SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                          - - - - - - - - - - - - -

                                    FORM 8-K

                                 CURRENT REPORT

                     PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


        Date of Report (Date of earliest event reported): June 1, 1998

                                 Arch Coal, Inc.
             (Exact name of registrant as specified in its charter)

          Delaware                1-13105           43-0921172
      (State or other        (Commission File     (I.R.S. Employer
      jurisdiction of             Number)         Identification No.)
      incorporation)


      CityPlace One, Suite 300, Creve Coeur, Missouri      63141
      (Address of principal executive offices)           (Zip code)


      Registrant's telephone number, including area code:  (314) 994-2700





Item 2.  Acquisition or Disposition of Assets.
         -------------------------------------

      On June 1, 1998,  Arch Coal,  Inc. (the "Company" or "Arch Coal") acquired
Atlantic Richfield  Company's  ("ARCO's")  Colorado and Utah coal operations and
simultaneously  combined the acquired ARCO operations and the Company's  Wyoming
operations with ARCO's Wyoming  operations in a new joint venture to be known as
Arch Western Resources,  LLC ("Arch Western").  The principal operating units of
Arch Western are Thunder Basin Coal Company,  LLC, a Delaware limited  liability
company owned 100% by Arch Western, that operates two coal mines in the Southern
Powder River Basin in Wyoming;  Mountain Coal Company,  LLC, a Delaware  limited
liability  company  owned  100% by Arch  Western,  that  operates a coal mine in
Colorado;  Canyon Fuel Company,  LLC, a Delaware limited  liability  company 65%
owned by Arch  Western and 35% by ITOCHU  Coal,  Inc.,  a  subsidiary  of ITOCHU
Corporation,  that operates three coal mines in Utah; and Arch of Wyoming LLC, a
Delaware limited liability company owned 100% by Arch Western, that operates two
coal mines in the Carbon Basin of Wyoming.

      Arch  Western  is 99%  owned  by Arch  Coal  and 1%  owned  by  ARCO.  The
transaction is valued at approximately $1.14 billion,  and Arch Coal will manage
the joint venture.  The transaction will be accounted for as a purchase.  As was
the case prior to the  acquisition,  the acquired ARCO  operations  will produce
low-sulfur coal, primarily for sale to domestic utility customers.

      Upon completion of this acquisition,  Arch Coal became the nation's second
largest coal  producer  with annual sales of nearly 110 million  tons.  In 1997,
ARCO's U.S. coal operations,  including its 65% interest in Canyon Fuel Company,
LLC,  generated  revenues of $547 million and after-tax  operating income of $32
million on the sale of 53.2  million  tons of  low-sulfur  coal.  On a pro forma
basis after giving effect to the ARCO  transaction  as of January 1, 1997,  Arch
Coal had total 1997  revenues of  approximately  $1.8  billion,  total assets at
December 31, 1997 of $2.8 billion and debt at December 31, 1997 of approximately
$1.4 billion.  The total  measured and  indicated  coal reserves of the acquired
ARCO operations are estimated to be approximately 1.3 billion tons.

      In connection  with the  acquisition,  the Company  entered into three new
5-year  credit  facilities:  a $675  million  non-amortizing  term  loan to Arch
Western,  a $300 million  fully  amortizing  term loan to Arch Coal,  and a $600
million  revolver  to Arch Coal.  Borrowings  under the new Arch Coal  revolving
facility were used to finance the  acquisition of ARCO's  Colorado and Utah coal
operations,  to pay related 

                                       2



fees  and  expenses,  to  refinance  existing  corporate  debt  and for  general
corporate purposes.  Borrowings under the Arch Western credit facility were used
to fund a portion of a $700 million cash  distribution  by Arch Western to ARCO,
which  distribution  occurred  simultaneously  with ARCO's  contribution  of its
Wyoming coal operations to Arch Western. The Arch Western credit facility is not
guaranteed by the Company.  On a historical  basis,  at December 31, 1997,  Arch
Coal's debt was 31% of capital employed.  On a pro-forma  basis, at December 31,
1997,  giving  effect to the  consummation  of the ARCO Coal  transaction,  Arch
Coal's debt would have been approximately 70% of capital employed.

Item 7.  Financial Statements, Pro Forma Financial Information and
         Exhibits.
         ---------------------------------------------------------

      (a)  The following  consolidated financial statements of ARCO Coal Company
           are filed as part of this Current Report on Form 8-K*:


            ARCO Coal and Subsidiaries
            --------------------------
            Report of Coopers & Lybrand LLP, Independent Auditors;

            Consolidated Balance Sheet at December 31, 1997 and 1996;

            Consolidated Statement of Income for the years ended December 31,
            1997, 1996 and 1995;

            Consolidated Statement of Cash Flows for the years ended December
            31, 1997, 1996 and 1995;

            Notes to Consolidated Financial Statements;

            Consolidated Balance Sheet at March 31, 1998 (unaudited) and
            December 31, 1997;

            Consolidated  Statement of Income for the three month  periods ended
            March 31, 1998 and 1997 (unaudited);

            Consolidated  Statement  of Cash Flows for the three  month  periods
            ended March 31, 1998 and 1997 (unaudited); and

            Notes to Consolidated Financial Statements.

                