
     the Trustee shall examine the certificates and opinions to determine
     whether or not they conform to the requirements of this Indenture but need
     not verify the contents thereof.

          (c)  The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:

          (i)  this paragraph does not limit the effect of paragraph (b) of
     this Section;

          (ii) the Trustee shall not be liable for any error of judgment made
     in good faith by a Responsible Officer, unless it is proved that the
     Trustee was negligent in ascertaining the pertinent facts; and

 
                                     -83-

          (iii) the Trustee shall not be liable with respect to any action it
     takes or omits to take in good faith in accordance with a direction
     received by it pursuant to Sections 6.02, 6.04 or 6.05 hereof.

          (d)   Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), (c), (e) and (f) of this Section and Section 7.02.

          (e)   No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.

          (f)   The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.

          SECTION 7.02.  Rights of Trustee.
                         ----------------- 

          (a)   The Trustee may conclusively rely and shall be fully protected
in acting or refraining from acting upon any document believed by it to be
genuine and to have been signed or presented by the proper Person. The Trustee
need not investigate any fact or matter stated in the document.

          (b)   Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection from liability in respect of any
action taken, suffered or omitted by it hereunder in good faith and in reliance
thereon.

          (c)   The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.

          (d)   The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.

 
                                     -84-

          (e)  Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.

          (f)  The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.

          (g)  The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.

          (h)  Delivery of reports, information and documents to the Trustee
under Section 4.03 is for informational purposes only and the Trustee's receipt
of the foregoing shall not constitute constructive notice of any information
contained therein or determinable from information contained therein, including
the Company's compliance with any of their covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates).

          (i)  The Trustee shall not be charged with knowledge of any Defaults
or Events of Default unless either (1) a Trust Officer of the Trustee shall have
actual knowledge of such Default or Event of Default or (2) written notice of
such Default or Event of Default shall have been given to the Trustee by any
Holder or by the Company or any other obligor on the Notes or any holder of
Senior Indebtedness or Guarantor Senior Indebtedness or any representative
thereof.

          SECTION 7.03.  Individual Rights of Trustee.
                         ---------------------------- 

          The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee.  However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign.  Any Agent may do the same with
like rights and duties.  The Trustee is also subject to Sections 7.10 and 7.11
hereof.

          SECTION 7.04.  Trustee's Disclaimer.
                         -------------------- 

          The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the 

 
                                     -85-

Company's use of the proceeds from the Notes or any money paid to the Company or
upon the Company's direction under any provision of this Indenture, it shall not
be responsible for the use or application of any money received by any Paying
Agent other than the Trustee, and it shall not be responsible for any statement
or recital herein or any statement in the Notes or any other document in
connection with the sale of the Notes or pursuant to this Indenture other than
its certificate of authentication.

          SECTION 7.05.  Notice of Defaults.
                         ------------------ 

          If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the
Default or Event of Default within 90 days after such Default or Event of
Default becomes known to the Trustee.  Except in the case of a Default or Event
of Default in payment of principal of, premium, if any, or interest on any Note,
the Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of the Holders of the Notes.

          SECTION 7.06.  Reports by Trustee to Holders of the Notes.
                         ------------------------------------------ 

          Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA (S) 313(a) (but if no event described in
TIA (S) 313(a) has occurred within the twelve months preceding the reporting
date, no report need be transmitted).  The Trustee also shall comply with TIA
(S) 313(b)(2).  The Trustee shall also transmit by mail all reports as required
by TIA (S) 313(c).

          A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA (S) 313(d).  The
Company shall promptly notify the Trustee when the Notes are listed on any stock
exchange.

          SECTION 7.07.  Compensation and Indemnity.
                         -------------------------- 

          The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder.  The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust.  The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services.  Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.

 
                                     -86-

          The Company, Holdings and the Guarantors shall, jointly and severally,
indemnify the Trustee and its agents, employees, officers, directors and
shareholders for, and hold the same harmless against, any and all losses,
liabilities or expenses (including, without limitation, reasonable attorneys'
fees and expenses) incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.07) and defending itself against any claim (whether asserted by
the Company or any Holder or any other person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable to its
negligence or bad faith.  The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity.  Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder.  At the
Trustee's sole discretion, the Company shall defend the claim with counsel
reasonably satisfactory to the Trustee, and the Trustee shall cooperate in the
defense at the Company's expense.  The Trustee may have separate counsel and the
Company shall pay the reasonable fees and expenses of such counsel.  The Company
need not pay for any settlement made without its consent, which consent shall
not be unreasonably withheld.

          The obligations of the Company, Holdings and the Guarantors under this
Section 7.07 shall survive the resignation or removal of the Trustee and/or the
satisfaction and discharge or termination of this Indenture.

          To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes.  Such Lien shall survive the resignation or
removal of the Trustee and/or the satisfaction and discharge or termination of
this Indenture.

          When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(h) or (i) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.

          The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to
the extent applicable.

          SECTION 7.08.  Replacement of Trustee.
                         ---------------------- 

          A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.

 
                                     -87-

          The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company.  The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing.  The Company may
remove the Trustee if:

          (a)  the Trustee fails to comply with Section 7.10 hereof;

          (b)  the Trustee is adjudged a bankrupt or an insolvent or an order
     for relief is entered with respect to the Trustee under any Bankruptcy Law;

          (c)  a custodian or public officer takes charge of the Trustee or its
     property; or

          (d)  the Trustee becomes incapable of acting.

          If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee.  Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.

          If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of at least 10% in principal amount of the then outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.

          If the Trustee, after written request by any Holder who has been a
Holder for at least six months, fails to comply with Section 7.10, such Holder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.

          A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company.  Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture.  The successor Trustee shall mail a notice of its
succession to Holders.  The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, provided all sums owing
to the Trustee hereunder have been paid and subject to the Lien provided for in
Section 7.07 hereof.  Notwithstanding replacement of the Trustee pursuant to
this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.

 
          SECTION 7.09.  Successor Trustee by Merger, etc.
                         -------------------------------- 

          If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.

          SECTION 7.10.  Eligibility; Disqualification.
                         ----------------------------- 

          There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100 million
as set forth in its most recent published annual report of condition.

          This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1), (2) and (5).  The Trustee is subject to TIA
(S) 310(b).

          SECTION 7.11.  Preferential Collection of Claims Against Company.
                         -------------------------------------------------

          The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b).  A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.

                                 ARTICLE EIGHT

                   LEGAL DEFEASANCE AND COVENANT DEFEASANCE

          SECTION 8.01.  Option to Effect Legal Defeasance or Covenant 
                         Defeasance.
                         ---------------------------------------------

          The Company may, at the option of its Board of Directors evidenced by
resolutions set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article Eight.

 
                                     -89-

          SECTION 8.02.  Legal Defeasance and Discharge.
                         ------------------------------ 

          Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance").  For this purpose, Legal Defeasance means that the Company shall
be deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder:  (i) the rights of Holders
of outstanding Notes to receive payments in respect of the principal of,
premium, if any, and interest and Liquidated Damages, if any, on such Notes when
such payments are due from the trust referred to below, (ii) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee and the Company's obligations in connection therewith and (iv) the Legal
Defeasance provisions of this Indenture.  Subject to compliance with this
Article Eight, the Company may exercise its option under this Section 8.02
notwithstanding the prior exercise of its option under Section 8.03 hereof.

          SECTION 8.03.  Covenant Defeasance.
                         ------------------- 

          Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.13, 4.15, 4.16, 4.17 and 4.18 hereof with respect to the
outstanding Notes on and after the date the conditions set forth in Section 8.04
are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes).  For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Company may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any ref-

 
                                     -90-

erence in any such covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under Section 6.01 hereof, but, except as specified above, the
remainder of this Indenture and such Notes shall be unaffected thereby. In
addition, upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03 hereof, subject to the satisfaction of the
conditions set forth in Section 8.04 hereof, Sections 6.01(d) through 6.01(g)
hereof shall not constitute Events of Default.

          SECTION 8.04.  Conditions to Legal or Covenant Defeasance.
                         ------------------------------------------ 

          The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:

          (i)    the Company must irrevocably deposit with the Trustee, in
     trust, for the benefit of the Holders of the Notes, cash in U.S. dollars,
     non-callable Government Securities, or a combination thereof, in such
     amounts as will be sufficient, in the opinion of a nationally recognized
     firm of independent public accountants, to pay the principal of, premium,
     if any, and interest and Liquidated Damages, if any, on the outstanding
     Notes on the stated maturity or on the applicable redemption date, as the
     case may be, and the Company must specify whether the Notes are being
     defeased to maturity or to a particular redemption date;

          (ii)   in the case of Legal Defeasance, the Company shall have
     delivered to the Trustee an opinion of counsel in the United States
     reasonably acceptable to the Trustee confirming that (A) the Company has
     received from, or there has been published by, the Internal Revenue Service
     a ruling or (B) since the date of this Indenture, there has been a change
     in the applicable federal income tax law, in either case to the effect
     that, and based thereon such opinion of counsel shall confirm that, the
     Holders of the outstanding Notes will not recognize income, gain or loss
     for federal income tax purposes as a result of such Legal Defeasance and
     will be subject to federal income tax on the same amounts, in the same
     manner and at the same times as would have been the case if such Legal
     Defeasance had not occurred;

          (iii)  in the case of Covenant Defeasance, the Company shall have
     delivered to the Trustee an opinion of counsel in the United States
     reasonably acceptable to the Trustee confirming that the Holders of the
     outstanding Notes will not recognize income, gain or loss for federal
     income tax purposes as a result of such Covenant Defeasance and will be
     subject to federal income tax on the same amounts, in the same manner and
     at the same times as would have been the case if such Covenant Defeasance
     had not occurred;

 
                                     -91-

          (iv)   no Default or Event of Default shall have occurred and be
     continuing on the date of such deposit (other than a Default or Event of
     Default resulting from the borrowing of funds to be applied to such
     deposit) or insofar as Events of Default from bankruptcy or insolvency
     events are concerned, at any time in the period ending on the effective
     date of such defeasance;

          (v)    such Legal Defeasance or Covenant Defeasance will not result in
     a breach or violation of, or constitute a default under any material
     agreement or instrument (other than this Indenture) to which the Company or
     any of its Subsidiaries is a party or by which the Company or any of its
     Subsidiaries is bound;

          (vi)   the Company must have delivered to the Trustee, at or prior to
     the effective date of such defeasance, an opinion of counsel to the effect
     that at the effective date of such defeasance, the trust funds will not be
     subject to the effect of any applicable bankruptcy, insolvency,
     reorganization or similar laws affecting creditors' rights generally;

          (vii)  the Company must deliver to the Trustee an Officers'
     Certificate stating that the deposit was not made by the Company with the
     intent of preferring the Holders of Notes over the other creditors of the
     Company with the intent of defeating, hindering, delaying or defrauding
     creditors of the Company or others; and

          (viii) the Company must deliver to the Trustee an Officers'
     Certificate and an opinion of counsel, each stating that all conditions
     precedent provided for relating to the Legal Defeasance or the Covenant
     Defeasance have been complied with.

          SECTION 8.05.  Deposited Money and Government Securities to Be Held in
                         Trust; Other Miscellaneous Provisions.
                         -------------------------------------------------------

          Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.

          The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities 

 
                                     -92-

deposited pursuant to Section 8.04 hereof or the principal and interest received
in respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of the outstanding Notes.

          Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.

          SECTION 8.06.  Repayment to Company.
                         -------------------- 

          Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in the New York
Times and The Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.

          SECTION 8.07.  Reinstatement.
                         ------------- 

          If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, premium, if any, or interest on any Note following the
reinstatement of its ob-

 
                                     -93-

ligations, the Company shall be subrogated to the rights of the Holders of such
Notes to receive such payment from the money held by the Trustee or Paying
Agent.

                                 ARTICLE NINE

                       AMENDMENT, SUPPLEMENT AND WAIVER

          SECTION 9.01.  Without Consent of Holders of Notes.
                         ----------------------------------- 

          Notwithstanding Section 9.02 of this Indenture, the Company, Holdings,
the Guarantors and the Trustee may amend or supplement this Indenture, the
Guarantees of the Notes or the Notes without the consent of any Holder of a
Note:

          (a)  to cure any ambiguity, defect or inconsistency;

          (b)  to provide for uncertificated Notes in addition to or in place of
     certificated Notes or to alter the provisions of Article Two hereof
     (including the related definitions) in a manner that does not materially
     adversely affect any Holder;

          (c)  to provide for the assumption of the Company's, Holdings' or a
     Guarantor's obligations to the Holders of the Notes by a successor to the
     Company, Holdings or a Guarantor pursuant to Article Five or Article Ten
     hereof;

          (d)  to make any change that would provide any additional rights or
     benefits to the Holders of the Notes or that does not adversely affect the
     legal rights hereunder of any Holder of the Note;

          (e)  to comply with requirements of the SEC in order to effect or
     maintain the qualification of this Indenture under the TIA;

          (f)  to provide for the issuance of Additional Notes in accordance
     with the limitations set forth in this Indenture as of the date hereof; or

          (g)  to allow Holdings and/or any Guarantor to execute a supplemental
     indenture and/or a Guarantee with respect to the Notes.

          Upon the request of the Company accompanied by resolutions of the
Board of Directors of the Company authorizing the execution of any such amended
or supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Company,
Holdings and the Guarantors in the execu-


                                     -94-
 
tion of any amended or supplemental Indenture authorized or permitted by the
terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.

          SECTION 9.02.  With Consent of Holders of Notes.
                         -------------------------------- 

          Except as provided below in this Section 9.02, the Company, Holdings,
the Guarantors and the Trustee may amend or supplement this Indenture (including
Sections 3.09, 4.10 and 4.15 hereof), the Guarantees of the Notes and the Notes
with the consent of the Holders of at least a majority in principal amount of
the Notes (including Additional Notes, if any) then outstanding voting as a
single class (including consents obtained in connection with a tender offer or
exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04
and 6.07 hereof, any existing Default or Event of Default (other than a Default
or Event of Default in the payment of the principal of, premium, if any, or
interest on the Notes, except a payment default resulting from an acceleration
that has been rescinded) or compliance with any provision of this Indenture, the
Guarantees of the Notes or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes
(including Additional Notes, if any) voting as a single class (including
consents obtained in connection with a tender offer or exchange offer for, or
purchase of, the Notes).

          Upon the request of the Company accompanied by resolutions of the
Board of Directors of the Company authorizing the execution of any such amended
or supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 7.02
hereof, the Trustee shall join with the Company in the execution of such amended
or supplemental Indenture unless such amended or supplemental Indenture directly
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.

          It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.

          After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver.  Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the va-

 
                                     -95-

lidity of any such amended or supplemental Indenture or waiver. Subject to
Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal
amount of the Notes (including Additional Notes, if any) then outstanding voting
as a single class may waive compliance in a particular instance by the Company
with any provision of this Indenture or the Notes. However, without the consent
of each Holder affected, an amendment or waiver under this Section 9.02 may not
(with respect to any Notes held by a non-consenting Holder):

          (a)  reduce the principal amount of Notes whose Holders must consent
     to an amendment, supplement or waiver;

          (b)  reduce the principal of or change the fixed maturity of any Note
     or alter or waive any of the provisions with respect to the redemption of
     the Notes except as provided above with respect to Sections 3.09, 4.10 and
     4.15 hereof;

          (c)  reduce the rate of or change the time for payment of interest,
     including default interest, on any Note;

          (d)  waive a Default or Event of Default in the payment of principal
     of or premium, if any, or interest on the Notes (except a rescission of
     acceleration of the Notes by the Holders of at least a majority in
     aggregate principal amount of the then outstanding Notes (including
     Additional Notes, if any) and a waiver of the payment default that resulted
     from such acceleration;

          (e)  make any change in the provisions of this Indenture relating to
     waivers of past Defaults or the rights of Holders of Notes to receive
     payments of principal of or interest on the Notes;

          (f)  make any change in Section 6.04 or 6.07 hereof or in the
     foregoing amendment and waiver provisions;

          (g)  release Holdings and/or any Guarantor from any of its obligations
     under its Guarantee of the Notes or this Indenture, except in accordance
     with the terms of this Indenture;

          (h)  make any Note payable in money other than that stated in the
     Notes; or

          (i)  waive a redemption payment with respect to any Note (other than a
     payment required by Section 4.10 or 4.15 hereof).

 
                                     -96-

          SECTION 9.03.  Compliance with Trust Indenture Act.
                         ----------------------------------- 

          Every amendment or supplement to this Indenture or the Notes shall be
set forth in an amended or supplemental Indenture that complies with the TIA as
then in effect.

          SECTION 9.04.  Revocation and Effect of Consents.
                         --------------------------------- 

          Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note.  However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective.  An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.

          SECTION 9.05.  Notation on or Exchange of Notes.
                         -------------------------------- 

          The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated.  The Company in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.

          Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.

          SECTION 9.06.  Trustee to Sign Amendments, etc.
                         ------------------------------- 

          The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article Nine if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors of the Company approves it.  In executing any amended or
supplemental indenture, the Trustee shall be entitled to receive and (subject to
Section 7.01 hereof) shall be fully protected in relying upon, in addition to
the documents required by Section 11.04 hereof, an Officer's Certificate and an
Opinion of Counsel stating that the execution of such amended or supplemental
indenture is authorized or permitted by this Indenture.

 
                                     -97-

                                  ARTICLE TEN

                                  GUARANTEES

          SECTION 10.01. Guarantee.
                         --------- 

          Subject to this Article Ten, each of Holdings and the Guarantors
hereby, jointly and severally, unconditionally guarantees to each Holder of a
Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of this
Indenture, the Notes or the obligations of the Company hereunder or thereunder,
that:  (a) the principal of and interest on the Notes will be promptly paid in
full when due, whether at maturity, by acceleration, redemption or otherwise,
and interest on the overdue principal of and interest on the Notes, if any, if
lawful, and all other obligations of the Company to the Holders or the Trustee
hereunder or thereunder will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; and (b) in case of any extension
of time of payment or renewal of any Notes or any of such other obligations,
that same will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at stated maturity, by
acceleration or otherwise.  Failing payment when due of any amount so guaranteed
or any performance so guaranteed for whatever reason, Holdings and the
Guarantors shall be jointly and severally obligated to pay the same immediately.
Holdings and each Guarantor agrees that this is a guarantee of payment and not a
guarantee of collection.

          Holdings and the Guarantors hereby agree that their obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any provisions hereof or thereof, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstance which might
otherwise constitute a legal or equitable discharge or defense of a guarantor.
Holdings and each Guarantor hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bankruptcy
of the Company, any right to require a proceeding first against the Company,
protest, notice and all demands whatsoever and covenant that this Guarantee
shall not be discharged except by complete performance of the obligations
contained in the Notes and this Indenture.

          If any Holder or the Trustee is required by any court or otherwise to
return to the Company, Holdings, the Guarantors or any custodian, trustee,
liquidator or other similar official acting in relation to the Company, Holdings
or the Guarantors, any amount paid by either to the Trustee or such Holder, this
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect.

 
                                     -98-

          Holdings and each Guarantor agrees that it shall not be entitled to
any right of subrogation in relation to the Holders in respect of any
obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby.  Holdings and each Guarantor further agrees that, as between
Holdings and the Guarantors, on the one hand, and the Holders and the Trustee,
on the other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article Six hereof for the purposes of this
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and (y) in
the event of any declaration of acceleration of such obligations as provided in
Article Six hereof, such obligations (whether or not due and payable) shall
forthwith become due and payable by Holdings and the Guarantors for the purpose
of this Guarantee.  Holdings and the Guarantors shall have the right to seek
contribution from any non-paying guarantor of the Notes so long as the exercise
of such right does not impair the rights of the Holders under the Guarantee.

          SECTION 10.02. Agreement to Subordinate.
                         ------------------------ 

          Holdings and each Guarantor agrees, and each Holder by accepting a
Guarantee with respect to a Note agrees, that the indebtedness evidenced by such
Guarantee and the payment of the principal of and interest or Liquidated Damages
on the Notes are subordinated in right of payment, to the extent and in the
manner provided in this Indenture, to the prior payment in full in cash of all
Guarantor Senior Indebtedness of such guarantor, which shall include the cash
collateralization in full of all outstanding letters of credit constituting
Guarantor Senior Indebtedness, and that the subordination is for the benefit of
the holders of Guarantor Senior Indebtedness of such guarantor.

          SECTION 10.03. Limitation on Liability of Holdings and Guarantors.
                         --------------------------------------------------

          Holdings and each Guarantor, and by its acceptance of Notes, each
Holder, hereby confirms that it is the intention of all such parties that the
Guarantee of the Notes of Holdings and such Guarantor not constitute a
fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar
federal or state law to the extent applicable to any Guarantee.  To effectuate
the foregoing intention, the Trustee, the Holders, Holdings and the Guarantors
hereby irrevocably agree that the obligations of Holdings and each Guarantor
under its Guarantee and this Article Ten shall be limited to the maximum amount
as will, after giving effect to such maximum amount and all other contingent and
fixed liabilities of Holdings and such Guarantor that are relevant under such
laws, and after giving effect to any collections from, rights to receive
contribution from or payments made by or on behalf of Holdings and any other
Guarantor in respect of the obligations of Holdings and such

 
                                     -99-

other Guarantor under this Article Ten, result in the obligations of Holdings
and such Guarantor under its Guarantee not constituting a fraudulent transfer or
conveyance.

          SECTION 10.04. Liquidation; Dissolution; Bankruptcy.
                         ------------------------------------ 

          Upon any distribution of assets to creditors of Holdings or a
Guarantor in a liquidation, winding up or dissolution of Holdings or a Guarantor
or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to Holdings or a Guarantor or its property:

             (1) holders of Guarantor Senior Indebtedness shall be entitled to
     receive payment in full (including interest accruing after the commencement
     of any such proceeding) to the date of payment on the Guarantor Senior
     Indebtedness before any payment or distribution is made on account of any
     obligations on the Notes or any obligations of Holdings or such Guarantor
     on its Guarantee of the Notes; and

             (2) until the Guarantor Senior Indebtedness is paid in full, any
     distribution to which Holders would be entitled but for the subordination
     provisions of this Article shall be made to holders of Guarantor Senior
     Indebtedness as their interests may appear, except the Holders may receive
     securities that are subordinated to Guarantor Senior Indebtedness to at
     least the same extent as the Notes.

          SECTION 10.05. Holdings and Guarantors Not to Make Payments with
                         Respect to Guarantees in Certain Circumstances.
                         -------------------------------------------------

          No payment of principal of, or premium, if any, or interest may be
made by Holdings or any Guarantor, directly or indirectly, on the Guarantee of
such guarantor or to acquire any of the Notes at any time if a default in
payment of the principal of or premium, if any, or interest on Designated Senior
Indebtedness of such guarantor exists, unless and until such default shall have
been cured or waived or shall have ceased to exist.  During the continuance of
any event of default with respect to any Designated Senior Indebtedness, as such
event of default is defined under any such Designated Senior Indebtedness or in
any agreement pursuant to which any Designated Senior Indebtedness has been
issued (other than default in payment of the principal of, or premium, if any,
or interest on any Designated Senior Indebtedness), permitting the holders
thereof to accelerate the maturity thereof, no payment may be made by Holdings
or any Guarantor, directly or indirectly, with respect to principal of, or
premium, if any, or interest on the Notes or under its Guarantee of the Notes
for 179 days following written notice to Holdings or any Guarantor, from any
holder or holders thereof or their representative or representatives or the
trustee or trustees under any indenture under which any instrument evidencing
any such Designated Senior Indebtedness may have been issued, that such an event
of default has occurred and is 

 
                                     -100-

continuing. However, if the maturity of such Designated Senior Indebtedness is
accelerated, no payment may be made on the Notes or under a Guarantee of the
Notes until such Designated Senior Indebtedness that has matured has been paid
or such acceleration has been cured or waived.

          Regardless of anything to the contrary herein, nothing shall prevent
(a) any payment by the Trustee to the Holders of amounts deposited with it
pursuant to Article Eight or (b) any payment by the Trustee or the Paying Agent
as permitted by Section 10.10. Nothing contained in this Article Ten will limit
the right of the Trustee or the Holders to take any action to accelerate the
maturity of the Notes pursuant to Section 6.02 or to pursue any rights or
remedies hereunder.

          SECTION 10.06. When Distribution Must Be Paid Over.
                         ----------------------------------- 

          In the event that Holdings or a Guarantor shall make any payment to
the Trustee on the Notes or a Guarantee of the Notes at a time when such payment
is prohibited by Section 10.04 or 10.05, such payment shall be held by the
Trustee, in trust for the benefit of, and shall be paid forthwith over and
delivered to, the holders of Guarantor Senior Indebtedness (pro rata as to each
of such holders on the basis of the respective amounts of Guarantor Senior
Indebtedness held by them) or their Representative or the trustee under the
indenture or other agreement (if any) pursuant to which Guarantor Senior
Indebtedness may have been issued, as their respective interests may appear, for
application to the payment of all Guarantor Senior Indebtedness remaining unpaid
to the extent necessary to pay all Guarantor Senior Indebtedness in full in
accordance with its terms, after giving effects to any concurrent payment or
distribution to or for the holders of Guarantor Senior Indebtedness.

          If a distribution is made to Holders that because of this Article Ten
should not have been made to them, the Holders who receive the distribution
shall hold it in trust for holders of Guarantor Senior Indebtedness and pay it
over to them as their interests may appear.

          SECTION 10.07. Subrogation.
                         ----------- 

          After all Guarantor Senior Indebtedness is paid in full and until the
Notes are paid in full, Holders shall be subrogated to the rights of holders of
Guarantor Senior Indebtedness to receive distributions applicable to Guarantor
Senior Indebtedness to the extent that distributions otherwise payable to the
Holders have been applied to the payment of Guarantor Senior Indebtedness.  A
distribution made under this Article to holders of Guarantor Senior Indebtedness
which otherwise would have been made to Holders is not, as 

 
                                     -101-

between Holdings or any Guarantor and Holders, a payment by Holdings or any
Guarantor on Guarantor Senior Indebtedness.

          SECTION 10.08. Subordination May Not Be Impaired by
                         Holdings or Guarantors
                         ------------------------------------

          No right of any holder of Guarantor Senior Indebtedness to enforce the
subordination of the indebtedness evidenced by the Notes and the Guarantees of
the Notes shall be impaired by any act or failure to act by Holdings or any
Guarantor or by its or their failure to comply with this Indenture.

          SECTION 10.09. Distribution or Notice to Representative.
                         ---------------------------------------- 

          Whenever a distribution is to be made or a notice given to holders of
Guarantor Senior Indebtedness, the distribution may be made and the notice given
to their Representatives.

          SECTION 10.10. Rights of Trustee and Paying Agent.
                         ---------------------------------- 

          The Trustee or Paying Agent may continue to make payments on the Notes
and the related Guarantees of the Notes until it receives written notice of
facts that would cause a payment of principal of or interest on the Notes and
the Guarantees of the Notes to violate this Article.  Only Holdings, a
Guarantor, a Representative or a holder of an issue of Guarantor Senior
Indebtedness that has no Representative may give the notice.

          The Trustee shall be entitled to rely on the delivery to it of a
written notice by a person representing himself to be a holder of Guarantor
Senior Indebtedness (or a Representative on behalf of such holder) to establish
that such notice has been given by a holder of Guarantor Senior Indebtedness or
a Representative on behalf of any such holder.  In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any person who is a holder of Guarantor Senior Indebtedness to
participate in any payment or distribution pursuant to this Article, the Trustee
may request such person to furnish evidence to the reasonable satisfaction of
the Trustee as to the amount of Guarantor Senior Indebtedness held by such
person, the extent to which such person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
person under this Article, and if such evidence is not furnished the Trustee may
defer any payment to such person pending judicial determination as to the right
of such person to receive such payment or until such time as the Trustee shall
be otherwise satisfied as to the right of such person to receive such payment.

 
                                     -102-

          The Trustee may hold Guarantor Senior Indebtedness with the same
rights it would have if it were not Trustee.  Any Agent may do the same with
like rights.

          The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Guarantor Senior Indebtedness and shall not be liable to any such
holder if it shall mistakenly pay over or distribute to Holders, Holdings or any
Guarantor or any other person money or assets to which any holders of Guarantor
Senior Indebtedness shall be entitled by virtue of this Article or otherwise.

          SECTION 10.11. Officers' Certificate.
                         --------------------- 

          If there occurs an event referred to in Section 10.04 or 10.05,
Holdings or such Guarantor, as applicable, shall promptly give to the Trustee an
Officers' Certificate (on which the Trustee may conclusively rely) identifying
all holders of Guarantor Senior Indebtedness or their Representatives and the
principal amount of Guarantor Senior Indebtedness then outstanding held by each
such holder and stating the reasons why such Officers' Certificate is being
delivered to the Trustee.

          SECTION 10.12. Obligation of Holdings and Guarantors Unconditional.
                         ---------------------------------------------------

          Nothing contained in this Article Ten or elsewhere in this Indenture,
in any Note or in any Guarantee of a Note is intended to or shall impair, as
between Holdings and the Guarantors, their respective creditors other than
holders of Guarantor Senior Indebtedness and the Holders of the Notes, the
obligation of Holdings and the Guarantors, which is absolute and unconditional,
to pay to the Holders of the Notes the principal of and interest on the Notes as
and when the same shall become due and payable in accordance with the terms of
the Guarantees with respect to the Notes, or is intended to or shall affect the
relative rights of the Holders of the Notes and creditors of Holdings and the
Guarantors other than the holders of the Guarantor Senior Indebtedness, nor
shall anything herein or therein prevent the Trustee or the Holder of any Note
from exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article Ten of
the holders of Guarantor Senior Indebtedness in respect of cash, property or
securities of Holdings and the Guarantors received upon the exercise of any such
remedy. Upon any distribution of assets of Holdings or any Guarantor referred to
in this Article Ten, the Trustee, subject to the provisions of Sections 7.01 and
7.02, and the Holders of the Notes shall be entitled to rely upon any order or
decree by any court of competent jurisdiction in which such dissolution, winding
up, liquidation or reorganization proceedings are pending, or a certificate of
the liquidating trustee or agent or other person making any distribution to the
Trustee or the Holders of the Notes, for the purpose of ascertaining the persons
entitled to participate in such distribution, the holders of the Guar-

 
                                     -103-

antor Senior Indebtedness and other indebtedness of Holdings and the Guarantors,
the amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article Ten. Nothing
contained in this Article Ten or elsewhere in this Indenture, in any Note or in
any Guarantee of any Note is intended to or shall affect the obligation of
Holdings and the Guarantors to make, or prevent Holdings or the Guarantors from
making, at any time except during the pendency of any dissolution, winding up,
liquidation or reorganization proceeding, and except during the continuance of
any default specified in Section 10.05 (not cured or waived), payments at any
time of the principal or of interest on the Notes.

          SECTION 10.13. Article Ten Not To Prevent Events of Default.
                         -------------------------------------------- 

          The failure to make a payment of principal of or interest on the Notes
by reason of any provision of this Article shall not be construed as preventing
the occurrence of an Event of Default under Section 6.01.

          SECTION 10.14. Execution and Delivery of Guarantee.
                         ----------------------------------- 

          To evidence its Guarantee of the Notes set forth in Section 10.01,
Holdings and each Guarantor hereby agrees that a notation of such Guarantee
substantially in the form included in Exhibit E shall be endorsed by an Officer
of Holdings or such Guarantor, as applicable, on each Note authenticated and
delivered by the Trustee and that this Indenture shall be executed on behalf of
Holdings and such Guarantor by its respective President or one of its respective
Vice Presidents.

          Holdings and each Guarantor hereby agrees that its guarantee of the
Notes set forth in Section 10.01 shall remain in full force and effect
notwithstanding any failure to endorse on each Note a notation of such
Guarantee.

          If an Officer whose signature is on this Indenture or on the Guarantee
no longer holds that office at the time the Trustee authenticates the Note on
which a Guarantee is endorsed, the Guarantee shall be valid nevertheless.

          The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantee set forth in
this Indenture on behalf of Holdings and the Guarantors.

          In the event that the Company creates or acquires any new Subsidiaries
subsequent to the date of this Indenture, if required by Section 4.19 hereof,
the Company shall cause such Subsidiaries to execute supplemental indentures to
this Indenture and Guarantees 

 
                                     -104-

of the Notes in accordance with Section 4.19 hereof and this Article Ten, to the
extent applicable.

          SECTION 10.15. Guarantors May Consolidate, Etc., on Certain Terms.
                         --------------------------------------------------

          Except as otherwise provided in Section 10.16, no Guarantor may
consolidate with or merge with or into (whether or not such Guarantor is the
surviving Person) another corporation, Person or entity whether or not
affiliated with such Guarantor unless:

          (a)  subject to Section 10.16 hereof, the Person formed by or
     surviving any such consolidation or merger (if other than such Guarantor)
     assumes all the obligations of such Guarantor pursuant to a supplemental
     indenture in form and substance reasonably satisfactory to the Trustee,
     under the Notes, this Indenture and the Registration Rights Agreement;

          (b)  immediately after giving effect to such transaction, no Default
     or Event of Default exists; and

          (c)  the Company would be permitted by virtue of the Company's pro
     forma Fixed Charge Coverage Ratio, immediately after giving effect to such
     transaction, to incur at least $1.00 of additional Indebtedness pursuant to
     the Fixed Charge Coverage Ratio test set forth in the first paragraph of
     Section 4.09 hereof.

          In case of any such consolidation, merger, sale or conveyance and upon
the assumption by the successor Person, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to the Trustee, of the
Guarantee endorsed upon the Notes and the due and punctual performance of all of
the covenants and conditions of this Indenture to be performed by the Guarantor,
such successor Person shall succeed to and be substituted for the Guarantor with
the same effect as if it had been named herein as a Guarantor.  Such successor
Person thereupon may cause to be signed any or all of the Guarantees to be
endorsed upon all of the Notes issuable hereunder which theretofore shall not
have been signed by the Company and delivered to the Trustee.  All the
Guarantees so issued shall in all respects have the same legal rank and benefit
under this Indenture as the Guarantees theretofore and thereafter issued in
accordance with the terms of this Indenture as though all of such Guarantees had
been issued at the date of the execution hereof.

          Except as set forth in Articles Four and Five hereof, and
notwithstanding clause (a) above, nothing contained in this Indenture or in any
of the Notes shall prevent any consolidation or merger of a Guarantor with or
into the Company or another Guaran-

 
                                     -105-

tor, or shall prevent any sale or conveyance of the property of a Guarantor as
an entirety or substantially as an entirety to the Company or another Guarantor.

          SECTION 10.16. Releases Following Sale of Assets.
                         --------------------------------- 

          In the event of (a) a sale or other disposition of all of the assets
of any Guarantor, by way of merger, consolidation or otherwise, (b) a sale or
other disposition of all of the capital stock of any Guarantor or (c) the
designation of a Guarantor as an Unrestricted Subsidiary in accordance with the
terms of this Indenture, then such Guarantor (in the event of a sale or other
disposition, by way of such a merger, consolidation or otherwise, of all of the
capital stock of such Guarantor) or the corporation acquiring the property (in
the event of a sale or other disposition of all of the assets of such Guarantor)
will be released and relieved of any obligations under its Guarantee; provided
that the Net Proceeds of any such sale or other disposition are applied in
accordance with the applicable provisions of this Indenture and any such
designation of a Guarantor as an Unrestricted Subsidiary complies with all
applicable covenants.  Upon delivery by the Company to the Trustee of an
Officers' Certificate and an Opinion of Counsel to the effect that such sale or
other disposition was made by the Company in accordance with the applicable
provisions of this Indenture, including without limitation Section 4.10 hereof,
the Trustee shall execute any documents reasonably required in order to evidence
the release of any Guarantor from its obligations under its Guarantee.

          Any Guarantor not released from its obligations under its Guarantee
shall remain liable for the full amount of principal of and interest on the
Notes and for the other obligations of any Guarantor under this Indenture as
provided in this Article Ten.

                                ARTICLE ELEVEN

                                 SUBORDINATION

          SECTION 11.01. Agreement to Subordinate.
                         ------------------------ 

          The Company agrees, and each Holder by accepting a Note agrees, that
the indebtedness evidenced by the Notes and the payment of the principal of and
interest or Liquidated Damages on the Notes are subordinated in right of
payment, to the extent and in the manner provided in this Article Eleven, to the
prior payment in full in cash of all Senior Indebtedness, which shall include
the cash collateralization in full of all outstanding letters of credit
constituting Senior Indebtedness, and that the subordination is for the benefit
of the holders of Senior Indebtedness.

 
                                     -106-

          Money and securities held in trust pursuant to Article Eight are not
subject to the subordination provisions of this Article Eleven.

          SECTION 11.02. Liquidation; Dissolution; Bankruptcy.
                         ------------------------------------ 

          Upon any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or securities
(excluding any payment or distribution of Permitted Junior Securities), to
creditors of the Company upon any total liquidation, reorganization, winding-up
or dissolution of the Company, whether voluntary or involuntary, or in a
bankruptcy, insolvency, receivership or other proceedings relating to the
Company or its property:

             (1) holders of Senior Indebtedness shall be entitled to receive
     payment in full in cash of the principal of and interest (including
     interest accruing after the commencement of any such proceeding) to the
     date of payment on the Senior Indebtedness before the Holders of the Notes
     or the Trustee on behalf of such Holders shall be entitled to receive any
     payment of principal of or interest or Liquidated Damages on the Notes, or
     any payment by the Company to acquire any of the Notes for cash, property
     or securities, or any distribution by the Company with respect to the Notes
     of any cash, property or securities (excluding any payment or distribution
     of Permitted Junior Securities); and

             (2) until the Senior Indebtedness is paid in full (as provided in
     clause (1) above), any distribution to which Holders would be entitled but
     for this Article Eleven shall be made to holders of Senior Indebtedness as
     their interests may appear, except the Holders may receive securities that
     are subordinated to Senior Indebtedness to at least the same extent as the
     Notes.

          SECTION 11.03. Company Not to Make Payments with Respect to 
                         Notes in Certain Circumstances.
                         --------------------------------------------

          No payment (excluding any payment or distribution of Permitted Junior
Securities but including the establishment of a Defeasance Trust) of principal
of, or premium, if any, or interest or Liquidated Damages, or for or on account
of the purchase, redemption or other acquisition of the Notes by or on behalf of
the Company, whether pursuant to the terms of the Notes, upon acceleration,
pursuant to a Change of Control Offer, an Asset Sale Offer or otherwise, shall
be made (including, without limitation, by set-off) by the Company, directly or
indirectly, on the Notes or to acquire any of the Notes at any time if, at the
time of such payment, a default in payment of all or any portion of the
principal of or premium, if any, or interest or Liquidated Damages on Designated
Senior Indebtedness exists, whether at maturity, on account of mandatory
redemption or prepayment, acceleration 

 
                                     -107-

or otherwise, unless and until such default shall have been cured or waived or
shall have ceased to exist. During the continuance of any non-payment event of
default with respect to any Designated Senior Indebtedness, as such event of
default is defined under any such Designated Senior Indebtedness or in any
agreement pursuant to which any Designated Senior Indebtedness has been issued
(other than default in payment of the principal of, or premium, if any, or
interest on any Designated Senior Indebtedness), permitting the holders thereof
to immediately accelerate the maturity thereof, and upon receipt by the Trustee
of written notice (a "Payment Blockage Notice") from the holder or holders of
such Designated Senior Indebtedness or the trustee or agent acting on behalf of
the holders of such Designated Senior Indebtedness, then, unless and until such
event of default has been cured or waived or has ceased to exist or such
Designated Senior Indebtedness has been discharged or repaid in full in cash or
the benefits of these provisions have been waived by the holders of such
Designated Senior Indebtedness, no payment (excluding any payment or
distribution of Permitted Junior Securities but including the establishment of a
Defeasance Trust) shall be made (including, without limitation, by set-off) by
or on behalf of the Company, directly or indirectly, with respect to principal
of, or premium, if any, or interest or Liquidated Damages on the Notes for a
period (a "Payment Blockage Period") of 179 days following written notice to the
Company, from any holder or holders thereof or their representative or
representatives or the trustee or trustees under any indenture under which any
instrument evidencing any such Designated Senior Indebtedness may have been
issued, that such an event of default has occurred and is continuing. No event
of default that existed or was continuing on the date of commencement of any
Payment Blockage Period with respect to the Designated Senior Indebtedness
initiating such Payment Blockage Period (to the extent the holder of Designated
Senior Indebtedness, or trustee or agent, giving notice commencing such Payment
Blockage Period had knowledge of such existing or continuing event of default)
may be, or be made, the basis for the commencement of any other Payment Blockage
Period by the holder or holders of such Designated Senior Indebtedness or the
trustee or agent acting on behalf of such Designated Senior Indebtedness whether
or not within a period of 360 consecutive days, unless such event of default has
been cured or waived for a period of not less than 90 consecutive days. However,
if the maturity of such Senior Indebtedness is accelerated, no payment may be
made on the Notes until such Senior Indebtedness that has matured has been paid
or such acceleration has been cured or waived.

          Regardless of anything to the contrary herein, nothing shall prevent
(a) any payment by the Trustee to the Holders of amounts deposited with it
pursuant to Article Eight or (b) any payment by the Trustee or the Paying Agent
as permitted by Section 11.11. Nothing contained in this Article Eleven will
limit the right of the Trustee or the Holders to take any action to accelerate
the maturity of the Notes pursuant to Section 6.02 or to pursue any rights or
remedies hereunder.

 
                                     -108-

          SECTION 11.04. Acceleration of Notes.
                         --------------------- 

          If payment of the Notes is accelerated because of an Event of Default,
the Company shall promptly notify holders of Senior Indebtedness of the
acceleration.

          SECTION 11.05. When Distribution Must Be Paid Over.
                         ----------------------------------- 

          In the event that the Company shall make any payment or distribution
of assets of the Company of any kind, whether in cash, property or securities,
including, without limitation, by way of set-off or otherwise, to the Trustee or
any Holder of the principal of or interest on the Notes at a time when such
payment or distribution is prohibited by Section 11.02 or 11.03, such payment
shall be held by the recipient, in trust for the benefit of, and shall be paid
forthwith over and delivered to, the holders of Senior Indebtedness (pro rata as
to each of such holders on the basis of the respective amounts of Senior
Indebtedness held by them) or their Representative or representatives or the
trustee under the indenture or other agreement (if any) pursuant to which Senior
Indebtedness may have been issued, as their respective interests may appear, for
application to the payment of all Senior Indebtedness remaining unpaid to the
extent necessary to pay all Senior Indebtedness in full in cash in accordance
with its terms, after giving effects to any concurrent payment or distribution,
or provision therefor, to or for the holders of Senior Indebtedness.

          If a distribution is made to Holders that because of this Article
Eleven should not have been made to them, the Holders who receive the
distribution shall hold it in trust for holders of Senior Indebtedness and pay
it over to them as their interests may appear.

          SECTION 11.06. Notice by Company.
                         ----------------- 

          The Company shall promptly notify the Trustee and the Paying Agent in
writing of any facts known to the Company that would cause a payment of
principal of or interest on Notes to violate this Article, but failure to give
such notice shall not affect the subordination of the Notes to the Senior
Indebtedness provided in this Article.

          SECTION 11.07. Subrogation.
                         ----------- 

          After all Senior Indebtedness is paid in full and until the Notes are
paid in full, Holders shall be subrogated to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of Senior Indebtedness.  A distribution made under this Article to
holders of Senior Indebtedness which otherwise would have been made to Holders
is not, as between the Company and Holders, a payment by the Company on Senior
Indebtedness.

 
                                     -109-

          SECTION 11.08. Relative Rights.
                         --------------- 

          This Article defines the relative rights of Holders and holders of
Senior Indebtedness.  Nothing in this Indenture shall:

             (1) impair, as between the Company and Holders, the obligation of
     the Company, which is absolute and unconditional, to pay principal of and
     interest on the Notes in accordance with their terms;

             (2) affect the relative rights of Holders and creditors of the
     Company other than holders of Senior Indebtedness; or

             (3) prevent the Trustee or any Holder from exercising its available
     remedies upon a Default or Event of Default, subject to the rights of
     holders of Senior Indebtedness to receive distributions otherwise payable
     to Holders.

          If the Company fails because of this Article to pay or make a
distribution of principal of or interest on a Note on the due date, the failure
is still a Default or Event of Default.

          SECTION 11.09. Subordination May Not Be Impaired by Company.
                         --------------------------------------------

          No right of any holder of Senior Indebtedness to enforce the
subordination of the indebtedness evidenced by the Notes shall be impaired by
any act or failure to act by the Company or by its failure to comply with this
Indenture.

          SECTION 11.10. Distribution or Notice to Representative.
                         ---------------------------------------- 

          Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness, the distribution may be made and the notice given to their
Representatives.

          SECTION 11.11. Rights of Trustee and Paying Agent.
                         ---------------------------------- 

          The Trustee or Paying Agent may continue to make payments on the Notes
until it receives written notice of facts that would cause a payment of
principal of or interest on the Notes to violate this Article.  Only the
Company, a Representative or a holder of an issue of Senior Indebtedness that
has no Representative may give the notice.

          The Trustee shall be entitled to rely on the delivery to it of a
written notice by a person representing himself to be a holder of Senior
Indebtedness (or a Representative on behalf of such holder) to establish that
such notice has been given by a holder of Senior 

 
                                     -110-

Indebtedness or a Representative on behalf of any such holder. In the event that
the Trustee determines in good faith that further evidence is required with
respect to the right of any person who is a holder of Senior Indebtedness to
participate in any payment or distribution pursuant to this Article, the Trustee
may request such person to furnish evidence to the reasonable satisfaction of
the Trustee as to the amount of Senior Indebtedness held by such person, the
extent to which such person is entitled to participate in such payment or
distribution and any other facts pertinent to the rights of such person under
this Article, and if such evidence is not furnished the Trustee may defer any
payment to such person pending judicial determination as to the right of such
person to receive such payment or until such time as the Trustee shall be
otherwise satisfied as to the right of such person to receive such payment.

          The Trustee may hold Senior Indebtedness with the same rights it would
have if it were not Trustee.  Any Agent may do the same with like rights.

          The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be liable to any such holder if it
shall mistakenly pay over or distribute to Holders or the Company or any other
person money or assets to which any holders of Senior Indebtedness shall be
entitled by virtue of this Article or otherwise.

          SECTION 11.12. Officers' Certificate.
                         --------------------- 

          If there occurs an event referred to in Section 11.02 or 11.03, the
Company shall promptly give to the Trustee an Officers' Certificate (on which
the Trustee may conclusively rely) identifying all holders of Senior
Indebtedness or their Representatives and the principal amount of Senior
Indebtedness then outstanding held by each such holder and stating the reasons
why such Officers' Certificate is being delivered to the Trustee.

          SECTION 11.13. Obligation of Company Unconditional.
                         ----------------------------------- 

          Nothing contained in this Article Eleven or elsewhere in this
Indenture or in any Note is intended to or shall impair, as between the Company,
its creditors other than holders of Senior Indebtedness and the Holders of the
Notes, the obligation of the Company, which is absolute and unconditional, to
pay to the Holders of the Notes the principal of and interest on the Notes as
and when the same shall become due and payable in accordance with their terms,
or is intended to or shall affect the relative rights of the Holders of the
Notes and creditors of the Company other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent the Trustee or the
Holder of any Note from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article Eleven of the holders of Senior Indebtedness in respect of
cash, property or securities of the Company received upon the exercise 

 
                                     -111-

of any such remedy. Upon any distribution of assets of the Company referred to
in this Article Eleven, the Trustee, subject to the provisions of Sections 7.01
and 7.02, and the Holders of the Notes shall be entitled to rely upon any order
or decree by any court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending, or a
certificate of the liquidating trustee or agent or other person making any
distribution to the Trustee or the Holders of the Notes, for the purpose of
ascertaining the persons entitled to participate in such distribution, the
holders of the Senior Indebtedness and other indebtedness of the Company, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article Eleven. Nothing
contained in this Article Eleven or elsewhere in this Indenture or in any Note
is intended to or shall affect the obligation of the Company to make, or prevent
the Company from making, at any time except during the pendency of any
dissolution, winding up, liquidation or reorganization proceeding, and except
during the continuance of any default specified in Section 11.03 (not cured or
waived), payments at any time of the principal or of interest on the Notes.

          SECTION 11.14. Article Eleven Not To Prevent Events of Default.
                         ----------------------------------------------- 

          The failure to make any payment or distribution of principal of or
interest on the Notes by reason of any provision of this Article shall not be
construed as preventing the occurrence of an Event of Default under Section
6.01.

          SECTION 11.15. Trustee's Compensation Not Prejudiced.
                         ------------------------------------- 

          Nothing in this Article Eleven shall apply to amounts due to the
Trustee pursuant to other sections of this Indenture.

                                ARTICLE TWELVE

                                 MISCELLANEOUS

          SECTION 12.01. Trust Indenture Act Controls.
                         ---------------------------- 

          If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA (S) 318(c), the imposed duties shall control.

          SECTION 12.02. Notices.
                         ------- 

          Any notice or communication by the Company, Holdings, any Guarantor or
the Trustee to the others is duly given if in writing and delivered in Person or
mailed by 

 
                                     -112-

first class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address

          If to the Company, Holdings and/or any Guarantor:


          AEI Resources, Inc.
          1500 North Big Run Road
          Ashland, Kentucky  41102
          Telecopier No.:  (606) 928-0450
          Attention:  Treasurer/Controller

          With a copy to:


          Brown, Todd & Heyburn, PLLC
          2700 Lexington Financial Center
          Lexington, Kentucky  40507-1749
          Telecopier No.:  (606) 231-0011
          Attention:  Paul Sullivan, Esq.

          If to the Trustee:


          State Street Bank and Trust Company
          Goodwin Square
          225 Asylum Street, 23rd Floor
          Hartford, Connecticut  06103
          Telecopier No.:  (860) 244-1889
          Attention: Corporate Trust Administration

          The Company, Holdings, any Guarantor or the Trustee, by notice to the
others may designate additional or different addresses for subsequent notices or
communications.

          All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.

          Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing 

 
                                     -113-

next day delivery to its address shown on the register kept by the Registrar.
Any notice or communication shall also be so mailed to any Person described in
TIA (S) 313(c), to the extent required by the TIA. Failure to mail a notice or
communication to a Holder or any defect in it shall not affect its sufficiency
with respect to other Holders.

          If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.

          If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.

          SECTION 12.03. Communication by Holders of Notes with Other 
                         Holders of Notes.
                         --------------------------------------------

          Holders may communicate pursuant to TIA (S) 312(b) with other Holders
with respect to their rights under this Indenture or the Notes.  The Company,
the Trustee, the Registrar and anyone else shall have the protection of TIA (S)
312(c).

          SECTION 12.04. Certificate and Opinion as to Conditions Precedent.
                         --------------------------------------------------

          Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:

          (a)  an Officers' Certificate in form and substance reasonably
     satisfactory to the Trustee (which shall include the statements set forth
     in Section 12.12 hereof) stating that, in the opinion of the signers, all
     conditions precedent and covenants, if any, provided for in this Indenture
     relating to the proposed action have been satisfied; and

          (b)  an Opinion of Counsel in form and substance reasonably
     satisfactory to the Trustee (which shall include the statements set forth
     in Section 12.05 hereof) stating that, in the opinion of such counsel, all
     such conditions precedent and covenants have been satisfied.

          SECTION 12.05. Statements Required in Certificate or Opinion.
                         --------------------------------------------- 

          Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA
(S) 314(e) and shall include:

 
                                     -114-

          (a)  a statement that the Person making such certificate or opinion
     has read such covenant or condition;

          (b)  a brief statement as to the nature and scope of the examination
     or investigation upon which the statements or opinions contained in such
     certificate or opinion are based;

          (c)  a statement that, in the opinion of such Person, he or she has
     made such examination or investigation as is necessary to enable him to
     express an informed opinion as to whether or not such covenant or condition
     has been satisfied; and

          (d)  a statement as to whether or not, in the opinion of such Person,
     such condition or covenant has been satisfied.

          SECTION 12.06. Rules by Trustee and Agents.
                         --------------------------- 

          The Trustee may make reasonable rules for action by or at a meeting of
Holders.  The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.

          SECTION 12.07. No Personal Liability of Directors, Officers, 
                         Employees and Stockholders.
                         ---------------------------------------------

          No past, present or future director, officer, employee, incorporator
or stockholder of the Company, Holdings or any Guarantor, as such, shall have
any liability for any obligations of the Company, Holdings or such Guarantor
under the Notes, the Guarantees of the Notes, this Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability.  The
waiver and release are part of the consideration for issuance of the Notes.

          SECTION 12.08. Governing Law.
                         ------------- 

          THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE GUARANTEES WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

 
                                     -115-

          SECTION 12.09.  No Adverse Interpretation of Other Agreements.
                          --------------------------------------------- 

          This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.

          SECTION 12.10.  Successors.
                          ---------- 

          All agreements of the Company in this Indenture and the Notes shall
bind its successors.  All agreements of the Trustee in this Indenture shall bind
its successors.

          SECTION 12.11.  Severability.
                          ------------ 

          In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

          SECTION 12.12.  Counterpart Originals.
                          --------------------- 

          The parties may sign any number of copies of this Indenture.  Each
signed copy shall be an original, but all of them together represent the same
agreement.

          SECTION 12.13.  Table of Contents, Headings, etc.
                          -------------------------------- 

          The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.

                         [SIGNATURES ON FOLLOWING PAGE]

 
                                  SIGNATURES
     

     Dated as of December 14, 1998

                                            AEI RESOURCES, INC.

                                            By: /s/ John E. Baum
                                                ________________________

                                                Name: John E. Baum
                                                Title:

 
                                        Confirmed and agreed to as Guarantors:

                                        17 WEST MINING, INC.,
                                        ACECO, INC.,
                                        ADDINGTON MINING, INC.,
                                        AEI COAL SALES COMPANY, INC.,
                                        AEI HOLDING COMPANY, INC.
                                        AEI RESOURCES HOLDING, INC.,
                                        AMERICOAL DEVELOPMENT COMPANY,
                                        APPALACHIAN REALTY COMPANY,
                                        AYRSHIRE LAND COMPANY,
                                        BELLAIRE TRUCKING COMPANY,
                                        BLUEGRASS COAL DEVELOPMENT COMPANY,
                                        BOWIE RESOURCES LIMITED
                                        CC COAL COMPANY,
                                        COAL VENTURES HOLDING COMPANY, INC.,
                                        EAST KENTUCKY ENERGY CORPORATION,
                                        EMPLOYEE BENEFITS MANAGEMENT, INC.,
                                        ENCOAL CORPORATION,
                                        ENERZ CORPORATION,       
                                        EVERGREEN MINING COMPANY,
                                        FAIRVIEW LAND COMPANY,
                                        FRANKLIN COAL SALES COMPANY,
                                        GRASSY COVE COAL MINING COMPANY,
                                        HERITAGE MINING COMPANY,
                                        HIGHLAND COAL, INC.,
                                        IKERD-BANDY CO., INC.,
                                        KERMIT COAL COMPANY,
                                        LESLIE RESOURCES, INC.,
                                        LESLIE RESOURCES MANAGEMENT, INC.,
                                        MEADOWLARK, INC.,
                                        MEGA MINERALS, INC.,
                                        MIDWEST COAL SALES COMPANY,
                                        MID-VOL LEASING, INC.
                                        MINING TECHNOLOGIES, INC.,
                                        MOUNTAIN-CLAY, INCORPORATED (d/b/a
                                           Mountain Clay, Inc.),
                                        PHOENIX LAND COMPANY,
                                        PREMIUM PROCESSING, INC.,
                                        PREMIUM COAL DEVELOPMENT COMPANY,
                                        PRO-LAND, INC. (d/b/a Kem Coal Company)

 
                                        R. & F. COAL COMPANY,
                                        RIVER COAL COMPANY, INC.,
                                        ROARING CREEK COAL COMPANY,
                                        SHIPYARD RIVER COAL TERMINAL COMPANY,
                                        STRAIGHT CREEK COAL RESOURCES COMPANY,
                                        TENNESSEE MINING, INC.,
                                        TURRIS COAL COMPANY,
                                        WYOMING COAL TECHNOLOGY, INC.,
                                        ZEIGLER COAL HOLDING COMPANY,
                                        ZEIGLER ENVIRONMENTAL SERVICES COMPANY,
                                           
                                        ZENERGY, INC.,
                                           each as Guarantor

                                        By: /s/ John E. Baum
                                            ________________________________

                                            Name: John E. Baum
                                            Title:

 
                                        BEECH COAL COMPANY,
                                        CANNELTON, INC.,
                                        CANNELTON INDUSTRIES, INC.,
                                        CANNELTON LAND COMPANY,
                                        CANNELTON SALES COMPANY,
                                        DUNN COAL & DOCK COMPANY,
                                        HAYMAN HOLDINGS, INC.,
                                        KANAWHA CORPORATION,
                                        KINDILL HOLDING, INC.,
                                        KINDILL MINING, INC.,
                                        MIDWEST COAL COMPANY ,
                                        MOUNTAINEER COAL DEVELOPMENT COMPANY,
                                        MOUNTAIN COALS CORPORATION,
                                        OLD BEN COAL COMPANY,
                                        WEST VIRGINIA-INDIANA COAL HOLDING
                                          COMPANY, INC.,
                                          each as Guarantor

                                        By: /s/ William H. Haselhoff
                                            _______________________________
                                            Name: William H. Haselhoff
                                            Title:

 
                                        BENTLEY COAL COMPANY,
                                        SKYLINE COAL COMPANY,
                                        KENTUCKY PRINCE MINING COMPANY,
                                          each as Guarantor

                                        By:  GRASSY COVE COAL MINING COMPANY,
                                             ROARING CREEK COAL COMPANY,
                                             each as General Partner of each of
                                             the entities listed above

                                        By: /s/ John E. Baum
                                            _________________________________
                                            Name: John E. Baum
                                            Title:

 
                                        NUCOAL, LLC,
                                          as Guarantor

                                        By:  AMERICOAL DEVELOPMENT COMPANY
                                             ENCOAL CORPORATION
                                              each as Member

                                        By: /s/ John E. Baum
                                            _________________________________
                                            Name: John E. Baum
                                            Title:

 
                                        STATE STREET BANK AND TRUST 
                                            COMPANY, as Trustee

                                        By:  /s/ Susan T. Keller
                                             _________________________________
                                             Name: Susan T. Keller
                                             Title: Vice President

 
                                  EXHIBIT A-1
                                 (FACE OF NOTE)

===============================================================================

          (a)  CUSIP/CINS ________________

          11 1/2% Series A Senior Subordinated Notes due 2006

No. ____                                                    $__________________

AEI RESOURCES, INC.

promises to pay to_____________________________________________________________

or registered assigns,

  the principal sum of_________________________________________________________

Dollars on December 15, 2006.

Interest Payment Dates:  June 15 and December 15

Record Dates:  June 1 and December 15

                                             Dated:        ,

                                             AEI RESOURCES, INC.

                                             By:_______________________________
                                                Name:
                                                Title:

                                             By:_______________________________
                                                Name:
                                                Title:

                                     A-1-1

 
This is one of the Global
Notes referred to in the
within-mentioned Indenture:

STATE STREET BANK AND TRUST COMPANY,
as Trustee

By:____________________________

================================================================================

                                     A-1-2

 
                                 (BACK OF NOTE)

                   11 1/2% SENIOR SUBORDINATED NOTES DUE 2006

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH BELOW.  BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN
AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(2) AGREES THAT IT WILL NOT PRIOR TO THE DATE THAT IS TWO YEARS AFTER THE LATER
OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS NOTE RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO AN ISSUER OR ANY SUBSIDIARY THEREOF, (B) TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES
ACT, (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a)(1),
(2), (3), OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR") THAT,
PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S.
BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS
AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM
OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS NOTE), (D) OUTSIDE THE
UNITED STATES IN AN OFFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE
144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND (3) AGREES THAT IT WILL
GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND.  IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN
TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE, IF THE PROPOSED TRANSFEREE
IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.  AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE

                                     A-1-3

 
THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.

THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF AEI RESOURCES, INC.

          Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.

          1.   Interest. AEI Resources, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at 11
1/2% per annum from December 15, 1998 until maturity and shall pay the
Liquidated Damages payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company will pay interest and Liquidated
Damages semi-annually on June 15 and December 15 of each year, or if any such
day is not a Business Day, on the next succeeding Business Day (each an
"Interest Payment Date"). Interest on the Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
date of issuance; provided that if there is no existing Default in the payment
of interest, and if this Note is authenticated between a record date referred to
on the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be June 15, 1999. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.

          2.   Method of Payment. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the June 1 or December 1
next preceding the Interest Payment Date, even if such Notes are canceled after
such record date and on or before 

                                     A-1-4

 
such Interest Payment Date, except as provided in Section 2.12 of the Indenture
with respect to defaulted interest. The Notes will be payable as to principal,
premium and Liquidated Damages, if any, and interest at the office or agency of
the Company maintained for such purpose within or without the City and State of
New York, or, at the option of the Company, payment of interest and Liquidated
Damages may be made by check mailed to the Holders at their addresses set forth
in the register of Holders, and provided that payment by wire transfer of
immediately available funds will be required with respect to principal of and
interest, premium and Liquidated Damages on, all Global Notes and all other
Notes the Holders of which shall have provided wire transfer instructions to the
Company or the Paying Agent. Such payment shall be in such coin or currency of
the United States of America as at the time of payment is legal tender f or
payment of public and private debts; provided that Liquidated Damages may be
paid through the issuance of additional Notes having a value at the time of
issuance equal to the amount of Liquidated Damages so paid.

          3. Paying Agent and Registrar. Initially, State Street Bank and Trust
Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.

         4. Indenture . The Company issued the Notes under an Indenture dated as
of December 14, 1998 ("Indenture") among the Company, the guarantors named
therein and the Trustee. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb). The Notes
are subject to all such terms, and Holders are referred to the Indenture and
such Act for a statement of such terms. To the extent any provision of this Note
conflicts with the express provisions of the Indenture, the provisions of the
Indenture shall govern and be controlling. The Notes are obligations of the
Company limited to $225.0 million in aggregate principal amount, of which $150.0
million was issued on the date of the Indenture, plus amounts, if any, issued to
pay Liquidated Damages on outstanding Notes as set forth in Paragraph 2 hereof.
After the date of the Indenture, Additional Notes may be issued from time to
time subject to the limitations set forth in Section 4.09 of the Indenture.

          5.   Subordination.  The Notes are subordinated in right of payment,
in the manner and to the extent set forth in the Indenture, to the prior payment
in full in cash of all Senior Indebtedness of the Company, whether outstanding
on the date of the Indenture or thereafter created, incurred, assumed or
guaranteed.  The Guarantees in respect of the Notes will be subordinated in
right of payment, in the manner and to the extent set forth in the Indenture, to
the prior payment in full in cash of all Guarantor Senior Indebtedness of each
Guarantor, whether outstanding on the date of the Indenture or thereafter
created, incurred, assumed or guaranteed.  Each Holder by its acceptance hereof
agrees to be bound 

                                     A-1-5

 
by such provisions and authorizes and expressly directs the Trustee, on its
behalf, to take such action as may be necessary or appropriate to effectuate the
subordination provided for in the Indenture and appoints the Trustee its
attorney-in-fact for such purposes.

          6.   Optional Redemption.

          (a) The Notes will be subject to redemption at any time at the option
of the Company, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on each December 15 of the years indicated below:


                    YEAR                         PERCENTAGE
                    -----                        ----------
                    2002  ..................      105.750%
                    2003  ..................      103.833%
                    2004  ..................      101.917%
                    2005 and thereafter.....      100.000%

In addition, prior to December 15, 2002, the Notes will be redeemable at a price
equal to 100% of the principal amount thereof plus an applicable Make Whole
Premium, plus, to the extent not included in the Make Whole Premium, accrued and
unpaid interest and Liquidated Damages, if any, to the date of redemption.

          For purposes of the foregoing, the "Make Whole Premium" means, with
respect to a Note, an amount equal to the greater of (A) the redemption price of
such Note on December 15, 2002 and (B) the excess of, if any, (1) the present
value of the remaining interest, premium, if any, and principal payments due on
such Note as if such Note were redeemed on December 15, 2002, computed using a
discount rate equal to the Treasury Rate plus 100 basis points, over (2) the
outstanding principal amount of such Note.

          "Treasury Rate" means the yield to maturity at the time of computation
of United States Treasury securities with a constant maturity (as compiled by,
and published in, the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the date
fixed for redemption of the Notes (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the then remaining Weighted Average Life to Maturity of the Notes;
provided, however, that if the Weighted Average Life to Maturity of the Notes is
not equal to the constant maturity of a United States Treasury security for
which a weekly average yield is given, the Treasury Rate shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such yields
are given, except that if Weighted 

                                     A-1-6

 
Average Life to Maturity of the Notes is less than one year, the weekly average
yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.

          (b)  Notwithstanding the provisions of subparagraph (a) of this
Paragraph 6, at any time on or before December 15, 2001, the Company may on any
one or more occasions redeem up to 35% of the aggregate principal amount of
Notes ever issued under the Indenture at a redemption price equal to 111 1/2% of
the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the net cash proceeds of
an initial public offering of common stock of the Company or Holdings (to the
extent that the net proceeds therefrom are contributed to the Company as common
equity capital); provided that at least 65% of the aggregate principal amount of
Notes issued on the date of the Indenture remains outstanding immediately after
the occurrence of such redemption (excluding Notes held by Holdings or the
Company and their Subsidiaries) and provided, further, that such redemption
shall occur within 45 days of the date of the closing of such initial public
offering.

          7.   Mandatory Redemption.

          Except as set forth in paragraph 8 below, the Company shall not be
required to make mandatory redemption payments with respect to the Notes.

          8.   Repurchase at Option of Holder.

          (a)  If there is a Change of Control, each Holder of the Notes will
have the right to require the Company to make an offer (a "Change of Control
Offer") to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of each Holder's Notes at a purchase price equal to  101% of the
aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of purchase (the "Change of
Control Payment").  Within 10 days following any Change of Control, the Company
shall mail a notice to each Holder setting forth the procedures governing the
Change of Control Offer as required by the Indenture.

          (b)  If the Company or a Subsidiary consummates any Asset Sales,
within five days of each date on which the aggregate amount of Excess Proceeds
exceeds $2.0 million, the Company shall commence an offer to all Holders of
Notes (as "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to
purchase the maximum principal amount of Notes (including any Additional Notes)
that may be purchased out of the Excess Proceeds at an offer price in cash in an
amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date fixed for the
closing of such offer in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate amount of Notes (including any
Additional Notes) tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, the Company (or such

                                     A-1-7

 
Subsidiary) may use such deficiency for general corporate purposes. If the
aggregate principal amount of Notes surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on
a pro rata basis. Holders of Notes that are the subject of an offer to purchase
will receive an Asset Sale Offer from the Company prior to any related purchase
date and may elect to have such Notes purchased by completing the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes.

          9.   Notice of Redemption.  Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address.  Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed.  On and after the redemption date interest ceases to accrue on Notes
or portions thereof called for redemption.

          10.  Denominations, Transfer, Exchange.  The Notes are in registered
form in denominations of $1,000 and integral multiples of $1,000.  The transfer
of Notes may be registered and Notes may be exchanged as provided in the
Indenture.  The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture.  The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part.  Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.

          11.  Persons Deemed Owners.  The registered Holder of a Note may be
treated as its owner for all purposes.

          12.  Amendment, Supplement and Waiver.  Subject to certain exceptions,
the Indenture, the Guarantees of the Notes or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the then outstanding Notes and Additional Notes, if any, voting as a
single class and any existing default or compliance with any provision of the
Indenture, the Guarantees of the Notes or the Notes may be waived with the
consent of the Holders of a majority in principal amount of the then outstanding
Notes and Additional Notes, if any, voting as a single class.  Without the
consent of any Holder of a Note, the Indenture, the Guarantees of the Notes or
the Notes may be amended or supplemented to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's, Holdings' or
a Guarantor's obligations to Holders of the Notes in case of a merger or
consolidation, to make any change that would provide any 

                                     A-1-8

 
additional rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, to
comply with the requirements of the Commission in order to effect or maintain
the qualification of the Indenture under the Trust Indenture Act, to provide for
the issuance of Additional Notes in accordance with the limitations set forth in
the Indenture or to allow Holdings and/or any Guarantor to execute a
supplemental indenture to the Indenture and/or a Guarantee with respect to the
Notes.

          13.  Defaults and Remedies.  Each of the following constitutes an
"Event of Default": (a) default for 30 days in the payment when due of interest
on, or Liquidated Damages, if any, with respect to, the Notes; (b) default in
payment when due of the principal of or premium, if any, on the Notes; (c)
failure by the Company or any of its Subsidiaries to make the offer required or
to purchase any of the Notes as required under the provisions described in
Section 4.10 or Section 4.15 of the Indenture; (d) failure by the Company or any
of its Subsidiaries for 30 days after notice to comply with the provisions of
the covenants in Section 4.07 or Section 4.0 of the Indenture or failure by the
Company or any of its Subsidiaries for 60 days after notice to comply with any
of its other agreements in the Indenture or the Notes; (e) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default (i) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (ii) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $25.0 million or more; (f) failure by
the Company or any of its Restricted Subsidiaries or any group of Restricted
Subsidiaries that, taken as a whole, would be a Significant Subsidiary to pay
final judgments aggregating in excess of $25.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days; (g) except as permitted by
the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding
to be unenforceable or invalid or shall cease for any reason to be in full force
and effect or any Guarantor, or any Person acting on behalf of any Guarantor,
shall deny or disaffirm its obligations under its Subsidiary Guarantee; and (h)
certain events of bankruptcy or insolvency.

          If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable.  Notwithstanding the foregoing, in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Notes will become due and payable without further
action or notice.  Holders may not enforce the Indenture or the Notes except as
provided in the Indenture.  Subject to certain limitations, Holders of a

                                     A-1-9

 
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.  The
Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.  The Company is required to deliver
to the Trustee annually a statement regarding compliance with the Indenture, and
the Company is required upon becoming aware of any Default or Event of Default,
to deliver to the Trustee a statement specifying such Default or Event of
Default.

          14.  Trustee Dealings with Company.  The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or their Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.

          15.  No Recourse Against Others.  A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obligations of the Company under the Notes or the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation.  Each Holder by accepting a Note waives and releases all such
liability.  The waiver and release are part of the consideration for the
issuance of the Notes.

          16.  Authentication.  This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.

          17.  Abbreviations.  Customary abbreviations may be used in the name
of a Holder or an assignee, such as:  TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).

          18.  Additional Rights of Holders of Restricted Global Notes and
Restricted Definitive Notes.  In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of December 14, 1998, among the Company, Holdings, the
Guarantors and the Initial Purchaser (the "Registration Rights Agreement").

          19.  CUSIP Numbers.  Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company have caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in no-

                                    A-1-10

 
tices of redemption as a convenience to Holders.  No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.

          The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:

          AEI Resources, Inc.
          1500 North Big Run Road
          Ashland, Kentucky  41102
          Attention: Chief Financial Officer

                                    A-1-11

 
                                ASSIGNMENT FORM

To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to

______________________________________________________________________________
                 (Insert assignee's soc. sec. or tax I.D. no.)

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________
(Print or type assignee's name, address and zip code)

and irrevocably appoint_______________________________________________________

to transfer this Note on the books of the Company.  The agent may substitute
another to act for him.

Date:  ____________
                              Your Signature:______________
                              (Sign exactly as your name appears on the face of
                              this Note)

Signature Guarantee:____________________________________________

                                    A-1-12

 
                      OPTION OF HOLDER TO ELECT PURCHASE

          If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the applicable box
below:

          [_] Section 4.10     [_] Section 4.15

          If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:  $________

Date: _____________      Your Signature:_________________________________

                         (Sign exactly as your name appears on the Note)

                         Tax Identification No:__________________________

Signature Guarantee:_________________________________

                                    A-1-13

 
             SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE

          The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note, have
been made:



                                                                   Principal Amount       Signature of 
                     Amount of decrease     Amount of increase    of this Global Note      authorized  
                             in              in Principal           following such         officer of  
                     Prinncipal Amount         Amount of             decrease (or          Trustee or 
Date of Exchange     of this Global Note    this Global Note           increase)          Note Custodian 
- ----------------     -------------------    ----------------      -------------------     --------------
                                                                               


                                    A-1-14

 
                                 [EXHIBIT A-2]
                 (FACE OF REGULATION S TEMPORARY GLOBAL NOTE)

================================================================================


                                                         CUSIP/CINS ___________
              11 1/2% Series A Senior Subordinated Notes due 2006

No.                                                             $____________

AEI RESOURCES, INC.

promises to pay to ___________________________________________________

or registered assigns,

the principal sum of _________________________________________________

Dollars on December 15, 2006.

Interest Payment Dates:  June 15 and December 15

Record Dates:  June 1 and December 1


                                             Dated:          ,

                                             AEI RESOURCES, INC.

                                             By:_______________________________
                                               Name:
                                               Title:

                                             By:_______________________________
                                               Name:
                                               Title:

                                     A-2-1

 
This is one of the Global
Notes referred to in the
within-mentioned Indenture:

STATE STREET BANK AND TRUST COMPANY,
as Trustee

By:____________________________

================================================================================

                                     A-2-2

 
                 (BACK OF REGULATION S TEMPORARY GLOBAL NOTE)

              11 1/2% SERIES A SENIOR SUBORDINATED NOTES DUE 2006

THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN).  NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.  UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH BELOW.  BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN
AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(2) AGREES THAT IT WILL NOT PRIOR TO THE DATE THAT IS TWO YEARS AFTER THE LATER
OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS NOTE RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO AN ISSUER OR ANY SUB-

                                     A-2-3

 
SIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE
144A UNDER THE SECURITIES ACT, (C) TO AN      INSTITUTIONAL ACCREDITED INVESTOR
(AS DEFINED IN RULE 501(a)(1), (2), (3), OR (7) UNDER THE SECURITIES ACT) (AN
"ACCREDITED INVESTOR") THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED
ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER
OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS
NOTE), (D) OUTSIDE THE UNITED STATES IN AN OFFFSHORE TRANSACTION IN COMPLIANCE
WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR
(F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED
A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THIS NOTE WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE,
IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO
SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES
ACT.

          Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.

          1.   Interest.  AEI Resources, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at 11
1/2% per annum from December 15, 1998 until maturity and shall pay the
Liquidated Damages payable pursuant to Section 5 of the Registration Rights
Agreement referred to below.  The Company will pay interest and Liquidated
Damages semi-annually on June 15 and December 15 of each year, or if any such
day is not a Business Day, on the next succeeding Business Day (each an
"Interest Payment Date").  Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of issuance; provided that if there is no existing Default in the
payment of interest, and if this Note is authenticated between a record date
referred to on the face hereof and the next succeeding In-

                                     A-2-4

 
terest Payment Date, interest shall accrue from such next succeeding Interest
Payment Date; provided, further, that the first Interest Payment Date shall be
June 15, 1999. The Company shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue principal and premium, if
any, from time to time on demand at a rate that is 1% per annum in excess of the
rate then in effect; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace periods) from time to
time on demand at the same rate to the extent lawful. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.

          Until this Regulation S Temporary Global Note is exchanged for one or
more Regulation S Permanent Global Notes, the Holder hereof shall not be
entitled to receive payments of interest hereon; until so exchanged in full,
this Regulation S Temporary Global Note shall in all other respects be entitled
to the same benefits as other Senior Subordinated Notes under the Indenture.

          2.  Method of Payment. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the June 1 or December 1
next preceding the Interest Payment Date, even if such Notes are canceled after
such record date and on or before such Interest Payment Date, except as provided
in Section 2.12 of the Indenture with respect to defaulted interest. The Notes
will be payable as to principal, premium and Liquidated Damages, if any, and
interest at the office or agency of the Company maintained for such purpose
within or without the City and State of New York, or, at the option of the
Company, payment of interest and Liquidated Damages may be made by check mailed
to the Holders at their addresses set forth in the register of Holders, and
provided that payment by wire transfer of immediately available funds will be
required with respect to principal of and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the Company or the Paying Agent. Such
payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts;
provided that Liquidated Damages may be paid through the issuance of additional
Notes having a value at the time of issuance equal to the amount of Liquidated
Damages so paid.

          3.  Paying Agent and Registrar. Initially, State Street Bank and Trust
Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.

          4.  Indenture.  The Company issued the Notes under an Indenture dated
as of December 14, 1998 ("Indenture") among the Company, the guarantors named
therein and the Trustee. The terms of the Notes include those stated in the
Indenture and those 

                                     A-2-5

 
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code (S)(S) 77aaa-77bbbb). The Notes are subject to all such
terms, and Holders are referred to the Indenture and such Act for a statement of
such terms. To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the Indenture shall govern and be
controlling. The Notes are obligations of the Company limited to $225.0 million
in aggregate principal amount, of which $150.0 million was issued on the date of
the Indenture, plus amounts, if any, issued to pay Liquidated Damages on
outstanding Notes as set forth in Paragraph 2 hereof. After the date of the
Indenture, Additional Notes may be issued from time to time subject to the
limitations set forth in Section 4.09 of the Indenture.

          5.  Subordination.  The Notes are subordinated in right of payment, in
the manner and to the extent set forth in the Indenture, to the prior payment in
full in cash of all Senior Indebtedness of the Company, whether outstanding on
the date of the Indenture or thereafter created, incurred, assumed or
guaranteed. The Guarantees in respect of the Notes will be subordinated in right
of payment, in the manner and to the extent set forth in the Indenture, to the
prior payment in full in cash of all Guarantor Senior Indebtedness of each
Guarantor, whether outstanding on the date of the Indenture or thereafter
created, incurred, assumed or guaranteed. Each Holder by its acceptance hereof
agrees to be bound by such provisions and authorizes and expressly directs the
Trustee, on its behalf, to take such action as may be necessary or appropriate
to effectuate the subordination provided for in the Indenture and appoints the
Trustee its attorney-in-fact for such purposes.

          6.  Optional Redemption.

          (a) The Notes will be subject to redemption at any time at the option
of the Company, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on each December 15 of the years indicated below:


                   YEAR                       PERCENTAGE
                   ----                       ----------
                   2002...............        105.750%
                   2003...............        103.833%
                   2004...............        101.917%
                   2005 and thereafter ...... 100.000%


In addition, prior to December 15, 2002, the Notes will be redeemable at a price
equal to 100% of the principal amount thereof plus an applicable Make Whole
Premium, plus, to the 

                                     A-2-6

 
extent not included in the Make Whole Premium, accrued and unpaid interest and
Liquidated Damages, if any, to the date of redemption.

          For purposes of the foregoing, the "Make Whole Premium" means, with
respect to a Note, an amount equal to the greater of (A) the redemption price of
such Note on December 15, 2002 and (B) the excess of, if any, (1) the present
value of the remaining interest, premium, if any, and principal payments due on
such Note as if such Note were redeemed on December 15, 2002, computed using a
discount rate equal to the Treasury Rate plus 100 basis points, over (2) the
outstanding principal amount of such Note.

          "Treasury Rate" means the yield to maturity at the time of computation
of United States Treasury securities with a constant maturity (as compiled by,
and published in, the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the date
fixed for redemption of the Notes (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the then remaining Weighted Average Life to Maturity of the Notes;
provided, however, that if the Weighted Average Life to Maturity of the Notes is
not equal to the constant maturity of a United States Treasury security for
which a weekly average yield is given, the Treasury Rate shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such yields
are given, except that if Weighted Average Life to Maturity of the Notes is less
than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.

          (b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 6, at any time on or before December 15, 2001, the Company may on any
one or more occasions redeem up to 35% of the aggregate principal amount of
Notes ever issued under the Indenture at a redemption price equal to 111 1/2% of
the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the net cash proceeds of
an initial public offering of common stock of the Company or Holdings (to the
extent that the net proceeds therefrom are contributed to the Company as common
equity capital); provided that at least 65% of the aggregate principal amount of
Notes issued on the date of the Indenture remains outstanding immediately after
the occurrence of such redemption (excluding Notes held by Holdings or the
Company and their Subsidiaries) and provided, further, that such redemption
shall occur within 45 days of the date of the closing of such initial public
offering.

          7.   Mandatory Redemption.

          Except as set forth in paragraph 8 below, the Company shall not be
required to make mandatory redemption payments with respect to the Notes.

                                     A-2-7

 
          8.   Repurchase at Option of Holder.

          (a)  If there is a Change of Control, each Holder of the Notes will
have the right to require the Company to make an offer (a "Change of Control
Offer") to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of each Holder's Notes at a purchase price equal to  101% of the
aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of purchase (the "Change of
Control Payment").  Within 10 days following any Change of Control, the Company
shall mail a notice to each Holder setting forth the procedures governing the
Change of Control Offer as required by the Indenture.

          (b)  If the Company or a Subsidiary consummates any Asset Sales,
within five days of each date on which the aggregate amount of Excess Proceeds
exceeds $2.0 million, the Company shall commence an offer to all Holders of
Notes (as "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to
purchase the maximum principal amount of Notes (including any Additional Notes)
that may be purchased out of the Excess Proceeds at an offer price in cash in an
amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date fixed for the
closing of such offer in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate amount of Notes (including any
Additional Notes) tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, the Company (or such Subsidiary) may use such deficiency for
general corporate purposes. If the aggregate principal amount of Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Holders of
Notes that are the subject of an offer to purchase will receive an Asset Sale
Offer from the Company prior to any related purchase date and may elect to have
such Notes purchased by completing the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Notes.

          9.   Notice of Redemption.  Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address.  Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed.  On and after the redemption date interest ceases to accrue on Notes
or portions thereof called for redemption.

          10.  Denominations, Transfer, Exchange.  The Notes are in registered
form in denominations of $1,000 and integral multiples of $1,000.  The transfer
of Notes may be registered and Notes may be exchanged as provided in the
Indenture.  The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture.  The Company need not exchange or 

                                     A-2-8

 
register the transfer of any Note or portion of a Note selected for redemption,
except for the unredeemed portion of any Note being redeemed in part. Also, the
Company need not exchange or register the transfer of any Notes for a period of
15 days before a selection of Notes to be redeemed or during the period between
a record date and the corresponding Interest Payment

          This Regulation S Temporary Global Note is exchangeable in whole or in
part for one or more Global Notes only (i) on or after the termination of the
40-day restricted period (as defined in Regulation S) and (ii) upon presentation
of certificates (accompanied by an Opinion of Counsel, if applicable) required
by Article 2 of the Indenture.  Upon exchange of this Regulation S Temporary
Global Note for one or more Global Notes, the Trustee shall cancel this
Regulation S Temporary Global Note.

          11.  Persons Deemed Owners.  The registered Holder of a Note may be
treated as its owner for all purposes.

          12.  Amendment, Supplement and Waiver.  Subject to certain exceptions,
the Indenture, the Guarantees of the Notes or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the then outstanding Notes and Additional Notes, if any, voting as a
single class and any existing default or compliance with any provision of the
Indenture, the Guarantees of the Notes or the Notes may be waived with the
consent of the Holders of a majority in principal amount of the then outstanding
Notes and Additional Notes, if any, voting as a single class.  Without the
consent of any Holder of a Note, the Indenture, the Guarantees of the Notes or
the Notes may be amended or supplemented to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's, Holdings' or
a Guarantor's obligations to Holders of the Notes in case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, or to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act, to provide for the issuance of
Additional Notes in accordance with the limitations set forth in the Indenture
or to allow Holdings and/or any Guarantor to execute a supplemental indenture to
the Indenture and/or a Guarantee with respect to the Notes.

          13.  Defaults and Remedies.  Each of the following constitutes an
"Event of Default": (a) default for 30 days in the payment when due of interest
on, or Liquidated Damages, if any, with respect to, the Notes; (b) default in
payment when due of the principal of or premium, if any, on the Notes; (c)
failure by the Company or any of its Subsidiaries to make the offer required or
to purchase any of the Notes as required under the provisions described in
Section 4.10 or Section 4.15 of the Indenture; (d) failure by the Company or any
of its Subsidiaries for 30 days after notice to comply with the provisions of
the 

                                     A-2-9

 
covenants in Section 4.07 or Section 4.09 of the Indenture or failure by the
Company or any of its Subsidiaries for 60 days after notice to comply with any
of its other agreements in the Indenture or the Notes; (e) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of this
Indenture, which default (i) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (ii) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $25.0 million or more; (f) failure by
the Company or any of its Restricted Subsidiaries or any group of Restricted
Subsidiaries that, taken as a whole, would be a Significant Subsidiary to pay
final judgments aggregating in excess of $25.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days; (g) except as permitted by
the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding
to be unenforceable or invalid or shall cease for any reason to be in full force
and effect or any Guarantor, or any Person acting on behalf of any Guarantor,
shall deny or disaffirm its obligations under its Subsidiary Guarantee; and (h)
certain events of bankruptcy or insolvency.

          If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable.  Notwithstanding the foregoing, in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Notes will become due and payable without further
action or notice.  Holders may not enforce the Indenture or the Notes except as
provided in the Indenture.  Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.  The
Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.  The Company is required to deliver
to the Trustee annually a statement regarding compliance with the Indenture, and
the Company is required upon becoming aware of any Default or Event of Default,
to deliver to the Trustee a statement specifying such Default or Event of
Default.

                                    A-2-10

 
          14.  Trustee Dealings with Company.  The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.

          15.  No Recourse Against Others.  A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obligations of the Company under the Notes or the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation.  Each Holder by accepting a Note waives and releases all such
liability.  The waiver and release are part of the consideration for the
issuance of the Notes.

          16.  Authentication.  This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.

          17.  Abbreviations.  Customary abbreviations may be used in the name
of a Holder or an assignee, such as:  TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).

          18.  Additional Rights of Holders of Restricted Global Notes and
Restricted Definitive Notes.  In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of December 14, 1998, between the Company, Holdings, the
Guarantors and the Initial Purchaser (the "Registration Rights Agreement").

          19.  CUSIP Numbers.  Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company have caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders.  No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.

          The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:

          AEI Resources, Inc.
          1500 North Big Run Road
          Ashland, Kentucky  41102
          Attention: Chief Financial Officer

                                    A-2-11

 
                                ASSIGNMENT FORM

To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to


________________________________________________________________________________
                 (Insert assignee's soc. sec. or tax I.D. no.)

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________
             (Print or type assignee's name, address and zip code)

and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company.  The agent may substitute
another to act for him.

Date: _________
                              Your Signature:___________________________________
                              (Sign exactly as your name appears on the face of
                              this Note)

Signature Guarantee___________________________________________

                                    A-2-12

 
                      OPTION OF HOLDER TO ELECT PURCHASE

          If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the applicable box
below:

          [_] Section 4.10     [_] Section 4.15

          If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased: $________

________________________________________________________________________________

Date:________                  Your Signature:________________________________

                               (Sign exactly as your name appears on the Note)

                               Tax Identification No:_________________________

Signature Guarantee_________________________________________

                                    A-2-13

 
             SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE

          The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note, have
been made:



                                                               Principal Amount    Signature of 
                   Amount of decrease   Amount of increase   of this Global Note    authorized     
                           in              in Principal         following such      officer of     
                    Principal Amount         Amount of           decrease (or       Trustee or     
Date of Exchange   of this Global Note   this Global Note         increase)       Note Custodian   
- ----------------   -------------------  ------------------   -------------------  --------------   
                                                                         


                                    A-2-14

 
                                   EXHIBIT B

                        FORM OF CERTIFICATE OF TRANSFER

AEI Resources, Inc.
1500 North Big Run Road
Ashland, Kentucky  41102

State Street Bank and Trust Company
Goodwin Square
225 Asylum Street
Hartford, Connecticut  06103


          Re:  AEI Resources, Inc.
               11 1/2% Senior Subordinated Notes Due 2006
               ------------------------------------------

          Reference is hereby made to the Indenture, dated as of December 14,
1998 (the "Indenture"), among AEI Resources, Inc. (the "Company"), the
guarantors named therein and State Street Bank and Trust Company, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.

          ______________ (the "Transferor") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
to  __________ (the "Transferee"), as further specified in Annex A hereto.  In
connection with the Transfer, the Transferor hereby certifies that:

[CHECK ALL THAT APPLY]

1.  [_]   CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A.  The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States.  Upon consummation of the proposed Transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or

                                      B-1

 
Definitive Note will be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the 144A Global Note and/or the
Definitive Note and in the Indenture and the Securities Act.

2.  [_]   CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
          ----------------------------------------------------------------------
TEMPORARY REGULATION S GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A DEFINITIVE
- --------------------------------------------------------------------------------
NOTE PURSUANT TO REGULATION S.  The Transfer is being effected pursuant to and
- -----------------------------                                                 
in accordance with Rule 903 or Rule 904 under the Securities Act and,
accordingly, the Transferor hereby further certifies that (i) the Transfer is
not being made to a person in the United States and (x) at the time the buy
order was originated, the Transferee was outside the United States or such
Transferor and any Person acting on its behalf reasonably believed and believes
that the Transferee was outside the United States or (y) the transaction was
executed in, on or through the facilities of a designated offshore securities
market and neither such Transferor nor any Person acting on its behalf knows
that the transaction was prearranged with a buyer in the United States, (ii) no
directed selling efforts have been made in contravention of the requirements of
Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act and, (iii)
the transaction is not part of a plan or scheme to evade the registration
requirements of the Securities Act.

3.  [_]   CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
          -------------------------------------------------------------------
INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION
- ------------------------------------------------------------------------------
OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S.  The Transfer is
- ----------------------------------------------------------                  
being effected in compliance with the transfer restrictions applicable to
beneficial interests in Restricted Global Notes and Restricted Definitive Notes
and pursuant to and in accordance with the Securities Act and any applicable
blue sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):

          (a)  [_]  such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;

                                      or

          (b)  [_]  such Transfer is being effected to the Company or a
subsidiary thereof;

                                      or

          (c)  [_]  such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with the
prospectus delivery requirements of the Securities Act;

                                      B-2

 
                                      or

          (d)  [_]  such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904,
and the Transferor hereby further certifies that it has not engaged in any
general solicitation within the meaning of Regulation D under the Securities Act
and the Transfer complies with the transfer restrictions applicable to
beneficial interests in a Restricted Global Note or Restricted Definitive Notes
and the requirements of the exemption claimed, which certification is supported
by (1) a certificate executed by the Transferee in the form of Exhibit D to the
Indenture and (2) if such Transfer is in respect of a principal amount of Notes
at the time of transfer of less than $250,000, an Opinion of Counsel provided by
the Transferor or the Transferee (a copy of which the Transferor has attached to
this certification), to the effect that such Transfer is in compliance with the
Securities Act. Upon consummation of the proposed transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Definitive
Note will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the IAI Global Note and/or the Definitive Notes and
in the Indenture and the Securities Act.

4.  [_]   Check if Transferee will take delivery of a beneficial interest in an
Unrestricted Global Note or of an Unrestricted Definitive Note.

          (a)  [_]  CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer
is being effected pursuant to and in accordance with Rule 144 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.

          (b)  [_]  CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
state of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will no longer be subject to the
restrictions on transfer enu-

                                      B-3

 
merated in the Private Placement Legend printed on the Restricted Global Notes,
on Restricted Definitive Notes and in the Indenture.

          (c)  [_]  CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION.  (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule
903 or Rule 904 and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act.  Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will not be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes or Restricted Definitive Notes and in the Indenture.

          This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.

                                          ______________________________________
                                          [Insert Name of Transferor]  


                                          By:___________________________________
                                             Name:
                                             Title:
Dated:____,__

                                      B-4

 
                      ANNEX A TO CERTIFICATE OF TRANSFER

1.   The Transferor owns and proposes to transfer the following:

                            CHECK ONE OF (a) OR (b)

          (a)  [_]  a beneficial interest in the:

               (i)  [_]  144A Global Note (CUSIP _________), or

               (ii) [_]  Regulation S Global Note (CUSIP _________), or

               (iii)[_]  IAI Global Note (CUSIP ________); or

          (b)  [_]  a Restricted Definitive Note.

2.   After the Transfer the Transferee will hold:

                                   CHECK ONE

               (a)  [_]  a beneficial interest in the:

                    (i)  [_]  144A Global Note (CUSIP ________), or

                    (ii) [_]  Regulation S Global Note (CUSIP ________), or

                    (iii)[_]  IAI Global Note (CUSIP ________); or

                    (iv) [_]  Unrestricted Global Note (CUSIP ________); or

               (b)  [_]  a Restricted Definitive Note; or

               (c)  [_]  an Unrestricted Definitive Note,

          in accordance with the terms of the Indenture.

                                      B-5

 
                                   EXHIBIT C
                        FORM OF CERTIFICATE OF EXCHANGE

AEI Resources, Inc.
1500 North Big Run Road
Ashland, Kentucky  41102

State Street Bank and Trust Company
Goodwin Square
225 Asylum Street
Hartford, Connecticut  06103


          Re:  AEI Resources, Inc.
               11 1/2% Senior Subordinated Notes due 2006

                             (CUSIP______________)

          Reference is hereby made to the Indenture, dated as of December 14,
1998 (the "Indenture"), among AEI Resources, Inc. (the "Company"), the
guarantors named therein and State Street Bank and Trust Company, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.

          ____________ (the "Owner") owns and proposes to exchange the Note[s]
or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "Exchange").  In connection with
the Exchange, the Owner hereby certifies that:

1.   EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A
RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN AN UNRESTRICTED GLOBAL NOTE

          (a)  [_] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
                   -------------------------------------------------------------
GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE.  In
- -----------------------------------------------------------------     
connection with the Exchange of the Owner's beneficial interest in a Restricted
Global Note for a beneficial interest in an Unrestricted Global Note in an equal
principal amount, the Owner hereby certifies (i) the beneficial interest is
being acquired for the Owner's own account without transfer, (ii) such Exchange
has been effected in compliance with the transfer restrictions applicable to the
Global Notes and pursuant to and in accordance with the United States Securities
Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
beneficial interest in an

                                      C-1

 
Unrestricted Global Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.

          (b)  [_] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
                   -------------------------------------------------------------
GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE.  In connection with the Exchange of
- -------------------------------------------                                     
the Owner's beneficial interest in a Restricted Global Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the Definitive Note is being
acquired for the Owner's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the Securities
Act, (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act and (iv) the Definitive Note is being acquired in compliance
with any applicable blue sky securities laws of any state of the United States.

          (c)  [_] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
                   -------------------------------------------------------
BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the
- --------------------------------------------------
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.

          (d)  [_] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
                   -------------------------------------------------------
UNRESTRICTED DEFINITIVE NOTE.  In connection with the Owner's Exchange of a
- ----------------------------                                               
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.

2.   EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN RESTRICTED GLOBAL NOTES

          (a)  [_] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
                   -------------------------------------------------------------
GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE.  In connection with the Exchange of
- -----------------------------------------                                     

                                      C-2

 
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer.  Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued will continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.

          (b)  [_] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
                   -------------------------------------------------------
BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange
- -----------------------------------------------
of the Owner's Restricted Definitive Note for a beneficial interest in the
[CHECK ONE] 144A Global Note, Regulation S Global Note, IAI Global Note with an
equal principal amount, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer and (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, and in compliance with any applicable blue sky securities
laws of any state of the United States. Upon consummation of the proposed
Exchange in accordance with the terms of the Indenture, the beneficial interest
issued will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the relevant Restricted Global Note and in the
Indenture and the Securities Act.

                                      C-3

 
          This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.

 
                                             ___________________________________
                                             [Insert Name of Owner]

                                             By:________________________________
                                                Name:
                                                Title:

Dated: ________________, ____

                                      C-4

 
                                   EXHIBIT D

                           FORM OF CERTIFICATE FROM
                  ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR

AEI Resources, Inc.
1500 North Big Run Road
Ashland, Kentucky  41102

State Street Bank and Trust Company
Goodwin Square
225 Asylum Street
Hartford, Connecticut  06103

          Re:  AEI Resources, Inc.
               11 1/2% Senior Subordinated Notes due 2006

          Reference is hereby made to the Indenture, dated as of December 14,
1998 (the "Indenture"), among AEI Resources, Inc. (the "Company"), the
guarantors named therein and State Street Bank and Trust Company, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.

          In connection with our proposed purchase of $____________ aggregate
principal amount of:

          (a)  [_]  a beneficial interest in a Global Note, or

          (b)  [_]  a Definitive Note,

we confirm that:

          1.   We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").

          2.   We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes and any interest therein
may not be offered or sold except as permitted in the following sentence.  We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell the Notes or any interest therein,
we will do so only (A) to the Company or any subsidiary thereof, (B) in
accordance with Rule 144A under the Securities Act to a

                                      D-1

 
"qualified institutional buyer" (as defined therein), (c) to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to you and to the
Company a signed letter substantially in the form of this letter and an Opinion
of Counsel in form reasonably acceptable to the Company to the effect that such
transfer is in compliance with the Securities Act, (D) outside the United States
in accordance with Rule 904 of Regulation S under the Securities Act, (E)
pursuant to the provisions of Rule 144(k) under the Securities Act or (F)
pursuant to an effective registration statement under the Securities Act, and we
further agree to provide to any person purchasing the Definitive Note or
beneficial interest in a Global Note from us in a transaction meeting the
requirements of clauses (A) through (E) of this paragraph a notice advising such
purchaser that resales thereof are restricted as stated herein.

          3.   We understand that, on any proposed resale of the Notes or
beneficial interest therein, we will be required to furnish to you and the
Company such certifications, legal opinions and other information as you and the
Company may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions.  We further understand that the Notes purchased by
us will bear a legend to the foregoing effect.

          4.   We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.

          5.   We are acquiring the Notes or beneficial interest therein
purchased by us for our own account or for one or more accounts (each of which
is an institutional "accredited investor") as to each of which we exercise sole
investment discretion.

          You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
 
                                                  ______________________________
                                                  [Insert Name of Owner]


                                                  By:___________________________
                                                     Name:
                                                     Title:

Dated: ________________, ____

                                      D-2

 
                                   EXHIBIT E
               FORM OF NOTATION OF SENIOR SUBORDINATED GUARANTEE

                                   GUARANTEE
                  11 1/2% Senior Subordinated Notes due 2006
                            of AEI REsources, Inc.

     For value received, each guarantor (which term includes any successor
Person under the Indenture) has, jointly and severally, unconditionally
guaranteed, on a senior ubordinated basis, to the extent set forth in the
Indenture and subject to the provisions in the Indenture dated as of December
14, 1998 (the "Indenture") among AEI Resources, Inc., AEI Resources Holding,
Inc. ("Holdings"), the guarantors listed on the signature pages thereto and
State Street Bank and Trust ompany, as trustee (the "Trustee"), (a) the due and
punctual payment of the principal of, premium, if any, and interest on the Notes
(as defined in the Indenture), whether at maturity, by acceleration, redemption
or otherwise, the due and punctual payment of interest on overdue principal and
premium, and, to the extent permitted by law, interest, and the due and punctual
performance of all other obligations of the Company to the Holders or the
Trustee all in accordance with the terms of the Indenture and (b) in case of any
extension of time of payment or renewal of any Notes or any of such other
obligations, that the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. The obligations of Holdings and each
Guarantor to the Holders and to the Trustee pursuant to the Guarantee of the
Notes and the Indenture are expressly subordinated and subject in right of
payment to the prior payment in full of all Guarantor Senior Indebtedness of
such guarantor, to the extent and in the manner provided in Article Ten of the
Indenture and reference is hereby made to the Indenture for the precise terms of
the Guarantee. Each Holder of a Note, by accepting the same, (a) agrees to and
shall be bound by such provisions, (b) authorizes and directs the Trustee, on
behalf of such Holder, to take such action as may be necessary or appropriate to
effectuate the subordination as provided in the Indenture and (c) appoints the
Trustee attorney-in-fact of such Holder for such purpose; provided, however,
that the Indebtedness evidenced by this Guarantee shall cease to be so
subordinated and subject in right of payment upon any defeasance of this Note in
accordance with the provisions of the Indenture.

                                      E-1

 
                                        Confirmed and agreed to as Guarantors:
                                        17 WEST MINING, INC., 
                                        ACECO, INC.,
                                        ADDINGTON MINING, INC., 
                                        AEI COAL SALES COMPANY, INC.,
                                        AEI HOLDING COMPANY, INC.
                                        AEI RESOURCES HOLDING, INC.,
                                        AMERICOAL DEVELOPMENT COMPANY,
                                        APPALACHIAN REALTY COMPANY, 
                                        AYRSHIRE LAND COMPANY,
                                        BELLAIRE TRUCKING COMPANY, 
                                        BLUEGRASS COAL DEVELOPMENT
                                        COMPANY, 
                                        BOWIE RESOURCES LIMITED 
                                        CC COAL COMPANY, 
                                        COAL VENTURES HOLDING
                                         COMPANY, INC., 
                                        EAST KENTUCKY ENERGY CORPORATION, 
                                        EMPLOYEE BENEFITS MANAGEMENT, INC., 
                                        ENCOAL CORPORATION,
                                        ENERZ CORPORATION, 
                                        EVERGREEN MINING COMPANY, 
                                        FAIRVIEW LAND COMPANY,
                                        FRANKLIN COAL SALES COMPANY, 
                                        GRASSY COVE COAL MINING COMPANY, 
                                        HERITAGE MINING COMPANY, 
                                        HIGHLAND COAL, INC.,
                                        IKERD-BANDY CO., INC., 
                                        KERMIT COAL COMPANY, 
                                        LESLIE RESOURCES, INC.,
                                        LESLIE RESOURCES MANAGEMENT, INC.,
                                        MEADOWLARK, INC., 
                                        MEGA MINERALS, INC.,
                                        MIDWEST COAL SALES COMPANY, 
                                        MID-VOL LEASING, INC. 
                                        MINING TECHNOLOGIES, INC., 
                                        MOUNTAIN-CLAY, INCORPORATED (d/b/a 
                                         Mountain Clay, Inc.), 
                                        PHOENIX LAND COMPANY, 
                                        PREMIUM PROCESSING, INC., 
                                        PREMIUM COAL DEVELOPMENT COMPANY
                                        PRO-LAND, INC. (d/b/a Kem Coal Company) 
                                        R. & F. COAL COMPANY,
                                        RIVER COAL COMPANY, INC., 
                                        ROARING CREEK COAL COMPANY,
                                          
                                      E-2

 
                                          SHIPYARD RIVER COAL TERMINAL 
                                          COMPANY,
                                          STRAIGHT CREEK COAL RESOURCES 
                                          COMPANY,
                                          TENNESSEE MINING, INC.,
                                          TURRIS COAL COMPANY,
                                          WYOMING COAL TECHNOLOGY, INC.,
                                          ZEIGLER COAL HOLDING COMPANY,
                                          ZEIGLER ENVIRONMENTAL SERVICES
                                          COMPANY, 
                                          ZENERGY, INC., 
                                           each as Guarantor
                                          

                                          By: _________________________________
                                              Name:
                                              Title:

                                      E-3

 
                                          BEECH COAL COMPANY,
                                          CANNELTON, INC.,
                                          CANNELTON INDUSTRIES, INC.,
                                          CANNELTON LAND COMPANY,
                                          CANNELTON SALES COMPANY,
                                          DUNN COAL & DOCK COMPANY,
                                          HAYMAN HOLDINGS, INC.,
                                          KANAWHA CORPORATION,
                                          KINDILL HOLDING, INC.,
                                          KINDILL MINING, INC.,
                                          MIDWEST COAL COMPANY ,
                                          MOUNTAINEER COAL DEVELOPMENT
                                           COMPANY,
                                          MOUNTAIN COALS CORPORATION, 
                                          OLD BEN COAL COMPANY,
                                          WEST VIRGINIA-INDIANA COAL HOLDING
                                           COMPANY, INC.,
                                           each as Guarantor
 
                                          By: _________________________________
                                              Name:           
                                              Title:

                                      E-4

 
                                     BENTLEY COAL COMPANY,
                                     SKYLINE COAL COMPANY,
                                     KENTUCKY PRINCE MINING COMPANY,
                                      each as Guarantor

                                     By: GRASSY COVE COAL MINING COMPANY,
                                         ROARING CREEK COAL COMPANY,
                                         each as General Partner of each of the
                                         entities listed above

                                     By: _______________________________________
                                         Name:
                                         Title:

                                      E-5

 
                                         NUCOAL, LLC,
                                          as Guarantor

                                         By:  AMERICOAL DEVELOPMENT  
                                              COMPANY  
                                              ENCOAL CORPORATION
                                              each as Member

                                         By: ___________________________________
                                             Name:
                                             Title:

                                      E-6

 
                                   EXHIBIT F
                         FORM OF SUPPLEMENTAL INDENTURE
                    TO BE DELIVERED BY SUBSEQUENT GUARANTORS

          Supplemental Indenture (this "Supplemental Indenture"), dated as of
________________, among  __________________ (the "Subsidiary Guarantor"), a
subsidiary of AEI Resources, Inc., a Delaware corporation (the "Company"), the
Company, AEI Resources Holding, Inc. ("Holdings"), the other Guarantors (as
defined in the Indenture referred to herein) and State Street Bank and Trust
Company, as trustee under the indenture referred to below (the "Trustee").

                             W I T N E S S E T H :
                             -------------------- 

          WHEREAS, the Company, Holdings and the Guarantors have heretofore
executed and delivered to the Trustee an indenture (the "Indenture"), dated as
of December 14, 1998 providing for the issuance of an aggregate principal amount
of up to $225.0 million of 11 1/2% Senior Subordinated Notes due 2006 (the
"Notes");

          WHEREAS, the Indenture provides that under certain circumstances the
Subsidiary Guarantor shall execute and deliver to the Trustee a supplemental
indenture pursuant to which the Subsidiary Guarantor shall unconditionally
guarantee, on a senior subordinated basis, all of the Company's Obligations
under the Notes and the Indenture on the terms and conditions set forth herein
(the "Guarantee"); and

          WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.

          NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Subsidiary Guarantor and the Trustee mutually covenant and agree for the equal
and ratable benefit of the Holders of the Notes as follows:

          1.   Capitalized Terms.  Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.

          2.   Agreement to Guarantee.  The Subsidiary Guarantor hereby agrees
as follows:

          (a)  Along with all Guarantors named in the Indenture, to jointly and
               severally Guarantee to each Holder of a Note authenticated and
               delivered by the Trustee and to the Trustee and its successors
               and assigns, the Notes or the obligations of the Company
               hereunder or thereunder, that:

                                      F-1

 
               (i)      the principal of and interest on the Notes will be
                        promptly paid in full when due, whether at maturity, by
                        acceleration, redemption or otherwise, and interest on
                        the overdue principal of and interest on the Notes, if
                        any, if lawful, and all other obligations of the Company
                        to the Holders or the Trustee hereunder or thereunder
                        will be promptly paid in full or performed, all in
                        accordance with the terms hereof and thereof; and

               (ii)     in case of any extension of time of payment or renewal
                        of any Notes or any of such other obligations, that same
                        will be promptly paid in full when due or performed in
                        accordance with the terms of the extension or renewal,
                        whether at stated maturity, by acceleration or
                        otherwise. Failing payment when due of any amount so
                        guaranteed or any performance so guaranteed for whatever
                        reason, Holdings and the Guarantors shall be jointly and
                        severally obligated to pay the same immediately.

     (b)       The obligations of Holdings and each Guarantor to the Holders and
               to the Trustee pursuant to their respective Guarantees of the
               Notes and the Indenture are expressly subordinated and subject in
               right of payment to the prior payment in full of all Guarantor
               Senior Indebtedness of such guarantor, to the extent and in the
               manner provided in Article Ten of the Indenture.

     (c)       The obligations hereunder shall be unconditional, irrespective of
               the validity, regularity or enforceability of the Notes or the
               Indenture, the absence of any action to enforce the same, any
               waiver or consent by any Holder of the Notes with respect to any
               provisions hereof or thereof, the recovery of any judgment
               against the Company, any action to enforce the same or any other
               circumstance which might otherwise constitute a legal or
               equitable discharge or defense of a guarantor.

     (d)       The following is hereby waived:  diligence  presentment, demand
               of payment, filing of claims with a court in the event of
               insolvency or bankruptcy of the Company, any right to require a
               proceeding first against the Company, protest, notice and all
               demands whatsoever.

     (e)       This Subsidiary Guarantee shall not be discharged except by
               complete performance of the obligations contained in the Notes
               and the Inden-

                                      F-2

 
               ture, and the Guaranteeing Subsidiary accepts all
               obligations of a Guarantor under the Indenture.

     (f)       If any Holder or the Trustee is required by any court or
               otherwise to return to the Company, Holdings, the Guarantors, or
               any Custodian, Trustee, liquidator or other similar official
               acting in relation to either the Company, Holdings or the
               Guarantors, any amount paid by either to the Trustee or such
               Holder, this Subsidiary Guarantee, to the extent theretofore
               discharged, shall be reinstated in full force and effect.

     (g)       The Subsidiary Guarantor shall not be entitled to any right of
               subrogation in relation to the Holders in respect of any
               obligations guaranteed hereby until payment in full of all
               obligations guaranteed hereby.

     (h)       As between Holdings and the Guarantors, on the one hand, and the
               Holders and the Trustee, on the other hand, (x) the maturity of
               the obligations guaranteed hereby may be accelerated as provided
               in Article 6 of the Indenture for the purposes of this Subsidiary
               Guarantee, notwithstanding any stay, injunction or other
               prohibition preventing such acceleration in respect of the
               obligations guaranteed hereby, and (y) in the event of any
               declaration of acceleration of such obligations as provided in
               Article 6 of the Indenture, such obligations (whether or not due
               and payable) shall forthwith become due and payable by the
               Guarantors for the purpose of this Subsidiary Guarantee.

     (i)       Holdings and the Guarantors shall have the right to seek
               contribution from any non-paying guarantor so long as the
               exercise of such right does not impair the rights of the Holders
               under the Guarantee.

     (j)       Pursuant to Section 10.03 of the Indenture, after giving effect
               to any maximum amount and any other contingent and fixed
               liabilities that are relevant under any applicable Bankruptcy or
               fraudulent conveyance laws, and after giving effect to any
               collections from, rights to receive contribution from or payments
               made by or on behalf of Holdings or any other Guarantor in
               respect of the obligations of Holdings or such other Guarantor
               under Article 10 of the Indenture, this new Note Guarantee shall
               be limited to the maximum amount permissible such that
               obligations of Holdings or such Guarantor under this Guarantee
               will not constitute a fraudulent transfer or conveyance.

                                      F-3

 
          3    Execution and Delivery.  Each Subsidiary Guarantor agrees that
the Subsidiary Guarantees shall remain in full force and effect notwithstanding
any failure to endorse on each Note a notation of such Subsidiary Guarantee.

          4.   Subsidiary Guarantor May Consolidate, Etc. on Certain Terms.

          (a)  The Subsidiary Guarantor may not consolidate with or merge with
     or into (whether or not such Subsidiary Guarantor is the surviving Person)
     another corporation, Person or entity whether or not affiliated with such
     Subsidiary Guarantor unless:

               (i)    subject to Sections 10.04 and 10.05 of the Indenture, the
          Person formed by or surviving any such consolidation or merger (if
          other than such Subsidiary Guarantor) unconditionally assumes all the
          obligations of such Subsidiary Guarantor pursuant to a supplemental
          indenture in form and substance reasonably satisfactory to the
          Trustee, under the Notes, the Indenture and the Registration Rights
          Agreement; and

               (ii)   immediately after giving effect to such transaction, no
          Default or Event of Default exists.

               (iii)  the Company would be permitted by virtue of the Company's
          pro forma Fixed Charge Coverage Ratio, immediately after giving effect
          to such transaction, to incur at least $1.00 of additional
          Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
          forth in the first paragraph of Section 4.09 hereof.

          (b)  In case of any such consolidation, merger, sale or conveyance and
     upon the assumption by the successor corporation, by supplemental
     indenture, executed and delivered to the Trustee and satisfactory in form
     to the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the
     due and punctual performance of all of the covenants and conditions of the
     Indenture to be performed by the Subsidiary Guarantor, such successor
     corporation shall succeed to and be substituted for the Subsidiary
     Guarantor with the same effect as if it had been named herein as a
     Subsidiary Guarantor.  Such successor corporation thereupon may cause to be
     signed any or all of the Subsidiary Guarantees to be endorsed upon all of
     the Notes issuable hereunder which theretofore shall not have been signed
     by the Company and delivered to the Trustee.  All the Subsidiary Guarantees
     so issued shall in all respects have the same legal rank and benefit under
     the Indenture as the Subsidiary Guarantees theretofore and thereafter
     issued in accordance with the terms of the Indenture as though all of such
     Subsidiary Guarantees had been issued at the date of the execution hereof.

                                      F-4

 
          (c)  Except as set forth in Articles 4 and 5 and Section 10.05 of
     Article Ten of the Indenture, and notwithstanding clause (a) above, nothing
     contained in the Indenture or in any of the Notes shall prevent any
     consolidation or merger of a Subsidiary Guarantor with or into the Company
     or another Subsidiary Guarantor, or shall prevent any sale or conveyance of
     the property of a Subsidiary Guarantor as an entirety or substantially as
     an entirety to the Company or another Subsidiary Guarantor.

          5.   Releases.

          (a)  In the event of a sale or other disposition of all of the assets
     of any Subsidiary Guarantor, by way of merger, consolidation or otherwise,
     a sale or other disposition of all to the capital stock of any Subsidiary
     Guarantor or the designation of a Subsidiary Guarantor as an Unrestricted
     Subsidiary in accordance with the terms of the Indenture, then such
     Subsidiary Guarantor (in the event of a sale or other disposition, by way
     of merger, consolidation or otherwise, of all of the capital stock of such
     Subsidiary Guarantor) or the corporation acquiring the property (in the
     event of a sale or other disposition of all or substantially all of the
     assets of such Subsidiary Guarantor) will be released and relieved of any
     obligations under its Subsidiary Guarantee; provided that the Net Proceeds
     of such sale or other disposition are applied in accordance with the
     applicable provisions of the Indenture, including without limitation
     Section 4.10 of the Indenture, and any such designation of a Guarantor as
     an Unrestricted Subsidiary complies with all applicable covenants. Upon
     delivery by the Company to the Trustee of an Officers' Certificate and an
     Opinion of Counsel to the effect that such sale or other disposition was
     made by the Company in accordance with the provisions of the Indenture,
     including without limitation Section 4.10 of the Indenture, the Trustee
     shall execute any documents reasonably required in order to evidence the
     release of any Subsidiary Guarantor from its obligations under its
     Subsidiary Guarantee.

          (b)  Any Subsidiary Guarantor not released from its obligations under
     its Subsidiary Guarantee shall remain liable for the full amount of
     principal of and interest on the Notes and for the other obligations of any
     Subsidiary Guarantor under the Indenture as provided in Article 10 of the
     Indenture.

          6.   No Recourse Against Others.  No past, present or future director,
officer, employee, incorporator, stockholder or agent of the Subsidiary
Guarantor, as such, shall have any liability for any obligations of the Company
or any Subsidiary Guarantor under the Notes, any Subsidiary Guarantees, the
Indenture or this Supplemental Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation.  Each Holder of the
Notes by accepting a Note waives and releases all such liability.  The waiver
and release are part of the consideration for issuance of the Notes.  Such
waiver 
                                      F-5

 
may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.

          7.   New York Law To Govern.  THE INTERNAL LAW OF THE STATE OF NEW
YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT
THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY.

          8.   Counterparts.  The parties may sign any number of copies of this
Supplemental Indenture.  Each signed copy shall be an original, but all of them
together represent the same agreement.

          9.   Effect of Headings.  The Section headings herein are for
convenience only and shall not affect the construction hereof.

          10.  The Trustee.  The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Subsidiary Guarantor and the Company.

                                      F-6

 
          IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.

Dated:  _______________, ____

                                   AEI RESOURCES, INC.

                                   By: _________________________________________
                                       Name:
                                       Title:

                                   Confirmed and agreed to as Guarantors:

                                   17 WEST MINING, INC.,
                                   ACECO, INC.,
                                   ADDINGTON MINING, INC.,
                                   AEI COAL SALES COMPANY, INC.,
                                   AEI HOLDING COMPANY, INC.
                                   AEI RESOURCES HOLDING, INC.,
                                   AMERICOAL DEVELOPMENT COMPANY,
                                   APPALACHIAN REALTY COMPANY,
                                   AYRSHIRE LAND COMPANY,
                                   BELLAIRE TRUCKING COMPANY,
                                   BLUEGRASS COAL DEVELOPMENT 
                                   COMPANY,
                                   BOWIE RESOURCES LIMITED
                                   CC COAL COMPANY,
                                   COAL VENTURES HOLDING
                                    COMPANY, INC.,
                                   EAST KENTUCKY ENERGY CORPORATION,
                                   EMPLOYEE BENEFITS MANAGEMENT, INC.,
                                   ENCOAL CORPORATION,
                                   ENERZ CORPORATION,
                                   EVERGREEN MINING COMPANY,
                                   FAIRVIEW LAND COMPANY,
                                   FRANKLIN COAL SALES COMPANY,
                                   GRASSY COVE COAL MINING COMPANY,
                                   HERITAGE MINING COMPANY,
                                   HIGHLAND COAL, INC.,
                                   IKERD-BANDY CO., INC.,
                                   KERMIT COAL COMPANY,
                                   LESLIE RESOURCES, INC.,
     
                                      F-7

 
                                   LESLIE RESOURCES MANAGEMENT, INC.,
                                   MEADOWLARK, INC.,
                                   MEGA MINERALS, INC.,
                                   MIDWEST COAL SALES COMPANY,
                                   MID-VOL LEASING, INC.
                                   MINING TECHNOLOGIES, INC.,
                                   MOUNTAIN-CLAY, INCORPORATED (d/b/a
                                    Mountain Clay, Inc.),
                                   PHOENIX LAND COMPANY,
                                   PREMIUM PROCESSING, INC.,
                                   PREMIUM COAL DEVELOPMENT COMPANY,
                                   PRO-LAND, INC. (d/b/a Kem Coal Company)
                                   R. & F. COAL COMPANY,
                                   RIVER COAL COMPANY, INC.,
                                   ROARING CREEK COAL COMPANY,
                                   SHIPYARD RIVER COAL TERMINAL 
                                   COMPANY,
                                   STRAIGHT CREEK COAL RESOURCES 
                                   COMPANY,
                                   TENNESSEE MINING, INC.,
                                   TURRIS COAL COMPANY,
                                   WYOMING COAL TECHNOLOGY, INC.,
                                   ZEIGLER COAL HOLDING COMPANY,
                                   ZEIGLER ENVIRONMENTAL SERVICES 
                                   COMPANY,
                                   ZENERGY, INC.,
                                    each as Guarantor

                                   By: _________________________________________
                                       Name:
                                       Title:

                                      F-8

 
                                      BEECH COAL COMPANY,
                                      CANNELTON, INC.,
                                      CANNELTON INDUSTRIES, INC.,
                                      CANNELTON LAND COMPANY,
                                      CANNELTON SALES COMPANY,
                                      DUNN COAL & DOCK COMPANY,
                                      HAYMAN HOLDINGS, INC.,
                                      KANAWHA CORPORATION,
                                      KINDILL HOLDING, INC.,
                                      KINDILL MINING, INC.,
                                      MIDWEST COAL COMPANY ,
                                      MOUNTAINEER COAL DEVELOPMENT
                                       COMPANY,
                                      MOUNTAIN COALS CORPORATION,
                                      OLD BEN COAL COMPANY,
                                      WEST VIRGINIA-INDIANA COAL HOLDING
                                       COMPANY, INC.,
                                       each as Guarantor

                                      By: ____________________________________
                                          Name:
                                          Title:

                                      BENTLEY COAL COMPANY,
                                      SKYLINE COAL COMPANY,
                                      KENTUCKY PRINCE MINING COMPANY,
                                       each as Guarantor

                                      By: GRASSY COVE COAL MINING COMPANY,
                                          ROARING CREEK COAL COMPANY,
                                          each as General Partner of each of the
                                          entities listed above

                                      By: ______________________________________
                                          Name:
                                          Title:

                                      NUCOAL, LLC,
                                       as Guarantor

                                      F-9

 
                                      By:  AMERICOAL DEVELOPMENT            
                                           COMPANY
                                           ENCOAL CORPORATION
                                           each as Member

                                      By: ______________________________________
                                          Name:
                                          Title:



                                      STATE STREET BANK AND TRUST 
                                        COMPANY, as Trustee

                                      By: ______________________________________
                                          Name:
                                          Title:

                                     F-10

 
________________________________________________________________________________


                         REGISTRATION RIGHTS AGREEMENT

                         Dated as of December 14, 1998

                                 by and among

                        AEI RESOURCES, INC., AS ISSUER

                          AEI RESOURCES HOLDING, INC.

                                      AND

             THE SUBSIDIARY GUARANTORS NAMED HEREIN, AS GUARANTORS

                                      and

                            WARBURG DILLON READ LLC

                          $150,000,000 11 1/2% SENIOR
                          SUBORDINATED NOTES DUE 2006


________________________________________________________________________________

 
           This Registration Rights Agreement (the "Agreement") is made and
                                                    ---------              
entered into as of December 14, 1998 by and among AEI RESOURCES, INC., a
Delaware corporation (the "Company"), AEI RESOURCES HOLDING, INC., a Delaware
                           -------                                           
corporation ("Holdings"), and the SUBSIDIARY GUARANTORS (as defined herein) and
              --------                                                         
WARBURG DILLON READ LLC (the "Initial Purchaser").  The execution and delivery
                              -----------------                               
of this Agreement is a condition to the obligations of the Initial Purchaser to
purchase $150,000,000 of the Company's 11 1/2% Senior Subordinated Notes due
2006 (the "Senior Subordinated Notes") under the Purchase Agreement, dated as of
December 4, 1998 (the "Purchase Agreement"), by and among the Company, the
                       ------------------                                 
Guarantors and the Initial Purchaser.

           The Company, the Guarantors and the Initial Purchaser hereby agree as
follows:

SECTION 1. DEFINITIONS

           As used in this Agreement, the following capitalized terms shall have
the following meanings:

           Act:  The Securities Act of 1933, as amended, and the rules and
           ---                                                            
regulations promulgated by the Commission pursuant thereto.

           Action:  As defined in Section 8(c) of this Agreement.
           ------                                                

           Broker-Dealer:  Any broker or dealer registered under the Exchange
           -------------                                                     
Act.

           Closing Date:  The date that the Notes are purchased by the Initial
           ------------                                                       
Purchaser pursuant to the Purchase Agreement.

           Commission:  The Securities and Exchange Commission.
           ----------                                          

           Consummate:  A Registered Exchange Offer shall be deemed 
           ----------
"Consummated" for purposes of this Agreement upon the occurrence of (i) the
filing and effectiveness under the Act of the Exchange Offer Registration
Statement relating to the Notes to be issued in the Exchange Offer, (ii) the
maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) of this Agreement and (iii) the delivery by
the Company to the Registrar under the Indenture of New Notes in the same
aggregate principal amount as the aggregate principal amount of Old Notes that
were so tendered.

           Damages Payment Date:  With respect to the Notes, each Interest
           --------------------                                           
Payment Date.

 
                                      -2-

          Effectiveness Target Date:  As defined in Section 5 of this Agreement.
          -------------------------                           


          Exchange Act:  The Securities Exchange Act of 1934, as amended, and
          ------------                                                       
the rules and regulations promulgated by the Commission pursuant thereto.

          Exchange Offer:  The registration under the Act by the Company and the
          --------------
 Guarantors of the New Notes pursuant to a Registration Statement pursuant to
which the Company and the Guarantors offer the Holders of all outstanding
Transfer Restricted Securities the opportunity to exchange all such outstanding
Old Notes that are Transfer Restricted Securities held by such Holders for New
Notes in an aggregate principal amount equal to the aggregate principal amount
of the Old Notes that are Transfer Restricted Securities tendered in such
exchange offer by such Holders.

          Exchange Offer Effective Date:  The dated on which the Exchange Offer
          -----------------------------                                        
Registration Statement is declared effective by the Commission.

          Exchange Offer Registration Statement:  The Registration Statement
          -------------------------------------                             
relating to the Exchange Offer, including the related Prospectus.

          Exempt Resales:  The transactions in which the Initial Purchaser
          --------------                                                  
proposes to sell the Notes to (i) certain "qualified institutional buyers," as
such term is defined in Rule 144A under the Act, and (ii) other eligible
purchasers pursuant to Regulation S under the Act.

          Guarantors:  Holdings together with the Subsidiary Guarantors.
          ----------                                                    

          Holders:  As defined in Section 2(b) of this Agreement.
          -------                                                

          Indenture:  The Indenture, dated as of December 14, 1998, by and among
          ---------                                                             
the Company, the Guarantors and State Street Bank and Trust Company, as trustee
(the "Trustee"), pursuant to which the Notes are to be issued, as such Indenture
      -------                                                                   
is amended or supplemented from time to time in accordance with its terms.

          Initial Purchaser:  Warburg Dillon Read LLC.
          -----------------                           

          Interest Payment Date:  As defined in the Notes.
          ---------------------                           

          NASD:  National Association of Securities Dealers, Inc.
          ----                                                   

          New Notes:  The Company's 11 1/2% Senior Subordinated Notes due 2006
          ---------                                                           
to be issued pursuant to the Indenture in connection with the Exchange Offer and
evidencing the same debt as the Old Notes, including the guarantees by the
Guarantors.

 
                                      -3-

          Notes:  Old Notes and New Notes.
          -----                           

          Old Notes:  The Company's 11 1/2% Senior Subordinated Notes due 2006
          ---------                                                           
to be issued pursuant to the Indenture on the Closing Date, including the
guarantees by the Guarantors.

          Participating Broker Dealer:  As defined in Section 6(a)(iii) of this
          ---------------------------                                          
Agreement.

          Person:  An individual, partnership, corporation, trust or
          ------                                                    
unincorporated organization, or a government or agency or political subdivision
thereof.

          Prospectus:  The prospectus included in a Registration Statement, as
          ----------                                                          
amended or supplemented by any prospectus supplement and by all other amendments
and supplements thereto, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference, if any, in
such Prospectus.

          Registration Default:  As defined in Section 5 of this Agreement.
          --------------------                                             

          Registration Statement:  Any registration statement of the Company and
          ----------------------                                                
the Guarantors relating to (a) an offering of New Notes pursuant to an Exchange
Offer or (b) the registration for resale of Transfer Restricted Securities
pursuant to the Shelf Registration Statement that is filed pursuant to the
provisions of this Agreement, in each case, including the Prospectus included
therein, all amendments and supplements thereto (including pre- and post-
effective amendments) and all exhibits and material incorporated by reference or
deemed to be incorporated by reference, if any, therein.

          Shelf Filing Deadline:  As defined in Section 4(a) of this Agreement.
          ---------------------                                                

          Shelf Registration Statement:  As defined in Section 4(a) of this
          ----------------------------                                     
Agreement.

          Subsidiary:  With respect to any Person, any other Person of which a
          ----------                                                          
majority of the equity ownership or the voting securities is at the time owned,
directly or indirectly, by such Person or by one or more other subsidiaries of
such Person or a combination thereof.

          Subsidiary Guarantors:  Each Subsidiary of the Company that, pursuant
          ---------------------                                                
to the Indenture, is, or is required to become, a guarantor of the obligations
of the Company under the Notes and the Indenture.

          TIA:  The Trust Indenture Act of 1939, as amended  (15 U.S.C. Section
          ---                                                                  
77aaa-77bbbb), as in effect on the date of the Indenture.

 
                                      -4-

          Transfer Restricted Securities:  Each Note until the earliest to occur
          ------------------------------                                        
of (i) the date on which each such Old Note has been exchanged by a person other
than a Broker-Dealer for a New Note in the Exchange Offer, (ii) following the
exchange by a Broker-Dealer in the Exchange Offer of an Old Note for a New Note,
the date on which such New Note is sold to a purchaser who receives from such
Broker-Dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Note has been effectively registered under the Act and disposed of in
accordance with the Shelf Registration Statement or (iv) the date on which such
Note is distributed to the public pursuant to Rule 144 under the Act.

          Underwritten Registration or Underwritten Offering:  A registration in
          --------------------------------------------------                    
which securities of the Company are sold to an underwriter for reoffering to the
public pursuant to an effective Registration Statement.

SECTION 2.  SECURITIES SUBJECT TO THIS AGREEMENT

          (a)  Transfer Restricted Securities.  The securities entitled to the
               ------------------------------                                 
benefits of this Agreement are the Transfer Restricted Securities.

          (b)  Holders of Transfer Restricted Securities.  A Person is deemed to
               -----------------------------------------                        
be a holder of Transfer Restricted Securities (each, a "Holder") whenever such
                                                        ------                
Person beneficially owns Transfer Restricted Securities.

SECTION 3.  REGISTERED EXCHANGE OFFER

          (a)  Unless, due to a change in law or Commission policy after the
date hereof, the Exchange Offer shall not be permissible under applicable
federal law or Commission policy, the Company and the Guarantors shall (i) use
their reasonable best efforts to cause to be filed with the Commission as soon
as practicable on or prior to 45 days after the Closing Date, a Registration
Statement under the Act relating to the New Notes and the Exchange Offer and
(ii) use their reasonable best efforts to cause such Registration Statement to
be declared effective by the Commission as soon as practicable on or prior to 90
days after the Closing Date.  In connection with the foregoing, the Company and
the Guarantors shall (A) file all pre-effective amendments to such Registration
Statement as may be necessary to cause such Registration Statement to become
effective, (B) if applicable, file a post-effective amendment to such
Registration Statement pursuant to Rule 430A under the Act, (C) cause all
necessary filings in connection with the registration and qualification of the
New Notes to be made under the Blue Sky laws of such jurisdictions as are
necessary to permit Consummation of the Exchange Offer (provided, however, that
the Company and the Guarantors shall not be obligated to qualify as foreign
corporations in any jurisdiction in which they are not so qualified or to take
any action that would subject them to general service of process or taxation in
any 

 
                                      -5-

jurisdiction where they are not so subject, except service of process with
respect to the offering and sale of the Notes and Exchange Notes) and (D) upon
the effectiveness of such Registration Statement, commence the Exchange Offer
and use their reasonable best efforts to issue on or prior to 45 days after the
Exchange Offer Effective Date, New Notes in exchange for all Old Notes tendered
in the Exchange Offer. The Exchange Offer shall be on the appropriate form
permitting registration of the New Notes to be offered in exchange for the
Transfer Restricted Securities and to permit resales of New Notes held by 
Broker-Dealers as contemplated by Section 3(c) below. If, after such Exchange
Offer Registration Statement initially is declared effective by the Commission,
the Exchange Offer or the issuance of New Notes under the Exchange Offer or the
resale of New Notes received by Broker-Dealers in the Exchange Offer as
contemplated by Section 3(c) below is interfered with by any stop order,
injunction or other order or requirement of the Commission or any other
governmental agency or court, such Registration Statement shall be deemed not to
have become effective for purposes of this Agreement during the period that such
stop order, injunction or other similar order or requirement shall remain in
effect.

          (b)  The Company shall cause the Exchange Offer Registration Statement
to be effective continuously and shall keep the Exchange Offer open for a period
of not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; provided, however, that in no
                                                  --------  -------            
event shall such period be less than 20 business days.  The Company and the
Guarantors shall cause the Exchange Offer to comply with all applicable federal
and state securities laws.  The Company and the Guarantors shall only offer to
exchange New Notes for Old Notes in the Exchange Offer, and only the New Notes
shall be registered under the Exchange Offer Registration Statement.

          (c)  The Company shall indicate in a "Plan of Distribution" section
contained in the Prospectus included in the Exchange Offer Registration
Statement that any Broker-Dealer that holds Old Notes that are Transfer
Restricted Securities and that were acquired for its own account as a result of
market-making activities or other trading activities (other than Transfer
Restricted Securities acquired directly from the Company), may exchange such Old
Notes pursuant to the Exchange Offer; provided, however, that such Broker-Dealer
                                      --------  -------                         
may be deemed to be an "underwriter" within the meaning of the Act and must,
therefore, deliver a prospectus meeting the requirements of the Act in
connection with any resales of the New Notes received by such Broker-Dealer in
the Exchange Offer.  Such "Plan of Distribution" section shall allow the use of
the Prospectus by all Persons subject to the prospectus delivery requirements of
the Act, including Participating Broker-Dealers, and shall also contain all
other information with respect to such resales by Broker-Dealers that the
Commission may require to permit such resales pursuant thereto, but such "Plan
of Distribution" shall not name any such Broker-Dealer or disclose the amount of
Notes held by any such Broker-Dealer except to the extent required by the
Commission as a result of a change in policy after the date of this Agreement.

 
                                      -6-

          The Company and the Guarantors shall use their reasonable best efforts
to keep the Exchange Offer Registration Statement continuously effective,
supplemented and amended as required by the provisions of Section 6(c) below to
the extent necessary to ensure that it is available for resales of Notes
acquired by Broker-Dealers for their own accounts as a result of market-making
activities or other trading activities, and to ensure that it conforms with the
requirements of this Agreement, the Act and the policies, rules and regulations
of the Commission as announced from time to time.  The Company shall provide
sufficient copies of the latest version of such Prospectus to Broker-Dealers
promptly upon request at any time during such period in order to facilitate such
resales.

SECTION 4.  SHELF REGISTRATION

          (a)  Shelf Registration.  If (i) the Company and the Guarantors are
               ------------------                                            
not required to file an Exchange Offer Registration Statement or to consummate
the Exchange Offer because the Exchange Offer is not permitted by applicable law
or Commission policy or (ii) any Holder of Transfer Restricted Securities shall
notify the Company within 20 business days of the commencement of the Exchange
Offer that such Holder (A) is prohibited by applicable law or Commission policy
from participating in the Exchange Offer, or (B) may not resell the New Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the Prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such Holder or (C)
is a Broker-Dealer and holds Old Notes (including the Initial Purchaser who
holds Old Notes as part of an unsold allotment from the original offering of the
Notes) acquired directly from the Company or one of its affiliates or (iii) the
Company and the Guarantors do not consummate the Exchange Offer within 45 days
following the effectiveness date of the Exchange Offer Registration Statement,
then the Company and the Guarantors shall (x) cause to be filed a shelf
registration statement pursuant to Rule 415 under the Act, which may be an
amendment to the Exchange Offer Registration Statement (in either event, the
"Shelf Registration Statement"), on or prior to the earliest to occur of (1) the
 ----------------------------                                                   
30th day after the date on which the Company determines that it is not required
to file the Exchange Offer Registration Statement or (2) the 30th day after the
date on which the Company receives notice from a Holder of Transfer Restricted
Securities as contemplated by clause (ii) above, and, in the case of clauses (1)
and (2) in any event within 75 days after the Closing Date (such earliest date
being the "Shelf Filing Deadline"), which Shelf Registration Statement shall
           ---------------------                                            
provide for resales of all Transfer Restricted Securities the Holders  of which
shall have provided the information required pursuant to Section 4(b) of this
Agreement, and (y) use its best efforts to cause such Shelf Registration
Statement to be declared effective by the Commission on or before the 45th day
after the Shelf Filing Deadline.  The Company and the Guarantors shall use their
best efforts to keep such Shelf Registration Statement continuously effective,
supplemented and amended as required by the provisions of Sections 6(b) and (c)
of this Agreement to the extent necessary to ensure that it is available for
resales of Notes by the Holders of Transfer Restricted Securities entitled to
the benefit of this 

 
                                      -7-

Section 4(a) and to ensure that it conforms with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a continuous period of two years following the
date on which such Shelf Registration Statement becomes effective under the Act
or such shorter period that will terminate when all the Notes covered by the
Shelf Registration Statement have been sold pursuant to such Shelf Registration
Statement.

          (b)  Provision by Holders of Certain Information in Connection with
               --------------------------------------------------------------
the Shelf Registration Statement.  No Holder of Transfer Restricted Securities
- --------------------------------                                              
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 10 business days after receipt of a request
therefor, such information regarding such Holder as the Company may reasonably
request for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included in such Shelf Registration
Statement.  Each Holder as to which any Shelf Registration Statement is being
effected agrees to furnish promptly to the Company all information required to
be disclosed to make the information previously furnished to the Company by such
Holder not materially misleading.

SECTION 5.  LIQUIDATED DAMAGES

          If (i) any of the Registration Statements required by this Agreement
is not filed with the Commission on or prior to the date specified for such
filing in this Agreement, (ii) any of such Registration Statements has not been
declared effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement (the "Effectiveness Target Date"), (iii) the
                                      -------------------------             
Exchange Offer has not been Consummated within 45 business days after the
Exchange Offer Effective Date with respect to the Exchange Offer Registration
Statement or  (iv) any Registration Statement required by this Agreement is
filed and declared effective but shall thereafter cease to be effective or
usable in connection with resales of Transfer Restricted Securities during the
periods required by this Agreement (each such event referred to in clauses (i)
through (iv), a "Registration Default"), the Company and the Guarantors hereby
                 --------------------                                         
agree to pay liquidated damages to each Holder of Transfer Restricted Securities
with respect to the first 90-day period immediately following the occurrence of
such Registration Default, in an amount equal to $.05 per week per $1,000
principal amount of Notes constituting Transfer Restricted Securities held by
such Holder for each week or portion thereof that the Registration Default
continues.  The amount of the liquidated damages shall increase by an additional
$.05 per week per $1,000 in principal amount of Notes constituting Transfer
Restricted Securities with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of liquidated
damages of $.50 per week per $1,000 in principal amount of Notes constituting
Transfer Restricted Securities.  Notwithstanding the foregoing, the Company and
the Guarantors shall not be required to pay liquidated damages to each Holder of
Transfer Restricted Securities if the Registration Default arises from the
failure 

 
                                      -8-

of the Company or the Guarantors to file, or cause to become effective, a Shelf
Registration Statement within the time period required by Section 4 of this
Agreement and such Registration Default is by reason of the failure of the
Holders to provide the information regarding the Holder reasonably requested by
the Company, the NASD or any other regulatory agency having jurisdiction over
any of the Holders at least 10 business days prior to such Registration Default.
All accrued liquidated damages shall be paid by the Company and the Guarantors
on each Damages Payment Date to the Holders by wire transfer of immediately
available funds or by federal funds check and to the Holders of certificated
securities by mailing a check to such Holders' registered addresses. Following
the cure of all Registration Defaults relating to any particular Transfer
Restricted Securities, the accrual of liquidated damages with respect to such
Transfer Restricted Securities will cease.

          All obligations of the Company and the Guarantors set forth in the
preceding paragraph that are outstanding with respect to any Transfer Restricted
Security at the time such security ceases to be a Transfer Restricted Security
shall survive until such time as all such obligations with respect to such
Transfer Restricted Security shall have been satisfied in full.

SECTION 6.  REGISTRATION PROCEDURES

          (a)  Exchange Offer Registration Statement.  In connection with the
               -------------------------------------                         
Exchange Offer, the Company and the Guarantors shall comply with all of the
provisions of Section 6(c) below, shall use their reasonable best efforts to
effect such exchange to permit the sale of Transfer Restricted Securities being
sold in accordance with the intended method or methods of distribution thereof,
and shall comply with all of the following provisions:

             (i)  If, due to a change in law or Commission policy after the date
     hereof, in the reasonable opinion of counsel to the Company there is a
     question as to whether the Exchange Offer is permitted by applicable
     federal law or Commission policy, the Company hereby agrees to seek a no-
     action letter or other favorable decision from the Commission allowing the
     Company and the Guarantors to Consummate an Exchange Offer for such Old
     Notes.  The Company hereby agrees to pursue the issuance of such a no-
     action letter or favorable decision to the Commission staff level but shall
     not be required to take commercially unreasonable action to effect a change
     of Commission policy.  The Company hereby agrees, however, to (A)
     participate in telephonic conferences with the Commission, (B) deliver to
     the Commission an analysis prepared by counsel to the Company setting forth
     the legal bases, if any, upon which such counsel has concluded that such an
     Exchange Offer should be permitted and (C) diligently pursue a resolution
     (which need not be favorable) by the Commission of such submission.  The
     Initial Purchaser shall be given prior notice of any action taken by the
     Company under this clause (i).

 
                                      -9-

             (ii)   As a condition to its participation in the Exchange Offer
     pursuant to the terms of this Agreement, each Holder of Transfer Restricted
     Securities shall furnish, upon the request of the Company, prior to the
     Consummation of the Exchange Offer, a written representation to the Company
     (which may be contained in the letter of transmittal contemplated by the
     Exchange Offer Registration Statement) to the effect that (A) it is not an
     affiliate of the Company or any of the Guarantors, (B) it is not engaged
     in, and does not intend to engage in, and has no arrangement or
     understanding with any person to participate in, a distribution of the New
     Notes to be issued in the Exchange Offer and (C) it is acquiring the New
     Notes in its ordinary course of business.  In addition, all such Holders of
     Transfer Restricted Securities shall otherwise cooperate in the Company's
     preparations for the Exchange Offer.

             (iii)  The Company, the Guarantors and the Initial Purchaser
     acknowledge that the staff of the Commission has taken the position that
     any broker-dealer that owns New Notes that were received by such broker-
     dealer for its own account in the Exchange Offer (a "Participating Broker-
                                                          --------------------
     Dealer") may be deemed to be an "underwriter" within the meaning of the Act
     ------                                                                     
     and must deliver a prospectus meeting the requirements of the Act in
     connection with any resale of such New Notes (other than a resale of an
     unsold allotment resulting from the original offering of the Notes).

             The Company, the Guarantors and the Initial Purchaser also
     acknowledge that it is the Commission staff's position that if the
     Prospectus contained in the Exchange Offer Registration Statement includes
     a plan of distribution containing a statement to the above effect and the
     means by which Participating Broker-Dealers may resell the New Notes,
     without naming the Participating Broker-Dealers or specifying the amount of
     New Notes owned by them, such Prospectus may be delivered by Participating
     Broker-Dealers to satisfy their prospectus delivery obligations under the
     Act in connection with resales of New Notes for their own accounts, so long
     as the Prospectus otherwise meets the requirements of the Act.

             (b)  Shelf Registration Statement.  In the event that a Shelf
                  ----------------------------                            
Registration Statement is required by this Agreement, the Company and the
Guarantors shall comply with all the provisions of Section 6(c) of this
Agreement and shall use their reasonable best efforts to effect such
registration to permit the sale of the Transfer Restricted Securities being sold
in accordance with the intended method or methods of distribution of such
Transfer Restricted Securities and, in connection therewith, the Company and the
Guarantors will as expeditiously as possible prepare and file with the
Commission a Shelf Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution of such Transfer Restricted Securities.

 
                                     -10-

          (c)  General Provisions.  In connection with any Registration
               ------------------                                      
Statement and any Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Registration Statement and the related Prospectus, to the extent that the same
are required to be available to permit resales of Notes by Broker-Dealers), the
Company and the Guarantors shall:

             (i)    use their reasonable best efforts to keep such Registration
     Statement continuously effective for the applicable time period required
     hereunder and provide all requisite financial statements (including, if
     required by the Act or any regulation thereunder, financial statements of
     the Guarantors) for the period specified in Section 3 or 4 of this
     Agreement, as applicable; upon the occurrence of any event that would cause
     any such Registration Statement or the Prospectus contained therein (A) to
     contain a material misstatement or omission or (B) not to be effective and
     usable for resale of Transfer Restricted Securities during the period
     required by this Agreement, the Company shall promptly notify the Holders
     to suspend use of the Prospectus, and the Holders shall suspend use of the
     Prospectus, and such Holders shall not communicate non-public information
     to any third party, in violation of the securities laws, until the Company
     and the Guarantors have made an appropriate amendment to such Registration
     Statement, in the case of clause (A), correcting any such misstatement or
     omission, and, in the case of either clause (A) or (B), the Company and the
     Guarantors shall use their reasonable best efforts to cause such amendment
     to be declared effective and such Registration Statement and the related
     Prospectus to become usable for their intended purpose(s) as soon as
     practicable thereafter;

             (ii)   prepare and file with the Commission such amendments and
     post-effective amendments to such Registration Statement as may be
     necessary to keep the Registration Statement effective for the applicable
     period set forth in Section 3 or 4 of this Agreement, as applicable, or
     such shorter period as will terminate when all Transfer Restricted
     Securities covered by such Registration Statement have been sold; cause the
     Prospectus to be supplemented by any required Prospectus supplement, and as
     so supplemented to be filed pursuant to Rule 424 under the Act during the
     applicable time period required hereunder and to comply fully with the
     applicable provisions of Rules 424 and 430A under the Act in a timely
     manner; and comply with the provisions of the Act and the Exchange Act with
     respect to the disposition of all Transfer Restricted Securities covered by
     such Registration Statement during such period in accordance with the
     intended method or methods of distribution by the sellers of such
     securities set forth in such Registration Statement as so amended or in
     such Prospectus as so supplemented;

             (iii)  advise the underwriter(s), if any, the Initial Purchaser,
     and, in the case of a Shelf Registration Statement, each of the selling
     Holders promptly and, if re-

 
                                     -11-

     quested by such Persons, to confirm such advice in writing, (A) when the
     Prospectus or any prospectus supplement or post-effective amendment has
     been filed and, with respect to any Registration Statement or any post-
     effective amendment thereto, when the same has become effective, (B) of any
     request by the Commission for amendments to the Registration Statement or
     amendments or supplements to the Prospectus or for additional information
     relating to such Registration Statement or Prospectus, (C) of the issuance
     by the Commission of any stop order suspending the effectiveness of the
     Registration Statement under the Act or of the suspension by any state
     securities commission of the qualification of the Transfer Restricted
     Securities for offering or sale in any jurisdiction, or the initiation of
     any proceeding for any of the preceding purposes, (D) of the existence of
     any fact or the happening of any event that makes any statement of a
     material fact made in the Registration Statement, the Prospectus, any
     amendment or supplement to such Registration Statement or Prospectus, as
     the case may be, or any document incorporated by reference in such
     Registration Statement or Prospectus untrue in any material respect, or
     that requires the making of any additions to or changes in the Registration
     Statement or the Prospectus in order to make the statements in such
     Registration Statement or Prospectus not misleading and that in the case of
     the Prospectus, it will not contain any untrue statement of a material fact
     or omit to state any material fact required to be stated therein or
     necessary to make the statements therein, in the light of the circumstances
     under which they were made, not misleading. If at any time the Commission
     shall issue any stop order suspending the effectiveness of the Registration
     Statement, or any state securities commission or other regulatory authority
     shall issue an order suspending the qualification or exemption from
     qualification of the Transfer Restricted Securities under state securities
     or Blue Sky laws, the Company and the Guarantors shall use their best
     efforts to obtain the withdrawal or lifting of such order at the earliest
     possible time;

             (iv)  furnish to each of the underwriter(s), if any, the Initial
     Purchaser and, in the case of a Shelf Registration Statement, each of the
     selling Holders before filing with the Commission, copies of any
     Registration Statement or any Prospectus included in such Registration
     Statement or Prospectus or any amendments or supplements to any such
     Registration Statement or Prospectus (including all documents incorporated
     by reference after the initial filing of such Registration Statement),
     which documents will be subject to the reasonable review of such
     underwriter(s), if any, the Initial Purchaser, and such Holders for a
     period of at least three business days, and the Company and the Guarantors
     will not file any such Registration Statement or Prospectus or any
     amendment or supplement to any such Registration Statement or Prospectus,
     as the case may be, (including all such documents incorporated by
     reference) to which any underwriter, Initial Purchaser or selling Holder
     shall reasonably object 

 
                                     -12-

     within three business days after the receipt of such Registration Statement
     or Prospectus;

             (v)    promptly prior to the filing of any document that is to be
     incorporated by reference into a Registration Statement or Prospectus, (A)
     provide copies of such document to the selling Holders and to the
     underwriter(s), if any, (B) make the Company's and the Guarantors'
     representatives available for discussion of such document and other
     customary due diligence matters; provided that such discussion and due
                                      --------                             
     diligence shall be coordinated on behalf of the selling Holders by one
     counsel designated by and on behalf of such selling Holders and (C) include
     such information in such document prior to the filing of such document as
     such selling Holders or underwriter(s), if any, may reasonably request;

             (vi)   make available at reasonable times for inspection by the
     selling Holders, any underwriter participating in any disposition pursuant
     to such Registration Statement and any attorney or accountant retained by
     such selling Holders or any of the underwriter(s), if any, at the offices
     where normally kept, during reasonable business hours, all relevant
     financial and other records, pertinent corporate documents and properties
     of the Company and the Guarantors and cause the Company's and the
     Guarantors' officers, directors and employees to supply all information
     reasonably requested by any such Holder, underwriter, attorney or
     accountant in connection with such Registration Statement subsequent to the
     filing thereof and prior to its effectiveness; provided, however, that such
                                                    --------  -------           
     persons shall first agree in writing with the Company that any information
     that is reasonably and in good faith designated by the Company in writing
     as confidential at the time of delivery of such information shall be kept
     confidential by such persons, unless and to the extent that (A) disclosure
     of such information is required by court or administrative order or is
     necessary to respond to inquiries of regulatory authorities, (B) disclosure
     of such information is required by law (including any disclosure
     requirements pursuant to federal securities laws in connection with the
     filing of the Shelf Registration Statement or the use of any Prospectus),
     (C) such information becomes generally available to the public other than
     as a result of a disclosure or failure to safeguard such information by
     such person or (D) such information becomes available to such person from a
     source other than the Company and its Subsidiaries and such source is not
     bound by a confidentiality agreement;

             (vii)  if requested by any selling Holders or the underwriter(s),
     if any, promptly incorporate in any Registration Statement or Prospectus,
     pursuant to a supplement or post-effective amendment if necessary, such
     information as such selling Holders and underwriter(s), if any, may
     reasonably request to have included therein, including, without limitation,
     information relating to the "Plan of Distribution" of the Transfer
     Restricted Securities, information with respect to the principal amount of

 
                                     -13-

     Transfer Restricted Securities being sold to such underwriter(s), the
     purchase price being paid for Transfer Restricted Securities and any other
     terms of the offering of the Transfer Restricted Securities to be sold in
     such offering; and make all required filings of such Prospectus supplement
     or post-effective amendment as soon as practicable after the Company is
     notified of the matters to be incorporated in such Prospectus supplement or
     post-effective amendment; provided, however, that the Company shall not be
                               --------  -------                               
     required to take any action pursuant to this Section 6(c)(vii) that would,
     in the opinion of counsel for the Company, violate applicable law;

             (viii)  furnish to each underwriter, if any, the Initial Purchaser
     and upon request to the Company to a selling Holder without charge, at
     least one conformed copy of the Registration Statement, as first filed with
     the Commission, and of each amendment thereto, including, upon the request
     of such Person, all documents incorporated by reference therein and all
     exhibits to the extent requested (including exhibits incorporated therein
     by reference);

             (ix)    deliver to each selling Holder, each of the underwriter(s),
     if any, and the Initial Purchaser, without charge, as many copies of the
     Prospectus (including each preliminary prospectus) and any amendment or
     supplement thereto as such Persons may reasonably request; the Company and
     the Guarantors hereby consent to the use of the Prospectus and any
     amendment or supplement to the Prospectus by each of the selling Holders
     and each of the underwriter(s), if any, in connection with the offering and
     the sale of the Transfer Restricted Securities in accordance with the terms
     thereof and with U.S. Federal securities laws and Blue Sky laws covered by
     the Prospectus or any amendment or supplement thereto;

             (x)     enter into such agreements (including an underwriting
     agreement in form, scope and substance as is customary in underwritten
     offerings of securities of this type) and take all such other reasonable
     actions in connection therewith in order to expedite or facilitate the
     disposition of the Transfer Restricted Securities pursuant to any
     Registration Statement contemplated by this Agreement, all as may be
     reasonably requested by any Holder of Transfer Restricted Securities or the
     underwriter(s), if any, in connection with any sale or resale of Transfer
     Restricted Securities pursuant to any Registration Statement contemplated
     by this Agreement; and whether or not an underwriting agreement is entered
     into and whether or not the registration is an Underwritten Registration,
     the Company and the Guarantors shall (A) make such representations and
     warranties to the Holders of such Transfer Restricted Securities and the
     underwriters, if any, with respect to the business of the Company and its
     Subsidiaries (including with respect to businesses or assets acquired or to
     be acquired by any of them), and the Shelf Registration Statement,
     Prospectus and documents, if any, incorporated or deemed to be incorporated
     by reference therein, in each case, in form, sub-

 
                                     -14-

     stance and scope as are customarily made by issuers to underwriters in
     underwritten offerings, and confirm the same if and when customarily
     requested; (B) obtain opinions of counsel to the Company and the Guarantors
     and updates thereof (which counsel and opinions (in form, scope and
     substance) shall be reasonably satisfactory to the underwriters, if any,
     and special counsel to the Holders of the Transfer Restricted Securities
     being sold), addressed to each selling Holder of Transfer Restricted
     Securities and each of the underwriters, if any, covering the matters
     customarily covered in opinions requested in underwritten offerings and
     such other matters as may be reasonably requested by such underwriters, if
     any, and special counsel to Holders of Transfer Restricted Securities; (C)
     use their reasonable best efforts to obtain customary "cold comfort"
     letters and updates thereof from the independent certified public
     accountants of the Company (and, if necessary, any other independent
     certified public accountants of any subsidiary of the Company or of any
     business acquired by the Company or any such subsidiary for which financial
     statements and financial data is, or is required to be, included in the
     Registration Statement), addressed (where reasonably possible) to each
     selling Holder of Transfer Restricted Securities and each of the
     underwriters, if any, such letters to be in customary form and covering
     matters of the type customarily covered in "cold comfort" letters in
     connection with underwritten offerings; (D) if an underwriting agreement is
     entered into, the same shall contain indemnification provisions and
     procedures no less favorable to the selling Holders and the underwriters,
     if any, than those set forth in Section 8 hereof (or such other provisions
     and procedures acceptable to Holders of a majority in aggregate principal
     amount of Transfer Restricted Securities covered by such Shelf Registration
     Statement and the underwriters, if any); and (E) deliver such documents and
     certificates as may be reasonably requested by the Holders of a majority in
     aggregate principal amount of the Transfer Restricted Securities being sold
     and the underwriters, if any, to evidence the continued validity of the
     representations and warranties made pursuant to clause (A) above and to
     evidence compliance with any customary conditions contained in the
     underwriting agreement or other agreement entered into by the Company.

          If at any time the representations and warranties of the Company and
     the Guarantors contemplated in clause (A) above cease to be true and
     correct, the Company shall so advise the Initial Purchaser and the
     underwriter(s), if any, and each selling Holder promptly and, if requested
     by any of them, shall confirm such advice in writing;

             (xi)  prior to any public offering of Transfer Restricted
     Securities, cooperate with and cause the Guarantors to cooperate with the
     selling Holders, the underwriter(s), if any, and their respective counsel
     in connection with the registration and qualification (or exemption from
     such registration or qualification) of the Transfer Restricted Securities
     for offer and sale under the securities or Blue Sky laws of such
     ju-

 
                                     -15-

     risdictions as the selling Holders and underwriter(s), if any, may
     reasonably request in writing and do any and all other acts or things
     necessary or advisable to enable the disposition in such jurisdictions of
     the Transfer Restricted Securities covered by the Registration Statement;
     provided, however, that neither the Company nor the Guarantors shall be
     --------  -------
     required to register or qualify as a foreign corporation where it is not
     now so qualified or to take any action that would subject it to the service
     of process or to taxation, other than as to matters and transactions
     relating to the Registration Statement, in any jurisdiction where it is not
     now so subject;

             (xii)   if a Shelf Registration is filed pursuant to Section 4(a),
     cooperate with the selling Holders of Registrable Securities and the
     managing Underwriters, if any, to facilitate the timely preparation and
     delivery of certificates representing Transfer Restricted Securities to be
     sold, which certificates shall not bear any restrictive legends and shall
     be in a form eligible for deposit with The Depository Trust Company; and
     enable such Transfer Restricted Securities to be in such denominations and
     registered in such names as the managing Underwriters, if any, or Holders
     may reasonably request;

             (xiii)  in connection with any sale or transfer of Transfer
     Restricted Securities that will result in such securities no longer being
     Transfer Restricted Securities, cooperate with and cause the Guarantors to
     cooperate with the selling Holders and the underwriter(s), if any, to
     facilitate the timely preparation and delivery of certificates representing
     Transfer Restricted Securities to be sold and not bearing any restrictive
     legends; and enable such Transfer Restricted Securities to be in such
     denominations and registered in such names as the Holders or the
     underwriter(s), if any, may request at least two business days prior to any
     sale of Transfer Restricted Securities made by such underwriter(s);

             (xiv)   use their reasonable best efforts to cause the Transfer
     Restricted Securities covered by the Registration Statement to be
     registered with or approved by such other governmental agencies or
     authorities as may be necessary to enable the seller or sellers of such
     Transfer Restricted Securities or the underwriter(s), if any, to consummate
     the disposition of such Transfer Restricted Securities, subject to the
     proviso contained in clause (xi) above;

             (xv)    if any fact or event contemplated by Section 6(c)(iii)(D)
     of this Agreement shall exist or have occurred, prepare a supplement or
     post-effective amendment to the Registration Statement or related
     Prospectus or any document incorporated in such Registration Statement or
     Prospectus by reference or file any other required document so that, as
     thereafter delivered to the purchasers of Transfer Restricted Securities,
     the Registration Statement will not contain an untrue statement of a
     material fact  

 
                                     -16-

     or omit to state any material fact necessary to make the statements therein
     not misleading and the Prospectus will not contain an untrue statement of a
     material fact or omit to state any material fact required to be stated
     therein or necessary to make the statements contained therein, in the light
     of the circumstances under which they were made, not misleading;

             (xvi)    provide a CUSIP number for all Transfer Restricted
     Securities not later than the effective date of the Registration Statement
     and provide the Trustee under the Indenture with printed certificates for
     the Transfer Restricted Securities that are in a form eligible for deposit
     with The Depository Trust Company;

             (xvii)   cooperate and assist in any filings required to be made
     with the NASD and in the performance of any due diligence investigation by
     any underwriter (including any "qualified independent underwriter" that is
     required to be retained in accordance with the rules and regulations of the
     NASD);

             (xviii)  otherwise use their reasonable best efforts to comply with
     all applicable rules and regulations of the Commission in regards to any
     Registration Statement, and make generally available to its
     securityholders, as soon as practicable, a consolidated earning statement
     of the Company meeting the requirements of Rule 158 (which need not be
     audited) for the twelve-month period (A) commencing at the end of any
     fiscal quarter in which Transfer Restricted Securities are sold to
     underwriters in a firm commitment or reasonable best efforts Underwritten
     Offering or (B) if not sold to underwriters in such an offering, beginning
     with the first month of the Company's first fiscal quarter commencing after
     the effective date of the Registration Statement;

             (xix)    cause the Indenture to be qualified under the TIA not
     later than the effective date of the first Registration Statement required
     by this Agreement, and, in connection therewith, cooperate with the Trustee
     and the Holders to effect such changes to the Indenture, if any, as may be
     required for such Indenture to be so qualified in accordance with the terms
     of the TIA; and execute, and use their best efforts to cause the Trustee to
     execute, all customary documents that may be required to effect such
     changes and all other forms and documents required to be filed with the
     Commission to enable such Indenture to be so qualified in a timely manner.

             Each Holder agrees by acquisition of a Transfer Restricted Security
that, upon receipt of any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) of this Agreement, such Holder
will forthwith discontinue disposition of Transfer Restricted Securities
pursuant to the applicable Registration Statement until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
6(c)(xv) of this Agreement, or until it is advised in writing (the "Advice") by
                                                                    ------
the 

 
                                     -17-

Company that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings that are incorporated by reference in
the Prospectus. If so directed by the Company, each Holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Transfer
Restricted Securities that was current at the time of receipt of such notice. In
the event that the Company shall give any such notice, the time period regarding
the effectiveness of such Registration Statement set forth in Section 3 or 4 of
this Agreement, as applicable, shall be extended by the number of days during
the period from and including the date of the giving of such notice pursuant to
Section 6(c)(iii)(D) of this Agreement to and including the date when each
selling Holder covered by such Registration Statement shall have received the
copies of the supplemented or amended Prospectus contemplated by Section
6(c)(xv) of this Agreement or shall have received the Advice.

SECTION 7. REGISTRATION EXPENSES

           (a)  All fees and expenses incident to the Company's and the
Guarantors' performance of or compliance with this Agreement will be borne by
the Company regardless of whether a Registration Statement becomes effective,
including without limitation: (i) all registration and filing fees and expenses
(including filings made with the NASD (and, if applicable, the fees and expenses
of any "qualified independent underwriter" and its counsel that may be required
by the rules and regulations of the NASD)); (ii) all fees and expenses of
compliance with federal securities and state Blue Sky or securities laws; (iii)
all expenses of printing (including printing certificates for the New Notes to
be issued in the Exchange Offer and printing of Prospectuses); (iv) all fees and
disbursements of counsel for the Company, the Guarantors and, subject to Section
7(b) below, the Holders of Transfer Restricted Securities; and (v) all fees and
disbursements of independent certified public accountants of the Company and the
Guarantors (including the expenses of any special audit and comfort letters
required by or incident to such performance).

           The Company and the Guarantors will, in any event, bear their
internal expenses (including, without limitation, all salaries and expenses of
their officers and employees performing legal or accounting duties), the
expenses of any annual audit and the fees and expenses of any Person, including
special experts, retained by them.

           Notwithstanding the foregoing or anything in this Agreement to the
contrary, each Holder of Transfer Restricted  Notes shall pay all underwriting
discounts and commissions of any underwriters with respect to any Notes sold by
or on behalf of it.

           (b)  In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchaser and the Holders of 

 
                                     -18-

Transfer Restricted Securities being tendered in the Exchange Offer and/or
resold pursuant to the "Plan of Distribution" contained in the Exchange Offer
Registration Statement or registered pursuant to the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not more
than one counsel, who shall be Cahill Gordon & Reindel or such other counsel as
may be chosen by the Holders of a majority in principal amount of the Transfer
Restricted Securities for whose benefit such Registration Statement is being
prepared.

SECTION 8. INDEMNIFICATION

           (a)  Each of the Company and the Guarantors, on a joint and several
basis, agrees to indemnify and hold harmless (i) the Initial Purchaser, each
Holder of Transfer Restricted Securities and each Participating Broker Dealer,
(ii) each person, if any, who controls any of the foregoing within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act (any of the persons
referred to in this clause (ii) being hereinafter referred to as a "controlling
                                                                    -----------
person") and (iii) its agents, employees, officers and directors and the agents,
- ------                                                                          
employees, officers and directors of any such controlling person (collectively,
the "Indemnified Persons") from and against any and all losses, liabilities,
     -------------------                                                    
claims, damages and expenses whatsoever (including but not limited to reasonable
fees of not more than one separate law firm (in addition to local counsel) and
any and all reasonable expenses whatsoever incurred in investigating, preparing
or defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all reasonable amounts paid in settlement of any claim
or litigation) to which they or any of them may become subject under the Act,
the Exchange Act or otherwise, insofar as such losses, liabilities, claims,
damages or expenses (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or Prospectus, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the Company
                                            --------  -------                  
and the Guarantors will not be liable in any such case to the extent, but only
to the extent, that any such loss, liability, claim, damage or expense arises
out of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company by or on behalf of any
Indemnified Person relating to such Indemnified Person expressly for use
therein.  This indemnity agreement will be in addition to any liability that the
Company and the Guarantors may otherwise have, including, but not limited to,
liability under this Agreement.

           If any action is brought against any Indemnified Persons or any such
person in respect of which indemnity may be sought against the Company and the
Guarantors pursuant to the foregoing paragraph, such Indemnified Persons or such
person shall promptly notify the indemnifying party in writing of the
institution of such action and the indemnifying party shall assume the defense
of such action, including the employment of counsel reasonably satisfactory to
such indemnified party 

 
                                     -19-

and payment of all fees and expenses, provided, however, that the omission to so
notify the indemnifying party shall not relieve the indemnifying party from any
liability which they may have to the Indemnified Persons or any such person or
otherwise. Such Indemnified Persons shall have the right to employ its own
counsel in any such case, but the reasonable fees and expenses of such counsel
shall be at the expense of such Indemnified Persons unless the employment of
such counsel shall have been authorized in writing by the indemnifying party in
connection with the defense of such action or the indemnifying party shall not
have employed counsel to have charge of the defense of such action or such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such reasonable fees and
expenses shall be borne by the indemnifying party and paid as incurred (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel (together with appropriate local
counsel) in any one action or series of related actions in the same jurisdiction
representing the indemnified parties who are parties to such action). The
indemnifying party shall not be liable for any settlement of any such claim or
action effected without its written consent but if settled with the written
consent of the indemnifying party, the indemnifying party agrees to indemnify
and hold harmless any Indemnified Persons and any such person from and against
any loss or liability by reason of such settlement. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second sentence of this paragraph, then the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 60 business days after receipt by such indemnifying party
of the aforesaid request, (ii) such indemnifying party shall not have reimbursed
the indemnified party in accordance with such request prior to the date of such
settlement and (iii) such indemnified party shall have given the indemnifying
party at least 30 days' prior notice of its intention to settle. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.

          (b)  In connection with any Registration Statement pursuant to which a
Holder of Transfer Restricted Securities offers or sells Transfer Restricted
Securities, such Holder agrees, severally and not jointly, to indemnify and hold
harmless the Company and the Guarantors, their respective directors and officers
and any person controlling the Company or a 

 
                                     -20-

Guarantor within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, and each of their agents, employees, officers and directors and
the agents, employees, officers and directors of such controlling person from
and against any losses, liabilities, claims, damages and expenses (including but
not limited to reasonable fees of not more than one separate law firm (in
addition to local counsel) and any and all reasonable expenses whatsoever
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever and any and all reasonable
amounts paid in settlement of any claim or litigation) to which they or any of
them may become subject under the Act, the Exchange Act or otherwise insofar as
such losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, or in any
amendment thereof or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in each case to the
extent, but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information relating to such Holder furnished to the
Company by such Holder in writing expressly for use therein.

          If any action is brought against the Company or a Guarantor or any
such person in respect of which indemnity may be sought against any Holder of
Transfer Restricted Securities pursuant to the foregoing paragraph, the Company,
the Guarantors or such person shall promptly notify such Holder in writing of
the institution of such action and such Holder shall assume the defense of such
action, including the employment of counsel reasonably satisfactory to such
indemnified party and payment of all fees and expenses, provided, however, that
the omission to so notify such Holder shall not relieve such Holder from any
liability which they may have to the Company, the Guarantors or any such person
or otherwise.  The Company, the Guarantors or such person shall have the right
to employ its own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of the Company or such person unless the
employment of such counsel shall have been authorized in writing by such Holder
of Transfer Restricted Securities in connection with the defense of such action
or such Holder shall not have employed counsel to have charge of the defense of
such action or such indemnified party or parties shall have reasonably concluded
that there may be defenses available to it or them which are different from or
additional to those available to such Holder (in which case such Holder shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties, but such Holder may employ counsel and participate
in the defense thereof but the fees and expenses of such counsel shall be at the
expense of such Holder), in any of which events such fees and expenses shall be
borne by such Holder and paid as incurred (it being understood, however, that
such Holder shall not be liable 

 
                                     -21-

for the expenses of more than one separate counsel in any one action or series
of related actions in the same jurisdiction representing the indemnified parties
who are parties to such action). Anything in this paragraph to the contrary
notwithstanding, any Holder of Transfer Restricted Securities shall not be
liable for any settlement of any such claim or action effected without the
written consent of such Holder but if settled with the written consent of such
Holder, such Holder agrees to indemnify and hold harmless the Company, the
Guarantors and any such person from and against any loss or liability by reason
of such settlement. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the second
sentence of this paragraph, then the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 60 business days after receipt
by such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement and (iii) such indemnified party
shall have given the indemnifying party at least 30 days' prior notice of its
intention to settle. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such proceeding.

          (c)  In order to provide for contribution in circumstances in which
the indemnification provided for in paragraphs (a) and (b) of this Section 8 is
for any reason held to be unavailable from the indemnifying party, or is
insufficient to hold harmless a party indemnified under this Section 8, the
Company, the Guarantors and the Indemnified Persons shall contribute to the
amount paid or payable by such indemnified party as a result of such aggregate
losses, claims, damages, liabilities and expenses of the nature contemplated by
such indemnification provision (including any investigation, legal and other
expenses incurred in connection with, and any amount paid in settlement of, any
action or any claims asserted) to which the Company and/or the Guarantors and
the Indemnified Persons may be subject (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company and the Guarantors, on
the one hand, and the Indemnified Persons, on the other hand, from the offering
of the Old Notes or, (ii) if such allocation is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Guarantors, on the one hand, and the Indemnified Persons, on the other hand,
in connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations.  The relative  benefits received by the Company and
the Guarantors, on the one hand, and the Indemnified Persons, on the other hand,
shall be deemed to be in the 

 
                                     -22-

same proportion as the total proceeds from the offering of Old Notes (net of
discounts and commissions but before deducting expenses) received by the Company
as set forth in the table on the cover page of the Offering Memorandum bear to
the total proceeds received by such Holder with respect to its sale of Transfer
Restricted Securities or New Notes. The relative fault of the Company and the
Guarantors, on the one hand, and the Indemnified Persons, on the other hand,
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company, the
Guarantors or the Indemnified Persons and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission or alleged statement or omission.

          The Company, the Guarantors and the Initial Purchaser agree that it
would not be just and equitable if contribution pursuant to this paragraph (c)
of this Section 8 were determined by pro rata allocation or by any other method
of allocation that does not take into account the equitable considerations
referred to above.  Notwithstanding the provisions of paragraph (c) of this
Section 8, (i) in no case shall an Indemnified Person be required to contribute
any amount in excess of the amount by which the total proceeds received by such
Indemnified Person with respect to its sale of its Transfer Restricted
Securities or New Notes, as the case may be, exceeds the amount of any damages
that such Indemnified Person has otherwise been required to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.  For purposes of this paragraph (c)
of this Section 8, each person, if any, who controls an Indemnified Person
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
shall have the same rights to contribution as such Indemnified Person, and each
person, if any, who controls the Company or the Guarantors within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act shall have the same
rights to contribution as the Company or the Guarantors, respectively, where
applicable, subject in each case to clauses (i) and (ii) of this paragraph.  Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim for
contribution may be made against another party or parties under this paragraph
8(c), notify such party or parties from whom contribution may be sought, but the
omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this paragraph (c) of this Section 8 or otherwise; provided, however,
                                                              --------  ------- 
that no additional notice shall be required with respect to any action for which
notice has been given under paragraphs (a) or (b) of this Section 8 for purposes
of indemnification.  No party shall be liable for contribution with respect to
any action or claim settled without its written consent, provided, however, that
                                                         --------  -------      
such written consent was not unreasonably withheld.

 
                                     -23-

SECTION 9.  RULE 144A

          The Company and the Guarantors shall use their best efforts, for so
long as any Transfer Restricted Securities remain outstanding, to make available
to any Holder or beneficial owner of Transfer Restricted Securities in
connection with any sale of such securities and any prospective purchaser of
such Transfer Restricted Securities from such Holder or beneficial owner, the
information required by Rule 144A(d)(4) under the Act in order to permit resales
of such Transfer Restricted Securities pursuant to Rule 144A.

SECTION 10.  PARTICIPATION IN UNDERWRITTEN REGISTRATIONS

          No Holder may participate in any Underwritten Registration under this
Agreement unless such Holder (a) agrees to sell such Holder's Transfer
Restricted Securities on the basis provided in any underwriting arrangements
approved by the Persons entitled under this Agreement to approve such
arrangements and (b) completes and executes all reasonable questionnaires,
powers of attorneys, indemnities, underwriting agreements, lock-up letters and
other documents required under the terms of such underwriting arrangements.

SECTION 11.  SELECTION OF UNDERWRITERS

          The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering.  In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
               --------                                                   
reasonably satisfactory to the Company.

SECTION 12.  MISCELLANEOUS

          (a)  Remedies.  Each Holder, in addition to being entitled to exercise
               --------                                                         
all rights provided in this Agreement, in the Indenture, the Purchase Agreement
or granted by law, including recovery of liquidated or other damages, will be
entitled to specific performance of its rights under this Agreement.  The
Company and the Guarantors agree that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agree to waive the defense in any Action for
specific performance that a remedy at law would be adequate.

          (b)  No Inconsistent Agreements.  Each of the Company and the
               --------------------------                              
Guarantors will not on or after the date of this Agreement enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions of this Agreement.  The Company will not have previously 

 
                                     -24-

entered into any agreement granting any registration rights with respect to its
securities to any Person. The rights granted to the Holders under this Agreement
do not in any way conflict with and are not inconsistent with the rights granted
to the holders of the Company's securities under any agreement in effect on the
date of this Agreement.

          (c)  Adjustments Affecting the Notes.  Without the written consent of
               -------------------------------                                 
the Holders of a majority in aggregate principal amount of outstanding Transfer
Restricted Notes, the Company and the Guarantors will not take any action, or
permit any change to occur, with respect to the Notes that would materially and
adversely affect the ability of the Holders to Consummate any Exchange Offer.

          (d)  Amendments and Waivers.  The provisions of this Agreement may not
               ----------------------                                           
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions of this Agreement may not be given unless the Company has
obtained the written consent of Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities.  Notwithstanding the
foregoing, a waiver or consent to departure from the provisions of this
Agreement that relates exclusively to the rights of Holders whose securities are
being sold or tendered pursuant to a Registration Statement and that does not
affect directly or indirectly the rights of other Holders whose securities are
not being sold or tendered pursuant to such Registration Statement may be given
by the Holders of a majority  of the outstanding principal amount of Transfer
Restricted Securities being so sold or tendered.

          (e)  Notices.  All notices and other communications provided for or
               -------                                                       
permitted hereunder shall be made in writing by hand-delivering, first-class
mail (registered or certified, return receipt requested), telex, telecopier or
air courier guaranteeing overnight delivery:

             (i) if to a Holder, at the address set forth on the records of the
     Registrar under the Indenture, with a copy to the Registrar under the
     Indenture; and

             (ii) if to the Company, the Guarantor or the Subsidiary Guarantors,
     at:

                  AEI Resources, Inc.

                  1500 North Big Run Road
                  Ashland, Kentucky 41102
                  Facsimile:  (606) 928-0450
                  Attention:  Treasurer/Controller

                  with a copy to:

                  Brown, Todd & Heyburn PLLC
                  2700 Lexington Financial Center
                  Lexington, Kentucky 40507-1749
     

 
                                     -25-

                  Facsimile:  (606) 231-0011
                  Attention:  Paul Sullivan, Esq.

          All such notices and communications shall be deemed to have been duly
given:  (i) at the time delivered by hand, if personally delivered; (ii) five
business days after being deposited in the mail, postage prepaid, if mailed;
(iii) when answered back, if telexed; (iv) when receipt acknowledged, if
telecopied; and (v) on the next business day, if timely delivered to an air
courier guaranteeing overnight delivery.

          Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.

          (f)  Successors and Assigns.  This Agreement shall inure to the
               ----------------------                                    
benefit of and be binding upon the successors and  permitted assigns of each of
the parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities.

          (g)  Counterparts.  This Agreement may be executed in any number of
               ------------                                                  
counterparts and by the parties to this Agreement in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.

          (h)  Captions.  The captions included in this Agreement are included
               --------                                                       
solely for convenience of reference and are not to be considered a part of this
Agreement.

          (i)  Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
               -------------                                                    
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.

          (j)  Submission to Jurisdiction.  The Company and the Guarantors
               --------------------------                                 
irrevocably submit to the nonexclusive jurisdiction of any State or Federal
court sitting in New York over any suit, action or proceeding arising out of or
relating to this agreement.  The Company and the Guarantors irrevocably waive,
to the fullest extent permitted by law, any objection it may now or thereafter
have to the laying of venue of any such court and any claim that any such suit,
action or proceeding brought in such a court has been brought in an inconvenient
forum.  The Company and the Guarantors agree that a final judgment in any such
suit, action or proceeding brought in any such court shall be conclusive and
binding upon the Company and the Guarantors and may be enforced in any other
courts to the jurisdiction of which the Company and the Guarantors are or may be
subject, by suit upon such judgment.  The Company and the Guarantors hereby
appoint, without power of revocation, CT Corporation System as its agent 

 
                                     -26-

to accept and acknowledge on its behalf service of any and all process which may
be served in any suit, action or proceeding arising out of or relating to this
letter.

          (k)  Severability.  In the event that any one or more of the
               ------------                                           
provisions contained in this Agreement, or the application of any such provision
in any circumstance, is held invalid, illegal or unenforceable, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained in this Agreement shall not be affected or
impaired thereby.

          (l)  Entire Agreement.  This Agreement together with the other
               ----------------                                         
Operative Documents (as defined in the Purchase Agreement) is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties to
this Agreement in respect of the subject matter contained in this Agreement.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to in this Agreement with respect to the
registration rights granted by the Company with respect to the Transfer
Restricted Securities.  This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.

                           [Signatures on Next Page]

 
          IN WITNESS WHEREOF, the parties have executed this Senior Subordinated
Note Registration Rights Agreement as of the date first written above.

                              AEI RESOURCES, INC.

                              By: /s/ John E. Baum
                                 ______________________________
                                 Name: John E. Baum
                                 Title:

 
                               Confirmed and agreed to as Guarantors:  
                                                                       
                               17 WEST MINING, INC.,                   
                               ACECO, INC.,                            
                               ADDINGTON MINING, INC.,                 
                               AEI COAL SALES COMPANY, INC.,           
                               AEI HOLDING COMPANY, INC.,              
                               AEI RESOURCES HOLDING, INC.,            
                               AMERICOAL DEVELOPMENT COMPANY,          
                               APPALACHIAN REALTY COMPANY,             
                               AYRSHIRE LAND COMPANY,                  
                               BELLAIRE TRUCKING COMPANY,              
                               BLUEGRASS COAL DEVELOPMENT              
                                 COMPANY,                              
                               BOWIE RESOURCES LIMITED                 
                               CC COAL COMPANY,                        
                               COAL VENTURES HOLDING                   
                                 COMPANY, INC.,                         
                               EAST KENTUCKY ENERGY CORPORATION,       
                               EMPLOYEE BENEFITS MANAGEMENT, INC.,     
                               ENCOAL CORPORATION,                     
                               ENERZ CORPORATION,                      
                               EVERGREEN MINING COMPANY,               
                               FAIRVIEW LAND COMPANY,                  
                               FRANKLIN COAL SALES COMPANY,            
                               GRASSY COVE COAL MINING COMPANY,        
                               HERITAGE MINING COMPANY,                
                               HIGHLAND COAL, INC.,                    
                               IKERD-BANDY CO., INC.,                  
                               KERMIT COAL COMPANY,                    
                               LESLIE RESOURCES, INC.,                 
                               LESLIE RESOURCES MANAGEMENT, INC.,      
                               MEADOWLARK, INC.,                       
                               MEGA MINERALS, INC.,                    
                               MIDWEST COAL SALES COMPANY,             
                               MID-VOL LEASING, INC.                   
                               MINING TECHNOLOGIES, INC.,              
                               MOUNTAIN-CLAY, INCORPORATED (d/b/a      
                                 Mountain Clay, Inc.),                 
                               PHOENIX LAND COMPANY,                   
                               PREMIUM PROCESSING, INC.,               
                               PREMIUM COAL DEVELOPMENT COMPANY,       
                               PRO-LAND, INC. (d/b/a Kem Coal Company) 

 
                               R.& F. COAL COMPANY,                   
                               RIVER COAL COMPANY, INC.,               
                               ROARING CREEK COAL COMPANY,             
                               SHIPYARD RIVER COAL TERMINAL COMPANY,   
                               STRAIGHT CREEK COAL RESOURCES COMPANY,  
                               TENNESSEE MINING, INC.,                 
                               TURRIS COAL COMPANY,                    
                               WYOMING COAL TECHNOLOGY, INC.,          
                               ZEIGLER COAL HOLDING COMPANY,           
                               ZEIGLER ENVIRONMENTAL SERVICES COMPANY, 
                               ZENERGY, INC.,                          
                                 each as Guarantor                      

                               By:  /s/ John E. Baum
                                    _____________________________________
                                    Name: John E. Baum
                                    Title:

 
                              BEECH COAL COMPANY,
                              CANNELTON, INC.,
                              CANNELTON INDUSTRIES, INC.,
                              CANNELTON LAND COMPANY,
                              CANNELTON SALES COMPANY,
                              DUNN COAL & DOCK COMPANY,
                              HAYMAN HOLDINGS, INC.,
                              KANAWHA CORPORATION,
                              KINDILL HOLDING, INC.,
                              KINDILL MINING, INC.,
                              MIDWEST COAL COMPANY ,
                              MOUNTAINEER COAL DEVELOPMENT
                                COMPANY,
                              MOUNTAIN COALS CORPORATION,
                              OLD BEN COAL COMPANY,
                              WEST VIRGINIA-INDIANA COAL HOLDING
                                COMPANY, INC.,
                                each as Guarantor

                              By:  /s/ William H. Haselhoff
                                   __________________________
                                   Name: William H. Haselhoff
                                   Title:

 
                              BENTLEY COAL COMPANY,
                              SKYLINE COAL COMPANY,
                              KENTUCKY PRINCE MINING COMPANY,
                                each as Guarantor

                              By:  GRASSY COVE COAL MINING   COMPANY,
                                    ROARING CREEK COAL COMPANY,
                                    each as General Partner of each of the
                                    entities listed above

                              By:   /s/ John E. Baum
                                    _______________________________
                                    Name: John E. Baum
                                    Title: 

 
                              NUCOAL, LLC,
                               as Guarantor

                              By:  AMERICOAL DEVELOPMENT COMPANY
                                    ENCOAL CORPORATION
                                    each as Member

                              By:  /s/ John E. Baum
                                   ________________________________
                                   Name: John E. Baum
                                   Title: 

 
                              Confirmed and Accepted and agreed as of the date
                              first above written:

                              WARBURG DILLON READ LLC,
                                as Initial Purchaser

                              By: /s/ Kaj Ahlburg
                                  ________________________________
                                  Name: Kaj Ahlburg
                                  Title: Executive Director Leveraged Finance

                              By: /s/ David W. Barth
                                  ________________________________
                                  Name: David W. Barth
                                  Title: Associate Director Leveraged Finance

EX-4.2(C)

 
                       CROSS-REFERENCE SHEET
                       ---------------------


Trust Indenture Act Section                Indenture Section
- ---------------------------                -----------------
 
   Section 310(a)(1)                         Section 7.10       
   Section 310(a)(2)                         Section 7.10         
   Section 310(a)(3)                         N/A                 
   Section 310(a)(4)                         N/A                 
   Section 310(a)(5)                         Section 7.10        
   Section 310(b)                            Section 7.10        
   Section 310(c)                            N/A                 
   Section 311(a)                            Section 7.11        
   Section 311(b)                            Section 7.11        
   Section 311(c)                            N/A                 
   Section 312(a)                            Section 2.05        
   Section 312(b)                            Section 12.03       
   Section 312(c)                            Section 12.03       
   Section 313(a)                            Section 7.06        
   Section 313(b)(1)                         N/A                 
   Section 313(b)(2)                         Section 7.06        
   Section 313(c)                            Section 7.06        
   Section 313(d)                            Section 7.06        
   Section 314(a)                            Section 4.03        
   Section 314(b)                            N/A                 
   Section 314(c)                            Section 12.04       
   Section 314(d)                            N/A                 
   Section 314(e)                            Section 12.05       
   Section 314(f)                            N/A                 
   Section 315(a)                            Section 7.01(b)     
   Section 315(b)                            Section 7.05        
   Section 315(c)                            Section 7.01(a)     
   Section 315(d)                            Section 7.01(c)     
   Section 315(e)                            Section 6.11        
   Section 316(a)(1)                         Sections 6.04, 6.05 
   Section 316(a)(2)                         N/A                 
   Section 316(b)                            Section 6.07        
   Section 316(c)                            N/A                 
   Section 317(a)(1)                         Section 6.08        
   Section 317(a)(2)                         Section 6.09        
   Section 317(b)                            Section 2.04        
   Section 318(a)                            Section 12.01        

EX-23.1

 
                                                                    EXHIBIT 23.1

                   Consent of Independent Public Accountants


As independent public accountants, we hereby consent to the use of our reports 
(and to all references to our Firm) included in or made a part of this 
registration statement on Form S-4 for $200 million of 10.5% Senior Notes due 
2005.

                                            /s/ Arthur Andersen LLP

                                            Arthur Andersen LLP

Louisville, Kentucky
February 8, 1999

EX-23.2(A)

 
 
                                                                 EXHIBIT 23.2(a)


INDEPENDENT AUDITOR'S CONSENT


We consent to the use in this Registration Statement of AEI Resources, Inc. on 
Form S-4 of our report dated February 5, 1998 relating to the consolidated 
financial statements of Zeigler Coal Holding Company, appearing in the 
Prospectus, which is part of this Registration Statement.

We also consent to the reference to us under headings "Selected Historical 
Consolidated Financial Data" and "Experts" in such Prospectus.


                                        /s/ Deloitte & Touche LLP

St. Louis, Missouri
February 12, 1999

EX-23.2(B)

 
                                                                 EXHIBIT 23.2(B)


INDEPENDENT AUDITOR'S CONSENT


We consent to the use in this Registration Statement of AEI Resources, Inc. 
on Form S-4 of our report dated April 3, 1998 (May 15, 1998 as to Note 6 and
August 17, 1998 as to Note 16), appearing in the Prospectus, which is part of
this Registration Statement.

We also consent to the reference to us under the headings "Experts" in such
Prospectus.


                                        /s/ Deloitte & Touche LLP

Louisville, Kentucky
February 12, 1999

 

EX-23.2(C)

 
                                                                   EXHIBIT 23.2C

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of AEI Resources, Inc. and 
subsidiaries on Form S-4 of our report dated January 7, 1999 relating to the 
financial statements of Martiki Coal Corporation which expresses an unqualified 
opinion and includes an explanatory paragraph relating to the non-comparability 
of predecessor and successor financial statements due to the business 
combination on August 1, 1996 and the resulting application of purchase 
accounting, appearing in the Prospectus, which is part of this Registration 
Statement.

We also consent to the reference to us under the heading "Selected Financial 
Data" in such Prospectus.


/s/ Deloitte & Touche LLP

Tulsa, Oklahoma
February 11, 1999

EX-23.3

                                                                    EXHIBIT 23.2

PricewaterhouseCoopers [LOGO]
- --------------------------------------------------------------------------------


                                                      PricewaterhouseCoopers LLP
                                                      950 Seventeenth Street
                                                      Suite 2500
                                                      Denver CO 60202
                                                      Telephone (303) 893 8100

February 10, 1999

To the Board of Directors of AEI Resources, Inc.
 and AEI Holding Company, Inc.

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of AEI Resources, Inc. and AEI Holding
Company, Inc. relating to the registration of $200 million in Fixed Rate Senior
Notes Due 2005 of our report dated August 31, 1998, relating to the Cyprus
Eastern Coal Operations combined statements of assets, liabilities and parent
investment at December 31, 1997 and 1996 and the combined statements of
operating expenses of cash flows and of parent investment for each of the years
in the three-year period ended December 31, 1997 which appear in such
Prospectus. We also consent to the references to us under the heading "Experts"
in such Prospectus.

/s/ PricewaterhouseCoopers LLP

EX-23.4

 
                                                                    EXHIBIT 23.4

                   Consent of Independent Public Accountants


As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made part of this
registration statement.



Faesy, Schmitt & Company, PSC
Frankfort, Kentucky
January 8, 1999

EX-23.5

 
                                                                    EXHIBIT 23.5

                    CONSENT OF MARSHALL MILLER & ASSOCIATES


     We hereby consent to:  (1) the reference to us under the captions "Coal
Reserve Data" and "Engineers"; and (2) the use of information from or based on:
(a) our reserve report of July 1997, as amended, with respect to the
demonstrated coal reserves of Leslie Resources, Inc. and Leslie Resources
Management, Inc. and its subsidiaries, as such report was updated in September
1998; (b) our reserve report of September 1997, as amended, with respect to the
demonstrated coal reserves of AEI Holding Company, Inc. (the "Company") and its
subsidiaries, as such report was updated in September 1998;  (c) our reserve
report of April 1998, with respect to the demonstrated coal reserves of the
various subsidiaries of Cyprus Amax Coal Company acquired by AEI Resources, Inc.
("AEI") on June 29, 1998; (d) our reserve report of November 1997, with respect
to the demonstrated coal reserves acquired by CC Coal Company, an indirect
subsidiary of AEI, from The Battle Ridge Companies on July 24, 1998; and (e) our
reserve report of May 1998, with respect to the demonstrated coal reserves of
Mid Vol Leasing, Inc., Mega Minerals, Inc. and Premium Processing, Inc., which
were acquired by AEI on July 10, 1998, all of which are included in the
prospectus of the Company and AEI for the registration of US$200,000,000 of the
10 1/2% Senior Notes of the Company and AEI due 2005, which prospectus is part
of the registration statement to which this consent is an exhibit.

     We further wish to advise that Marshall Miller & Associates was not
employed on a contingent basis and that at the time of preparation of our
report, as well as at present, neither Marshall Miller & Associates nor any of
its employees had or now has a substantial interest in the Company, AEI or any
of their respective subsidiaries.

Respectfully submitted,


Marshall Miller & Associates


By:   /s/ K. Scott Keim
      _______________________

Name: K. Scott Keim 
      _______________________

Title: President 
      _______________________

Date:  February 8, 1999

EX-23.6

 
                                                                    EXHIBIT 23.6
               CONSENT OF WEIR INTERNATIONAL MINING CONSULTANTS


     We hereby consent to:  (1) the reference to us under the captions "Coal
Reserve Data" and "Engineers"; and (2) the use of information from or based on
our 1994 reserve report, as updated in May 1998, with respect to the
demonstrated coal reserves of Zeigler Coal Holding Company, Inc. and its
subsidiaries, which were acquired by Zeigler Acquisition Corporation, a
subsidiary of AEI Resources, Inc. ("AEI"), on September 2, 1998, all of which
are included in the prospectus of AEI Holding Company, Inc. ("the Company") and
AEI for the registration of US$200,000,000 of the 10 1/2% Senior Notes of the
Company and AEI due 2005, which prospectus is part of the registration statement
to which this consent is an exhibit.

     We further wish to advise that Weir International Mining Consultants was
not employed on a contingent basis and that at the time of preparation of our
report, as well as at present, neither Weir International Mining Consultants nor
any of its employees had or now has a substantial interest in the Company, AEI
or any of their respective subsidiaries.

Respectfully submitted,


Weir International Mining Consultants


By:  /s/ Dennis N. Kostic
     _______________________

Name: Dennis N. Kostic 
     _______________________

Title: President 
     _______________________

Date:  February 8, 1999

EX-25.1

 
                        ------------------------------
                      SECURITIES AND EXCHANGE COMMISSION            Exhibit 25.1
                             WASHINGTON, D. C. 20549

                                   ----------
                                    FORM T-1

                            STATEMENT OF ELIGIBILITY
             UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
                    CORPORATION DESIGNATED TO ACT AS TRUSTEE

                      CHECK IF AN APPLICATION TO DETERMINE
                      ELIGIBILITY OF A TRUSTEE PURSUANT TO
                               SECTION 305 (b) (2)


                                  ----------

                       IBJ WHITEHALL BANK & TRUST COMPANY
               (Exact name of trustee as specified in its charter)

         New York                                             13-5375195
(State of Incorporation                                     (I.R.S. Employer
if not a U.S. national bank)                                Identification No.)

One State Street, New York, New York                              10004
(Address of principal executive offices)                       (Zip code)

                    Terence Rawlins, Assistant Vice President
                       IBJ Whitehall Bank & Trust Company
                                One State Street
                            New York, New York 10004
                                 (212) 858-2000
            (Name, Address and Telephone Number of Agent for Service)

                            AEI HOLDING COMPANY, INC.

             (Exact name of co-obligor as specified in its charter)


         Delaware                                               61-1315723
(State or jurisdiction of                                    (I.R.S. Employer
incorporation or organization)                                Identification No)


1500 NORTH BIG RUN ROAD
      ASHLAND, KY                                                  41102
(Address of principal executive office)                          (Zip code)

                                   ----------





                               AEI RESOURCES, INC.

 
             (Exact name of co-obligor as specified in its charter)


         Delaware                                               61-1325832
(State or jurisdiction of                                    (I.R.S. Employer
incorporation or organization)                               Identification No.)


1500 NORTH BIG RUN ROAD
       ASHLAND, KY                                                41102
(Address of principal executive office)                         (Zip code)

                                  ----------

                         (Title of Indenture Securities)
                           AEI HOLDING COMPANY, INC.*
                              AEI RESOURCES, INC.*


               10-1/2% Senior Notes due 2005, Series A and Series B

                       ---------------------------------
                   *TABLE OF ADDITIONAL REGISTRANT GUARANTORS


 
 
- --------------------------------------------------------------------------------------------------------------------
                                               State or Other                             Address, including Zip
                                               Jurisdiction of        IRS Employer       Code and Telephone Number
                Exact Name                    Incorporation or       Identification      of Registrant Guarantor's
          of Registrant Guarantor               Organization             Number         Principal Executive Offices
- --------------------------------------------------------------------------------------------------------------------
                                                                             
17 West Mining (f/k/a Martiki Coal           Delaware                                   1500 North Big Run Rd.
Corporation)                                                                            Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Aceco, Inc.                                  Kentucky             61-0855680            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Addington Mining, Inc.                       Kentucky             61-0855680            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
AEI Coal Sales Company, Inc.                 Kentucky             61-1331912            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
AEI Resources Holding, Inc.                  Delaware             61-1331911            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Americoal Development Company                Delaware             37-1302915            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Appalachian Realty Company                   Kentucky             36-3336051            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
 
                                       2

 
 
 
- --------------------------------------------------------------------------------------------------------------------
                                               State or Other                             Address, including Zip
                                               Jurisdiction of        IRS Employer       Code and Telephone Number
                Exact Name                    Incorporation or       Identification      of Registrant Guarantor's
          of Registrant Guarantor               Organization             Number         Principal Executive Offices
- --------------------------------------------------------------------------------------------------------------------
                                                                             
Ayrshire Land Company                        Delaware             06-1208946            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Beech Coal Company                           Delaware             06-1187153            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Bellaire Trucking Company                    Delaware             76-0012930            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Bentley Coal Company                         New York                                   1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Bluegrass Coal Development Company           Delaware             76-0078312            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Bowie Resources Limited                      Colorado             84-1287719            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Cannelton, Inc.                              Delaware             55-0711787            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Cannelton Industries, Inc.                   West Virginia        55-0136145            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Cannelton Land Company                       Delaware             55-0715858            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Cannelton Sales Company                      Delaware             55-0677801            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
CC Coal Company                              Kentucky                                   1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Coal Ventures Holding Company, Inc.          Delaware             61-1328606            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Dunn Coal and Dock Company                   West Virginia        55-0677800            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
East Kentucky Energy Corporation             Kentucky             54-0971896            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Employee Benefits Management, Inc.           Delaware             36-4168193            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Encoal Corporation                           Delaware             76-0287726            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
EnerZ Corporation                            Delaware             37-1362012            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
 
                                       3

 
 
 
- --------------------------------------------------------------------------------------------------------------------
                                               State or Other                             Address, including Zip
                                               Jurisdiction of        IRS Employer       Code and Telephone Number
                Exact Name                    Incorporation or       Identification      of Registrant Guarantor's
          of Registrant Guarantor               Organization             Number         Principal Executive Offices
- --------------------------------------------------------------------------------------------------------------------
                                                                             
Evergreen Mining Company                     West Virginia        54-1206519            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Fairview Land Company                        Delaware             37-1267975            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Franklin Coal Sales Company                  Delaware             13-3121923            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Grassy Cove Coal Mining Company              Delaware             51-0274983            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Hayman Holdings, Inc.                        Kentucky                                   1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Heritage Mining Company                      Delaware             61-1286455            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Highland Coal, Inc.                          Kentucky                                   1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Ikerd-Bandy Co., Inc.                        Kentucky             61-0505276            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Kanawha Corporation                          Delaware             84-1107027            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Kentucky Prince Mining Company               New York                                   1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Kermit Coal Company                          West Virginia        55-0515741            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Kindill Holding, Inc.                        Kentucky                                   1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Kindill Mining, Inc.                         Indiana              35-1962074            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Leslie Resources, Inc.                       Kentucky             61-1013125            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Leslie Resources Management, Inc.            Kentucky             61-1292388            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Meadowlark, Inc.                             Indiana              35-0782260            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Mega Minerals, Inc.                          West Virginia        55-0720327            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
 
                                       4

 
 
 
- --------------------------------------------------------------------------------------------------------------------
                                               State or Other                             Address, including Zip
                                               Jurisdiction of        IRS Employer       Code and Telephone Number
                Exact Name                    Incorporation or       Identification      of Registrant Guarantor's
          of Registrant Guarantor               Organization             Number         Principal Executive Offices
- --------------------------------------------------------------------------------------------------------------------
                                                                             
Mid-Vol Leasing, Inc.                        West Virginia        55-0691054            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Midwest Coal Company                         Delaware             84-1324803            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Midwest Coal Sales Company                   Delaware             35-1599521            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Mining Technologies, Inc.                    Kentucky             61-1319730            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Mountain Coals Corporation                   Delaware             63-0725639            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Mountain-Clay Incorporated d/b/a Mountain    Kentucky             61-0621350            1500 North Big Run Rd.
Clay, Inc.                                                                              Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Mountaineer Coal Development Company         West Virginia        54-0989613            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
NuCoal LLC                                   Delaware             36-4143611
- --------------------------------------------------------------------------------------------------------------------
Old Ben Coal Company                         Delaware             34-1291413            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Phoenix Land Company                         Delaware             37-1302916            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Premium Coal Development Company             Delaware             36-4186350            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Premium Processing, Inc.                     West Virginia        55-0750451            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Pro-Land, Inc. d/b/a Kem Coal Company        Kentucky             61-0727363            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
R. &. F. Coal Company                        Ohio                 34-0832344            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
River Coal Company, Inc.                     Kentucky             61-0567214            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Roaring Creek Coal Company                   Delaware             35-1597000            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Shipyard River Coal Terminal Company         South Carolina       54-1156890            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Skyline Coal Company                         New York                                   1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
 
                                       5

 
 
 
- --------------------------------------------------------------------------------------------------------------------
                                               State or Other                             Address, including Zip
                                               Jurisdiction of        IRS Employer       Code and Telephone Number
                Exact Name                    Incorporation or       Identification      of Registrant Guarantor's
          of Registrant Guarantor               Organization             Number         Principal Executive Offices
- --------------------------------------------------------------------------------------------------------------------
                                                                             
Straight Creek Coal Resources Company        Kentucky             36-3317309            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Tennessee Mining, Inc.                       Kentucky             62-1640672            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Turris Coal Company                          Delaware             74-2121674            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
West Virginia-Indiana Coal Holding           Delaware                                   1500 North Big Run Rd.
Company, Inc.                                                                           Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Wyoming Coal Technology, Inc.                Wyoming              61-1336980            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Zeigler Coal Holding Company                 Delaware             36-3344449            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Zeigler Environmental Services Company       Delaware             36-4143610            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
Zenergy, Inc.                                Delaware             35-1870468            1500 North Big Run Rd.
                                                                                        Ashland, KY 41102
- --------------------------------------------------------------------------------------------------------------------
 



Item 1.   General information

          Furnish the following information as to the trustee:

          (a)  Name and address of each examining or supervising authority to
               which it is subject.

               New York State Banking Department
               Two Rector Street
               New York, New York

               Federal Deposit Insurance Corporation
               Washington, D.C.

               Federal Reserve Bank of New York Second District
               33 Liberty Street
               New York, New York

                                       6

 
          (b) Whether it is authorized to exercise corporate trust powers.

                    Yes


Item 2.   Affiliations with the Obligors.

          If the obligors are an affiliate of the trustee, describe each such
          affiliation.

          Neither obligor is an affiliate of the trustee.


Item 3.   Voting securities of the trustee.

          Furnish the following information as to each class of voting
          securities of the trustee:

                             As of February 8, 1999

    Col. A                                                         Col. B
Title of class                                               Amount Outstanding
- --------------                                               ------------------


                                 Not Applicable

Item 4.   Trusteeships under other indentures.

          If the trustee is a trustee under another indenture under which any
          other securities, or certificates of interest or participation in any
          other securities, of the obligors are outstanding, furnish the
          following information:

          (a)  Title of the securities outstanding under each such other
               indenture

                                 Not Applicable

          (b)  A brief statement of the facts relied upon as a basis for the
               claim that no conflicting interest within the meaning of Section
               310 (b) (1) of the Act arises as a result of the trusteeship
               under any such other indenture, including a statement as to how
               the indenture securities will rank as compared with the
               securities issued under such other indenture.

                                 Not Applicable

                                       7

 
Item 5.   Interlocking directorates and similar relationships with the obligors 
          or underwriters.

          If the trustee or any of the directors or executive officers of the
          trustee is a director, officer, partner, employee, appointee, or
          representative of the obligors or of any underwriter for the obligors,
          identify each such person having any such connection and state the
          nature of each such connection.

                                 Not Applicable


Item 6.   Voting securities of the trustee owned by the obligors or their
          officials.

          Furnish the following information as to the voting securities of the
          trustee owned beneficially by the obligors and each director, partner,
          and executive officer of the obligors:

                             As of February 8, 1999

 
 
                                                                                                  Col. D    
                                                                      Col. C                Percent of voting 
   Col. A                            Col. B                        Amount owned             securities represented by
Name of Owner                    Title of class                    beneficially             amount given in Col. C               
- -------------                    --------------                    ------------             -------------------------
                                                                                                          
                                 Not Applicable
 

Item 7.   Voting securities of the trustee owned by underwriters or their
          officials.

          Furnish the following information as to the voting securities of the
          trustee owned beneficially by each underwriter for the obligors and
          each director, partner and executive officer of each such underwriter:


                             As of February 8, 1999

 
 
- ----------------------------------------------------------------------------------------------------------------------
                                                                                                 Col. D    
                                                                      Col. C               Percent of voting 
    Col. A                           Col. B                        Amount owned            securities represented by
Name of Owner                    Title of class                    beneficially            amount given in Col. C    
- -------------                    --------------                    ------------            ------------------------- 
                                                                                                         
- ----------------------------------------------------------------------------------------------------------------------
 

                                Not Applicable
         

                                       8

 
Item 8.   Securities of the obligors owned or held by the trustee

          Furnish the following information as to securities of the obligors
          owned beneficially or held as collateral security for obligations in
          default by the trustee:


                             As of February 8, 1999

 
 
- ------------------------------------------------------------------------------------------------------------------------------------

                                                                                                
                                                                             Col. C                        Col. D    
                                                                    Amount owned beneficially or     Percent of voting 
   Col. A                            Col. B                         held as collateral security      securities represented by
Name of Owner                    Title of class                     for obligations in default       amount given in Col. C    
- -------------                    --------------                     ----------------------------     -------------------------  
                                                                                             
- ------------------------------------------------------------------------------------------------------------------------------------

 

                                 Not Applicable

Item 9.   Securities of underwriters owned or held by the trustee.

          If the trustee owns beneficially or holds as collateral security for
          obligations in default any securities of an underwriter for the
          obligors, furnish the following information as to each class of
          securities of such underwriter any of which are so owned or held by
          the trustee:

                             As of February 8, 1999
 
 
- ------------------------------------------------------------------------------------------------------------------------------------

                                                                                Col. C                     Col. D                
                                                                     Amount owned beneficially or    Percent of voting           
   Col. A                            Col. B                          held as collateral security     securities represented by   
Name of Owner                    Title of class                      for obligations in default      amount given in Col. C      
- -------------                    --------------                      ----------------------------    -------------------------    
                                                                                             
- ------------------------------------------------------------------------------------------------------------------------------------

 
                                 Not Applicable


Item 10.  Ownership or holdings by the trustee of voting securities of certain 
          affiliates or securityholders of the obligors.

                                       9

 
          If the trustee owns beneficially or holds as collateral security for
          obligations in default voting securities of a person who, to the
          knowledge of the trustee (1) owns 10 percent or more of the voting
          securities of the obligors or (2) is an affiliate, other than a
          subsidiary, of the obligors, furnish the following information as to
          the voting securities of such person:

                             As of February 8, 1999

 
 
- ------------------------------------------------------------------------------------------------------------------------------------

                                                                                Col. C                       Col. D                
                                                                      Amount owned beneficially or    Percent of voting           
             Col. A                            Col. B                 held as collateral security     securities represented by   
          Name of Owner                    Title of class             for obligations in default      amount given in Col. C      
          -------------                    --------------             ---------------------------     -------------------------
                                                                                              
- ------------------------------------------------------------------------------------------------------------------------------------

 

                                Not Applicable

Item 11.  Ownership or holdings by the trustee of any securities of a person 
          owning 50 percent or more of the voting securities of the obligors.

          If the trustee owns beneficially or holds as collateral security
          security for obligations in default any securities of a person who, to
          the knowledge of the trustee, owns 50 percent or more of the voting
          securities of the obligors, furnish the following information as to
          each class of securities of such any of which are so owned or held by
          the trustee:

                             As of February 8, 19999
 
 
- ---------------------------------------------------- ------------------------------------------- -----------------------------------

                      Col. A                                           Col. B                                  Col. C
              Nature of Indebtedness                             Amount Outstanding                           Date Due
              ----------------------                             ------------------                           --------
                                                                                            
- ---------------------------------------------------- ------------------------------------------- -----------------------------------

 

                                 Not Applicable


Item 12.  Indebtedness of the Obligors to the Trustee.

          Except as noted in the instructions, if the obligors are indebted to
          the trustee, furnish the following information:

                             As of February 8, 1999

                                       10

 
 
 
- ---------------------------------- -------------------------------- -------------------------------- -------------------------------

                                                                                Col. C
                                                                             Amount owned                          Col. D
                                                                        beneficially or held as              Percent of voting
             Col. A                            Col. B                   collateral security for          securities represented by
          Name of Owner                    Title of class               obligations in default             amount given in Col. C
          -------------                    --------------               -----------------------          -------------------------
                                                                                             
- ---------------------------------- -------------------------------- -------------------------------- -------------------------------

 

                                 Not Applicable




Item 13.  Defaults by the Obligors.

          (a)  State whether there is or has been a default with respect to the
               securities under this indenture. Explain the nature of any such
               default.

                                 Not Applicable









          (b)  If the trustee is a trustee under another indenture under which
               any other securities, or certificates of interest or
               participation in any other securities, of the obligors are
               outstanding, or is trustee for more than one outstanding series
               of securities under the indenture, state whether there has been a
               default under any such indenture or series, identify the
               indenture or series affected, and explain the nature of any such
               default.

                                 Not Applicable


Item 14.  Affiliations with the Underwriters

          If any underwriter is an affiliate of the trustee, describe each such
          affiliation.

                                 Not Applicable

                                       11

 
Item 15.  Foreign Trustees.

          Identify the order or rule pursuant to which the foreign trustee is
          authorized to act as sole trustee under indentures qualified or to be
          qualified under the Act.

                                Not Applicable


Item 16.  List of Exhibits.

          List below all exhibits filed as part of this statement of
          eligibility.

          *T1(a).  A copy of the Charter of IBJ Whitehall Bank & Trust Company 
                   as amended to date. (See Exhibit 1A to Form T-1, Securities 
                   and Exchange Commission File No. 22-18460).

          *T1(b).  A copy of the Certificate of Authority of the Trustee to 
                   Commence Business (Included in Exhibit I above).

          *T1(c).  A copy of the Authorization of the Trustee, as amended to 
                   date (See Exhibit 4 to Form T-1, Securities and Exchange 
                   Commission File No. 22-19146).

          *T1(d).  A copy of the existing By-Laws of the Trustee, as amended to
                   date (See Exhibit 4 to Form T-1, Securities and Exchange 
                   Commission File No. 22-19146).

          T1(e).   A copy of each Indenture referred to in Item 4, if the 
                   Obligors are in default.  Not Applicable.

          T1(f).   The consent of the United States institutional trustee 
                   required by Section 321(b) of the Act.

          T1(g).   A copy of the latest report of condition of the trustee 
                   published pursuant to law or the requirements of its 
                   supervising or examining authority.

*    The Exhibits thus designated are incorporated herein by reference as
     exhibits hereto. Following the description of such Exhibits is a reference
     to the copy of the Exhibit heretofore filed with the Securities and
     Exchange Commission, to which there have been no amendments or changes.


                                     NOTE
                                     ----



                                      12

 
In answering any item in this Statement of Eligibility which relates to matters
peculiarly within the knowledge of the obligors and their respective directors
or officers, the trustee has relied upon information furnished to it by the
obligors.

Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of
all facts on which to base responsive answers to Item 2, the answer to said Item
are based on incomplete information.

Item 2, may, however, be considered as correct unless amended by an amendment to
this Form T-1.

Pursuant to General Instruction B, the trustee has responded to Items 1, 2 and
16 of this form since to the best knowledge of the trustee as indicated in Item
13, the obligors are not in default under any indenture under which the
applicant is trustee.



                                      13

 
                                   SIGNATURE
                                   ---------


Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, IBJ Whitehall Bank & Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility & qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 8th day of February, 1999.



                                       IBJ WHITEHALL BANK & TRUST COMPANY


                                       By:      /s/Terence Rawlins 
                                           -----------------------------------
                                                   Terence Rawlins
                                                 Assistant Vice President

 
                                 Exhibit T1(f)

                              CONSENT OF TRUSTEE




Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939, as amended, in connection with the issue by AEI Holding Company, Inc. and
AEI Resources, Inc. of their 10-1/2% Senior Notes due 2005, Series A and Series
B, we hereby consent that reports of examinations by Federal, State,
Territorial, or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor.


                                          IBJ WHITEHALL BANK & TRUST COMPANY


                                          By:   /s/Terence Rawlins            
                                             -----------------------------------
                                                   Terence Rawlins
                                              Assistant Vice President




Dated:  As of February 8, 1999

 
                                 EXHIBIT T1(g)


                      CONSOLIDATED REPORT OF CONDITION OF
                       IBJ WHITEHALL BANK & TRUST COMPANY
                             of New York, New York
                     And Foreign and Domestic Subsidiaries


                        Report as of September 30, 1998

 
 
                                                                                                  Dollar Amounts
                                                                                                   in Thousands  
                                                                                                  ------------- 

                                                      ASSETS
                                                      ------                             
                                                                                                
Cash and balance due from depository institutions:
    Noninterest-bearing balances and currency and coin........................................ $      26,852
    Interest-bearing balances................................................................. $      17,489

Securities:    Held-to-maturity securities.................................................... $         -0-
               Available-for-sale securities.................................................. $     207,069

Federal funds sold and securities purchased under 
agreements to resell in domestic offices of the bank
and of its Edge and Agreement subsidiaries and in IBFs:
    Federal Funds sold and Securities purchased under agreements to resell.................... $      80,389

Loans and lease financing receivables:
    Loans and leases, net of unearned income.................................... $ 2,033,599
    LESS: Allowance for loan and lease losses................................... $    62,853
    LESS: Allocated transfer risk reserve....................................... $       -0-
    Loans and leases, net of unearned income, allowance, and reserve.......................... $   1,970,746

Trading assets held in trading accounts....................................................... $         848

Premises and fixed assets (including capitalized leases)...................................... $       1,583

Other real estate owned....................................................................... $         -0-

Investments in unconsolidated subsidiaries and associated companies........................... $         -0-

Customers' liability to this bank on acceptances outstanding.................................. $         340

Intangible assets............................................................................. $      11,840

Other assets.................................................................................. $      66,691


TOTAL ASSETS.................................................................................. $   2,383,847
 

 
                                  LIABILITIES
                                  -----------

 
 
 
Deposits:                                                                                      
    In domestic offices......................................................................... $    804,562
        Noninterest-bearing ........................................................$    168,822
        Interest-bearing ...........................................................$    635,740

    In foreign offices, Edge and Agreement subsidiaries, and IBFs............................... $    885,076
        Noninterest-bearing ........................................................$     16,554
        Interest-bearing ...........................................................$    868,522

Federal funds purchased and securities sold under agreements to repurchase in
domestic offices of the bank and of its Edge and Agreement subsidiaries, and in
IBFs:

    Federal Funds purchased and Securities sold under agreements to repurchase ................. $    225,000

Demand notes issued to the U.S. Treasury........................................................ $        674

Trading Liabilities............................................................................. $        560

Other borrowed money:
    a) With a remaining maturity of one year or less............................................ $     38,002
    b) With a remaining maturity of more than one year.......................................... $      1,375
    c) With a remaining maturity of more than three years....................................... $      1,550

Bank's liability on acceptances executed and outstanding........................................ $        340

Subordinated notes and debentures............................................................... $    100,000

Other liabilities............................................................................... $     74,502


TOTAL LIABILITIES............................................................................... $  2,131,641
                                                                                                    ---------
Limited-life preferred stock and related surplus................................................ $        N/A
 

                                EQUITY CAPITAL


 
 
                                                                                               
Perpetual preferred stock and related surplus................................................... $        -0-

Common stock.................................................................................... $     28,958

Surplus (exclude all surplus related to preferred stock)........................................ $    210,319

Undivided profits and capital reserves.......................................................... $     11,655

Net unrealized gains (losses) on available-for-sale securities.................................. $      1,274

Cumulative foreign currency translation adjustments............................................. $        -0-


TOTAL EQUITY CAPITAL............................................................................ $    252,206

TOTAL LIABILITIES AND EQUITY CAPITAL............................................................ $  2,383,847
 

EX-99.1

 
                                                                    EXHIBIT 99.1

                             LETTER OF TRANSMITTAL
                                        
                              AEI RESOURCES, INC.
                                      AND
                           AEI HOLDING COMPANY, INC.
                     OFFER TO EXCHANGE $200,000,000 OF ITS
                   10 1/2% SENIOR NOTES DUE DECEMBER 15, 2005
                        WHICH HAVE BEEN REGISTERED UNDER
                          THE SECURITIES  ACT OF 1933,
                      FOR $200,000,000 OF ITS OUTSTANDING
                   10 1/2% SENIOR NOTES DUE DECEMBER 15, 2005
             PURSUANT TO THE PROSPECTUS DATED _______________, 1999

- --------------------------------------------------------------------------------
      THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., 
      NEW YORK CITY TIME, ON ___________, 1999 (THE "EXPIRATION DATE"), 
                         UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------

                 The Exchange Agent for the Exchange Offer is:
                       IBJ WHITEHALL BANK & TRUST COMPANY
                                                                               
       By Mail:                            By Hand/Overnight Courier:                   By Facsimile:

     IBJ Whitehall                                IBJ Whitehall                           IBJ Whitehall
  Bank & Trust Company                        Bank & Trust Company                     Bank & Trust Company
     P.O. Box 84                                One State Street                            Attention:
 Bowling Green Station                         New York, NY 10004                    Reorganization Operations
New York, NY 10274-0084                            Attention:                            Facsimile Number:
      Attention:                            Securities Processing Window                  (212) 858-2611
Reorganization Operations                       Subcellar One (SC-1)                   Confirmation Number:
                                                                                          (212) 858-2103
 
                                            For Further Information Call:
                                                   (212) 858-2103



     DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.  THE
INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY
BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.

     CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN SHALL HAVE THE SAME MEANING
GIVEN THEM IN THE PROSPECTUS (AS DEFINED BELOW).

     The undersigned acknowledges receipt of the Prospectus, dated ___________,
1999 (as the same may be amended or supplemented from time to time, the
"Prospectus"), of AEI Resources, Inc. and its wholly owned subsidiary AEI
Holding Company, Inc., as co-issuers (the "Company"), and this Letter of
Transmittal, which together constitute the Company's offer (the "Exchange
Offer") to exchange an aggregate of up to $200,000,000 principal amount of 10
1/2% Senior Notes, due December 15, 2005 (the "New Notes") of the Company which
have been registered under the Securities Act of 1933 (the "Securities Act") for
an identical face amount of the issued and outstanding 10 1/2% Senior Notes, due
December 15, 2005 (the "Old Notes") of the Company.  The terms of the New Notes
are identical in all material respects (including principal amount, interest
rate and maturity) to the terms of the Old Notes for which they may be exchanged
pursuant to the Exchange Offer, except that the New Notes will have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof.

     Unless the context requires otherwise, the term "holder" for purposes of
this Letter of Transmittal means any person in whose name Old Notes are
registered or any other person who has obtained a properly completed bond power
and any other required documents from the registered holder.

 
     The Exchange Offer is being made pursuant to the Registration Rights
Agreement dated as of December 14, 1998 (the "Registration Rights Agreement"),
and all Old Notes validly tendered will be accepted for exchange.  Any Old Notes
not tendered will remain outstanding and continue to accrue interest, but
generally will not retain any rights under the Registration Rights Agreement.
Holders electing to have Old Notes exchanged pursuant to the Exchange Offer will
be required to surrender such Old Notes, together with this Letter of
Transmittal, to the Exchange Agent at the address specified herein prior to 5:00
p.m., New York City time, on the Expiration Date.  Holders will be entitled to
withdraw their election at any time prior to 5:00 p.m., New York City time, on
the Expiration Date by sending to the Exchange Agent at the address specified
herein a facsimile transmission or letter setting forth the name of such holder,
the principal amount of Old Notes delivered for exchange and a statement that
such holder is withdrawing the election to have such Old Notes exchanged.

     This Letter of Transmittal is to be used either if certificates
representing Old Notes (the "Certificates") are to be forwarded herewith or if
delivery of Old Notes is to be made by book-entry transfer to an account
maintained by the Exchange Agent at The Depository Trust Company ("DTC"),
pursuant to the procedures set forth in "The Exchange Offer -- Procedures for
Tendering" in the Prospectus.

     Holders of Old Notes whose Certificates are not immediately available, or
who cannot deliver their Certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedures for book-entry transfer on a timely basis must tender their Old Notes
according to the guaranteed delivery procedures set forth in "The Exchange Offer
- -- Procedures for Tendering" in the Prospectus.

     DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.

     THE PROSPECTUS, THIS LETTER OF TRANSMITTAL AND THE INSTRUCTIONS CONTAINED
HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.

     NOTE:  SIGNATURES MUST BE PROVIDED BELOW.  PLEASE READ THE ACCOMPANYING
INSTRUCTIONS CAREFULLY.

     The undersigned has completed the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.

ALL TENDERING HOLDERS COMPLETE THIS BOX


 
                                      DESCRIPTION OF OLD NOTES TENDERED HEREWITH

Name(s) and Address(es)                                                     Aggregate Principal
of Registered Holder(s)                              Certificate            Amount Represented       Principal Amount
   (Please fill in)                                      Number(s)                by Old Notes             Tendered*
 
                                                                                           
- ------------------------------------------------------------------------------------------------------------------ 

- ------------------------------------------------------------------------------------------------------------------  

- ------------------------------------------------------------------------------------------------------------------  

- ------------------------------------------------------------------------------------------------------------------  

- ------------------------------------------------------------------------------------------------------------------  

- ------------------------------------------------------------------------------------------------------------------  

- ------------------------------------------------------------------------------------------------------------------  

- ------------------------------------------------------------------------------------------------------------------  

- ------------------------------------------------------------------------------------------------------------------  
 

                                      -2-

 
                                                                                            
- ------------------------------------------------------------------------------------------------------------------ 

- ------------------------------------------------------------------------------------------------------------------ 

- ------------------------------------------------------------------------------------------------------------------ 
                                               Total
- ------------------------------------------------------------------------------------------------------------------ 
 
                                            

*  Unless otherwise indicated, the holder will be deemed to have tendered the
 full aggregate principal amount represented by the Old Notes. See Instruction
 2. Old Notes may be tendered in whole or in part in integral multiples of
 $1,000, provided that, if any Old Notes are tendered for exchange in part, the
 untendered principal amount thereof must be an integral multiple of $1,000.
- --------------------------------------------------------------------------------


[ ]  CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
     MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
     THE FOLLOWING:

     Name of Tendering Institution: 
                                    --------------------------------------------
     DTC Account Number:
                        --------------------------------------------------------
     Transaction Code Number:
                             ---------------------------------------------------

 [ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
     TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
     DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:

     Name of Registered Holder(s):
                                    --------------------------------------------
     Window Ticket Number (if any):
                                    --------------------------------------------
     Date of Execution of Notice of Guaranteed Delivery:
                                                        ------------------------
     Name of Institution which Guaranteed Delivery:
                                                   -----------------------------

     IF GUARANTEED DELIVERY IS TO BE MADE BY BOOK-ENTRY TRANSFER:

     Name of Tendering Institution:
                                    --------------------------------------------
     DTC Account Number:
                        --------------------------------------------------------
     Transaction Code Number:
                             ---------------------------------------------------

 [ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
     AND NON-EXCHANGED OLD NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT
     NUMBER SET FORTH ABOVE.

 [ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
     OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES AND
     WISH TO RECEIVE ADDITIONAL COPIES OF THE PROSPECTUS AND ANY AMENDMENTS OR
     SUPPLEMENTS THERETO.

     Name:
           --------------------------------------------------------
     Address:
             ------------------------------------------------------
     Number of Copies:
                      ---------------

                                      -3-

 
              PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

Ladies and Gentlemen:

     Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the above described aggregate
principal amount of Old Notes in exchange for a like aggregate principal amount
of New Notes.

     Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby exchanges, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith.  The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Company in connection with the
Exchange Offer) with respect to the tendered Old Notes, with full power and
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), subject only to the right of withdrawal described in
the Prospectus, to: (i) deliver Certificates for Old Notes to the Company
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the New Notes to be issued in exchange for such Old
Notes; (ii) present Certificates for such Old Notes for transfer, and to
transfer the Old Notes on the books of the Company; and (iii) receive for the
account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms and
conditions of the Exchange Offer.

     THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
NOTES TENDERED HEREBY AND TO ACQUIRE NEW NOTES UPON THE EXCHANGE OF SUCH
TENDERED OLD NOTES, AND THAT, WHEN THE OLD NOTES ARE ACCEPTED FOR EXCHANGE, THE
COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES.  THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY,
AND THE UNDERSIGNED WILL COMPLETE ITS  OBLIGATIONS UNDER THE REGISTRATION RIGHTS
AGREEMENT.  THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE
EXCHANGE OFFER.

     The name(s) and address(es) of the registered holder(s) of the Old Notes
tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Old Notes.  The Old
Notes, along with Certificate number(s), that the undersigned wishes to tender
should be indicated in the appropriate boxes above.

     The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer -- Conditions to the Exchange
Offer."  The undersigned recognizes that, as a result of these conditions (which
may be waived, in whole or in part, by the Company), as more particularly set
forth in the Prospectus, the Company may not be required to exchange any of the
Old Notes tendered hereby.  If any tendered Old Notes are not exchanged pursuant
to the Exchange Offer for any reason, or if Certificates are submitted for more
Old Notes than are tendered or accepted for exchange, Certificates for such non-
exchanged or non-tendered Old Notes will be returned (or, in the case of Old
Notes tendered by book-entry transfer, such Old Notes will be credited to an
account maintained at DTC), without expense to the tendering holder, as soon as
practicable following the expiration or termination of the Exchange Offer.

     The undersigned understands that tenders of Old Notes pursuant to any one
of the procedures described in "The Exchange Offer -- Procedures for Tendering"
in the Prospectus and in the instructions attached hereto will, upon the

                                      -4-

 
Company's acceptance for exchange of such tendered Old Notes, constitute a
binding agreement among the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer.

     Unless otherwise indicated herein under the section entitled "Special
Issuance Instructions" below, the undersigned hereby directs that:  (i) the New
Notes be issued in the name(s) of the undersigned or, in the case of a book-
entry transfer of Old Notes, that such New Notes be credited to the account
indicated above maintained at DTC; and (ii) if applicable, substitute
Certificates representing Old Notes not exchanged or not accepted for exchange
be issued to the undersigned or, in the case of a book-entry transfer of Old
Notes, be credited to the account indicated above maintained at DTC.  Similarly,
unless otherwise indicated under "Special Delivery Instructions," the
undersigned hereby directs that the New Notes or any Old Notes tendered herewith
but not accepted be delivered to the undersigned at the address shown below the
undersigned's signature or, in the case of a book-entry transfer of Old Notes,
that such New Notes or Old Notes be credited to the account indicated above
maintained at DTC.

     BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (A) NEITHER THE UNDERSIGNED NOR
ANY PERSON RECEIVING NEW NOTES IS AN AFFILIATE OF THE COMPANY WITHIN THE MEANING
OF RULE 405 OF THE SECURITIES ACT (AN "AFFILIATE"), (B) THE NEW NOTES TO BE
RECEIVED PURSUANT TO THE EXCHANGE OFFER ARE BEING ACQUIRED IN THE ORDINARY
COURSE OF BUSINESS OF THE PERSON RECEIVING SUCH NEW NOTES, WHETHER OR NOT SUCH
PERSON IS THE UNDERSIGNED, (C) NEITHER THE UNDERSIGNED NOR ANY SUCH OTHER PERSON
HAS ANY ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A
DISTRIBUTION, WITHIN THE MEANING OF THE SECURITIES ACT, (A "DISTRIBUTION") OF
NEW NOTES TO BE RECEIVED IN THE EXCHANGE OFFER, AND (D) IF THE UNDERSIGNED IS
NOT A BROKER-DEALER OR IS A BROKER-DEALER BUT WILL NOT RECEIVE NEW NOTES FOR ITS
OWN ACCOUNT IN EXCHANGE FOR OLD NOTES, NEITHER THE UNDERSIGNED NOR ANY SUCH
OTHER PERSON IS ENGAGED IN, OR INTENDS TO ENGAGE IN, A DISTRIBUTION OF SUCH NEW
NOTES.  BY TENDERING OLD NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS
LETTER OF TRANSMITTAL, A HOLDER OF OLD NOTES WHICH IS A BROKER-DEALER REPRESENTS
AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF
THE DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO
THIRD PARTIES, THAT (X) SUCH OLD NOTES HELD BY THE BROKER-DEALER ARE HELD ONLY
AS A NOMINEE, OR (Y) SUCH OLD NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES
AND IT WILL DELIVER THE PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO
TIME) IN CONNECTION WITH ANY RESALE OF SUCH NEW NOTES (PROVIDED THAT, BY SO
ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE
DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES
ACT).

     THE UNDERSIGNED ACKNOWLEDGES THAT THIS EXCHANGE OFFER IS BEING MADE BY THE
COMPANY BASED UPON THE COMPANY'S UNDERSTANDING OF AN INTERPRETATION BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), AS SET FORTH IN NO-ACTION
LETTERS ISSUED TO THIRD PARTIES, THAT THE NEW NOTES ISSUED IN EXCHANGE FOR OLD
NOTES TO HOLDERS THEREOF (OTHER THAN TO HOLDERS THAT ARE AFFILIATES OF THE
COMPANY) MAY BE OFFERED FOR RESALE, RESOLD AND OTHERWISE TRANSFERRED WITHOUT
COMPLIANCE WITH THE REGISTRATION AND PROSPECTUS DELIVERY PROVISIONS OF THE
SECURITIES ACT, PROVIDED THAT  (A) SUCH HOLDERS ARE NOT AFFILIATES OF THE
COMPANY, (B) SUCH NEW NOTES ARE ACQUIRED IN THE ORDINARY COURSE OF SUCH HOLDERS'
BUSINESS, AND (C) SUCH HOLDERS ARE NOT ENGAGED IN, AND DO NOT INTEND TO ENGAGE
IN, A DISTRIBUTION OF SUCH NEW NOTES AND HAVE NO ARRANGEMENT OR UNDERSTANDING
WITH ANY PERSON TO PARTICIPATE IN THE DISTRIBUTION OF SUCH NEW NOTES.  HOWEVER,
THE COMMISSION HAS NOT CONSIDERED THE EXCHANGE OFFER IN THE CONTEXT OF A NO-
ACTION LETTER AND THERE CAN BE NO ASSURANCE THAT THE COMMISSION WOULD MAKE A
SIMILAR DETERMINATION WITH RESPECT TO THE EXCHANGE OFFER AS IN OTHER
CIRCUMSTANCES.  IF A HOLDER OF OLD NOTES IS AN AFFILIATE OF THE COMPANY, OR IS
ENGAGED IN OR INTENDS TO ENGAGE IN A DISTRIBUTION OF THE NEW NOTES OR HAS ANY
ARRANGEMENT OR UNDERSTANDING WITH RESPECT TO THE DISTRIBUTION 

                                      -5-

 
OF THE NEW NOTES TO BE ACQUIRED PURSUANT TO THE EXCHANGE OFFER, SUCH HOLDER
COULD NOT RELY ON THE APPLICABLE INTERPRETATIONS OF THE COMMISSION AND MUST
COMPLY WITH THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE
SECURITIES ACT IN CONNECTION WITH ANY SECONDARY RESALE TRANSACTION.

     THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME
TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) IN
CONNECTION WITH RESALES OF NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES, WHERE
SUCH OLD NOTES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES, FOR A PERIOD
ENDING ONE YEAR FROM THE DATE ON WHICH THE EXCHANGE OFFER IS CONSUMMATED OR, IF
EARLIER, WHEN ALL SUCH NEW NOTES HAVE BEEN DISPOSED OF BY SUCH PARTICIPATING
BROKER-DEALER.  IN THAT REGARD, EACH BROKER-DEALER WHO RECEIVES NEW NOTES IN THE
EXCHANGE OFFER IN EXCHANGE FOR OLD NOTES ACQUIRED FOR ITS OWN ACCOUNT AS A
RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-
DEALER"), BY TENDERING SUCH OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL,
AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY
EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED OR
INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR
WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER
TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN LIGHT
OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE
OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS
AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF NEW NOTES
PURSUANT TO THE PROSPECTUS UNTIL (A) THE COMPANY HAS AMENDED OR SUPPLEMENTED THE
PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF
THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR (B)
THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY BE RESUMED, AS
THE CASE MAY BE.  IF THE COMPANY GIVES SUCH NOTICE TO SUSPEND THE SALE OF THE
NEW NOTES, IT SHALL EXTEND THE ONE-YEAR PERIOD REFERRED TO ABOVE DURING WHICH
PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN CONNECTION
WITH THE RESALE OF NEW NOTES BY THE NUMBER OF DAYS DURING THE PERIOD FROM AND
INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE WHEN
PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE SUPPLEMENTED OR
AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE NEW NOTES OR TO AND
INCLUDING THE DATE ON WHICH THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF NEW
NOTES MAY BE RESUMED, AS THE CASE MAY BE.

     Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accumulated interest on such Old Notes for any period from and after the
last date to which interest has been paid or duly provided for (the "Interest
Payment Date") on such Old Notes prior to the original issue date of the New
Notes or, if no such interest has been paid or duly provided for, will not
receive any accumulated interest on such Old Notes, and the undersigned waives
the right to receive any interest on such Old Notes accumulated, from and after
such Interest Payment Date or, if no such interest has been paid or duly
provided for, from December 14, 1998.

     All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned.  Except as
stated in the Prospectus, this tender is irrevocable.

     THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES
TENDERED HEREWITH" ABOVE AND BY SIGNING THIS LETTER, WILL BE DEEMED TO HAVE
TENDERED THE OLD NOTES AS SET FORTH IN SUCH BOX.  HOLDER(S) SIGN HERE (SEE
INSTRUCTIONS 2, 5 AND 6) (PLEASE COMPLETE SUBSTITUTE FORM W-9 ON PAGE 9) (NOTE:
SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2):

                                      -6-

 
     This Letter of Transmittal must be signed by a registered holder(s) exactly
as its name(s) appear(s) on the  Certificate(s) for the Old Notes hereby
tendered or on a security position listing, or by any person(s) authorized to
become the registered holder(s) by endorsements and documents transmitted
herewith (including such opinions of counsel, certifications and other
information as may be required by the Company or the Exchange Agent for the Old
Notes to comply with the restrictions on transfer applicable to the Old Notes).
If signature is by an attorney-in-fact, executor, administrator, trustee,
guardian, officer of a corporation or another acting in a fiduciary capacity or
representative capacity, please set forth the signer's full title.  See
Instruction 5.

 
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
                          (SIGNATURE(S) OF HOLDER(S))

Date:                                       , 1999
      --------------------------------------
Name(s):
        ------------------------------------------------------------------------

- --------------------------------------------------------------------------------
                                 (PLEASE PRINT)

Capacity (full title):
                      ----------------------------------------------------------
Address:
        ------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
                               (INCLUDE ZIP CODE)

Area Code and Telephone Number:
                               -------------------------------------------------
Tax Identification or Social Security Number(s):
                                                --------------------------------

GUARANTEE OF SIGNATURE(S) ( IF REQUIRED) (SEE INSTRUCTIONS 2 AND 5):

- --------------------------------------------------------------------------------
                             (AUTHORIZED SIGNATURE)

Name:
      --------------------------------------------------------------------------
                                 (PLEASE PRINT)

Date:                        , 1999
     ------------------------

Name of Firm:
             -------------------------------------------------------------------

Capacity (full title):
                      ----------------------------------------------------------
Address:
        ------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
                               (INCLUDE ZIP CODE)

Area Code and Telephone Number:
                               -------------------------------------------------

                                      -7-

 
Tax Identification or Social Security Number(s):
                                                 -------------------------------

SPECIAL REGISTRATION INSTRUCTIONS: (SEE INSTRUCTIONS 1, 5 AND 6):

To be completed ONLY if Old Notes that are not tendered or New Notes are to be
issued in the name of someone other than the registered holder(s) of the Old
Notes whose name(s) appear(s) above.


Issue

[ ]  Old Notes not tendered to:


[ ]  New Notes, to:


Address:
        ------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
                               (INCLUDE ZIP CODE)

Area Code and Telephone Number:
                               -------------------------------------------------
Tax Identification or Social Security Number(s):
                                                --------------------------------

SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5 AND 6):

To be completed ONLY if Old Notes that are not tendered or New Notes are to be
sent to someone other than the registered holder(s) of the Old Notes whose
name(s) appear(s) above, or such registered holder(s) at an address other than
that shown above.

Mail

[ ]  Old Notes not tendered to:

[ ]  New Notes, to:


Address:
        ------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
                               (INCLUDE ZIP CODE)

Area Code and Telephone Number:
                               -------------------------------------------------
Tax Identification or Social Security Number(s):
                                                --------------------------------

                                      -8-

 
     TO BE COMPLETED BY ALL TENDERING SECURITY HOLDERS (SEE INSTRUCTION 9)




- --------------------------------------------------------------------------------------------------------------------------- 
                             PAYOR'S NAME:  IBJ WHITEHALL BANK & TRUST COMPANY, AS PAYING AGENT
- --------------------------------------------------------------------------------------------------------------------------- 
                                     
SUBSTITUTE                             Part 1 -- PLEASE PROVIDE YOUR TIN ON THE LINE          _________________________
                                       AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW         Social Security Number
Form W-9
                                                                                                          OR
                                                                                            ______________________________
Department of the Treasury                                                                  Employer Identification Number
Internal Revenue Service
                                       -------------------------------------------------------------                                
                                       Part 2 -- Certification -- Under penalties of                                                
                                       perjury, I certify that:                                                                     
Payor's Request for                    (1)  the number shown on this form is my                                                     
Taxpayer Identification Number              correct taxpayer identification number (or I am                                         
(TIN) and Certification                     waiting for a number to be issued to me);                                               
                                       (2)  I am not subject to backup withholding                                                  
                                            either because (i) I am exempt from backup                                              
                                            withholding, (ii) I have not been notified by                                           
                                            the Internal Revenue Service ("IRS") that I am                                          
                                            subject to backup withholding as a result of a                                          
                                            failure to report all interest or dividends, or                                         
                                            (iii) the IRS has notified me that I am no                                              
                                            longer subject to backup withholding; and                                               
                                       (3)  any other information provided on this                                             
                                            form is true and correct.                                                               
                                       -------------------------------------------------------------                                
                                       Certification Instructions -- You must cross       Part 3 --                                 
                                       out item (2) in Part 2 above if you have been      Awaiting TIN [ ]                          
                                       notified by the IRS that you are subject to                                                  
                                       backup withholding because of underreporting                                                 
                                       interest or dividends on your tax return and                                                 
                                       you have not been notified by the IRS that you                                               
                                       are no longer subject to backup withholding                                                  
                                                                                                                                    
                                       ______________________________________                                                       
                                       Signature                                                                                    
                                       Name:________________________________                                                        
                                                        (Please Print)                                                              
                                       Date:____________________________, 1999      
- ----------------------------------------------------------------------------------------------------------------------------


NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
      RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO
      THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR
      CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9"
      FOR ADDITIONAL DETAILS.

      YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART
      3 OF SUBSTITUTE FORM W-9.

- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
 
 I certify under penalties of perjury that a taxpayer identification number has
 not been issued to me, and either (i) I have mailed or delivered an application
 to receive a taxpayer identification number to the appropriate Internal Revenue
 Service Center or Social Security Administration Office or (ii) I intend to
 mail or deliver an application in the near future. I understand that if I do
 not provide a taxpayer identification number by the time of payment, 31% of all
 payments made to me on account of the New Notes shall be retained until I
 provide a taxpayer identification number to the Exchange Agent and that, if I
 do not provide my taxpayer identification number within 60 days, such retained
 amounts shall be remitted to the Internal Revenue Service as backup withholding
 and 31% of all reportable payments made to me thereafter will be withheld and
 remitted to the Internal Revenue Service until I provide a taxpayer
 identification number.

                                                       
__________________________________________________      Date:_________________________, 1999
Signature
Name:_____________________________________________
                      (Please Print)
 

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                                      -9-

 
                                  INSTRUCTIONS
                         FORMING PART OF THE TERMS AND
                        CONDITIONS OF THE EXCHANGE OFFER

  1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES.  This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in "The Exchange
Offer -- Procedures for Tendering" in the Prospectus.  Certificates, or timely
book-entry confirmation of a book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC, as well as this Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at its address set forth
herein on or prior to 5:00 p.m., New York City time, on the Expiration Date.
The term "book-entry confirmation" means a timely written confirmation from DTC
of book-entry transfer of Old Notes into the Exchange Agent's account at DTC.
Old Notes may be tendered in whole or in part in integral multiples of $1,000,
provided that, if any Old Notes are tendered for exchange in part, the
untendered principal amount thereof must be an integral multiple of $1,000.

  Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available,  (ii) who cannot deliver their Old Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent on or prior
to 5:00 p.m., New York City time, on  the Expiration Date, or (iii) who cannot
complete the procedures for delivery by book-entry transfer on a timely basis,
may tender their Old Notes by properly completing and duly executing a Notice of
Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in
"The Exchange Offer -- Procedures for Tendering" in the Prospectus.  Pursuant to
such procedures: (a) such tender must be made by or through an Eligible
Institution (as defined below); (b) a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form made available by the
Company, must be received by the Exchange Agent on or prior to 5:00 p.m., New
York City time, on the Expiration Date; and (c) the Certificates (or a book-
entry confirmation) representing all tendered Old Notes, in proper form for
transfer, together with this Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees and
any other documents required by this Letter of Transmittal, must be received by
the Exchange Agent within three business days after the Expiration Date, all as
provided in "The Exchange Offer -- Procedures for Tendering" in the Prospectus.

  The Notice of Guaranteed Delivery (the "Notice") may be delivered by hand or
transmitted by facsimile or mail to the Exchange Agent, and must include a
guarantee by an Eligible Institution in the form set forth in such Notice.  For
Old Notes to be properly tendered pursuant to the guaranteed delivery procedure,
the Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to
5:00 p.m., New York City time, on the Expiration Date.  As used herein and in
the Prospectus, "Eligible Institution" means a firm or other entity identified
in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution,"
including (as such terms are defined therein) (i) a bank; (ii) a broker, dealer,
municipal securities broker or dealer or government securities broker or dealer;
(iii) a credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association.  THE METHOD OF DELIVERY OF OLD
NOTES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND SOLE RISK OF THE TENDERING HOLDER AND THE DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT.  INSTEAD OF DELIVERY BY
MAIL, OVERNIGHT DELIVERY SERVICE IS RECOMMENDED.  IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.

  The Company will not accept any alternative, conditional or contingent
tenders.  Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.

  2. GUARANTEE OF SIGNATURES.  No signature guarantee on this Letter of
Transmittal is required if:

     (i) This Letter of Transmittal is signed by the registered holder (which
  term, for purposes of this document, shall include any participant in DTC
  whose name appears on a security position listing as the owner of the Old
  Notes) of Old Notes tendered herewith, unless such holder(s) has completed
  either the section entitled "Special Registration Instructions" or the section
  entitled "Special Delivery Instructions" above; or

                                      -10-

 
     (ii) Such Old Notes are tendered for the account of a firm that is an
  Eligible Institution.

  In all other cases, an Eligible Institution must guarantee the signature(s) on
this Letter of Transmittal.  See Instruction 5.

  3. INADEQUATE SPACE.  If the space provided in the box captioned "Description
of Old Notes Tendered Herewith" is inadequate, the Certificate number(s) and/or
the principal amount of Old Notes and any other required information should be
listed on a separate signed schedule which is attached to this Letter of
Transmittal.

  4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS.  Tenders of Old Notes will be
accepted only in integral multiples of $1,000, provided that if any Old Notes
are tendered for exchange in part, the untendered principal amount thereof must
be an integral multiple of $1,000.  If less than all the Old Notes evidenced by
any Certificate submitted are to be tendered, fill in the principal amount of
Old Notes which are to be tendered in the column entitled "Principal Amount
Tendered."  In such case, new Certificate(s) for the remainder of the Old Notes
that were evidenced by the old Certificate(s) will be sent only to the holder of
the Old Notes, as soon as practicable after the Expiration Date, unless the
appropriate boxes on this Letter of Transmittal are completed.  All Old Notes
represented by Certificates delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.

  Except as otherwise provided herein, tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.  In
order for a withdrawal to be effective on or prior to that time, a written or
(for DTC participants) electronic ATOP transmission of such notice of withdrawal
must be timely received by the Exchange Agent at one of its addresses set forth
above on or prior to 5:00 p.m., New York City time, on the Expiration Date.  Any
such notice of withdrawal must:  (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"); (ii) identify the Old
Notes to be withdrawn (including the Certificate number(s) and principal amount
of such Old Notes); (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes in the name of the person
withdrawing the tender; and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor.  If Old Notes
have been tendered pursuant to the procedures for book-entry transfer set forth
in "The Exchange Offer -- Procedures for Tendering Old Notes," the notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawal of Old Notes.  Withdrawals of tenders of Old Notes may not
be rescinded.  Old Notes properly withdrawn will not be deemed validly tendered
for purposes of the Exchange Offer, but may be retendered at any subsequent time
on or prior to 5:00 p.m., New York City time, on the Expiration Date by
following any of the procedures described in the Prospectus under "The Exchange
Offer -- Procedures for Tendering Old Notes."

  All questions as to the validity, form and eligibility (including time of
receipt) of such notices of withdrawal will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
The Company, any affiliates or assigns of the Company, the Exchange Agent, or
any other person shall not be under any duty to give any notification of any
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.  Any Old Notes which have been tendered but which
are not accepted for exchange will be returned to the holder thereof without
cost to such holder as soon as practicable after withdrawal, rejection of tender
or termination of the Exchange Offer.

  5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS.  If this
Letter of Transmittal is signed by the registered holder(s) of the Old Notes
tendered hereby, the signature(s) must correspond exactly with the name(s) as
written on the face of the Certificate(s) without alteration, enlargement or any
change whatsoever.  If any of the Old Notes tendered hereby are owned of record
by two or more joint owners, all such owners must sign this Letter of
Transmittal.  If any tendered Old Notes are registered in different name(s) on
several Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.  If this Letter of Transmittal or any
Certificates or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing and must submit proper evidence satisfactory to the Company, in its sole
discretion, of each such person's authority to so act.

                                      -11-

 
  When this Letter of Transmittal is signed by the registered holder(s) of the
Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or
separate bond power(s) are required, unless Old Notes not tendered or New Notes
are to be issued in the name of a person other than the registered holder(s).
Signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an
Eligible Institution.

  If the Old Notes not tendered or the New Notes are to be issued in the name of
a person other than, or delivered to an address other than that of, the
registered holder(s) appearing on the note register for the Old Notes, the
signature in this Letter of Transmittal must be guaranteed by an Eligible
Institution.

  If this Letter of Transmittal is signed by a person other than the registered
holder(s) of the Old Notes listed, the Certificates must be endorsed or
accompanied by appropriate bond powers, signed exactly as the name or names of
the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information as
the Company or the Exchange Agent may require in accordance with the
restrictions on transfer applicable to the Old Notes.  Signatures on such
Certificates or bond powers must be guaranteed by an Eligible Institution.

  6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS.  If Old Notes not tendered
or New Notes are to be issued in the name of a person other than the registered
holder(s), or if New Notes are to be sent to someone other than the registered
holder(s) or to an address other than the address shown above for the registered
holder(s), the appropriate boxes on this Letter of Transmittal should be
completed.  Certificates for Old Notes not exchanged will be returned by mail
or, if tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC, unless the appropriate boxes on this Letter of Transmittal
are completed.  See Instruction 4.

  7. IRREGULARITIES.  The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes, which
determination shall be final and binding on all parties.  The Company reserves
the absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance of which, or exchange for, may, in the view of
counsel to the Company, be unlawful.  The Company also reserves the absolute
right, subject to applicable law, to waive any of the conditions of the Exchange
Offer set forth in the Prospectus under "The Exchange Offer -- Certain
Conditions to the Exchange Offer," or any conditions or irregularity in any
tender of Old Notes of any particular holder whether or not similar conditions
or irregularities are waived in the case of other holders.  The Company's
interpretation of the terms and conditions of the Exchange Offer (including this
Letter of Transmittal and the instructions hereto) will be final and binding.
No tender of Old Notes will be deemed to have been validly made until all
irregularities with respect to such tender have been cured or waived.  The
Company, any affiliates or assigns of the Company, the Exchange Agent, or any
other person shall not be under any duty to give notification of any
irregularities in tenders or incur any liability for failure to give such
notification.

  8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES.  Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.

  9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9.  Under U.S. Federal income tax
law, a holder whose tendered Old Notes are accepted for exchange is required to
provide the Exchange Agent with such holder's correct taxpayer identification
number ("TIN") on the Substitute Form W-9 above.  If the Exchange Agent is not
provided with the correct TIN, the Internal Revenue Service (the "IRS") may
subject the holder or other payee to a $50 penalty.  In addition, payments to
such holders or other payees with respect to Old Notes exchanged pursuant to the
Exchange Offer may be subject to 31% backup withholding.

  The box in Part 3 of the Substitute Form W-9 may be checked if the tendering
holder has not been issued a TIN and has applied for a TIN or intends to apply
for a TIN in the near future.  If the box in Part 3 is checked, the holder or
other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number above in order to avoid backup withholding.
Notwithstanding that the box in Part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a 

                                      -12-

 
properly certified TIN is provided to the Exchange Agent. The Exchange Agent
will retain such amounts withheld during the 60-day period following the date of
the Substitute Form W-9. If the holder furnishes the Exchange Agent with its TIN
within 60 days after the date of the Substitute Form W-9, the amounts retained
during the 60 day period will be remitted to the holder and no further amounts
shall be retained or withheld from payments made to the holder thereafter. If,
however, the holder has not provided the Exchange Agent with its TIN within such
60 day period, amounts withheld will be remitted to the IRS as backup
withholding. In addition, 31% of all payments made thereafter will be withheld
and remitted to the IRS until a correct TIN is provided.

  The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered holder of
the Old Notes or of the last transferee appearing on the transfers attached to,
or endorsed on, the Old Notes.  If the Old Notes are registered in more than one
name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.

  Certain holders (including, among others, corporations, financial institutions
and certain foreign persons) may not be subject to these backup withholding and
reporting requirements.  Such holders should nevertheless complete the attached
Substitute Form W-9 above, and write "exempt" on the face thereof, to avoid
possible erroneous backup withholding.  A foreign person may qualify as an
exempt recipient by submitting a properly completed IRS Form W-8, signed under
penalties of perjury, attesting to that holder's exempt status.  Please consult
the enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional guidance on which holders are exempt from
backup withholding.  By completing the Substitute Form W-9, the tendering holder
certifies that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of a
failure to report all interest or dividends, or (ii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to backup
withholding.  The Substitute Form W-9 must be signed, even if the holder is
exempt from backup withholding.

  Backup withholding is not an additional U.S. Federal income tax.  Rather, the
U.S. Federal income tax liability of a person subject to backup withholding will
be reduced by the amount of tax withheld.  If withholding results in an
overpayment of taxes, a refund may be obtained.

  The Company reserves the right in its sole discretion to take whatever steps
are necessary to comply with its obligation regarding backup withholding.

  10.  WAIVER OF CONDITIONS.  The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.

  11.  NO CONDITIONAL TENDERS.  No alternative, conditional, irregular or
contingent tenders will be accepted.  All tendering holders of Old Notes, by
execution and delivery of this Letter of Transmittal, shall waive any right to
receive notice of the acceptance of their Old Notes for exchange.

  12.  LOST, DESTROYED OR STOLEN CERTIFICATES.  If any Certificate(s)
representing Old Notes has been lost, destroyed or stolen, the holder should
promptly notify the Exchange Agent.  The holder will then be instructed as to
the steps that must be taken in order to replace the Certificate(s).  This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost, destroyed or stolen Certificate(s) have been
followed.

  13.  SECURITY TRANSFER TAXES.  Holders who tender their Old Notes for exchange
will not be obligated to pay any transfer taxes in connection therewith.  If,
however, New Notes are to be delivered to, or are to be issued in the name of,
any person other than the registered holder of the Old Notes tendered, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes in
connection with the Exchange Offer, then the amount of any such transfer tax
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder.  If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.

                                      -13-

 
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO 5:00
P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.

                                      -14-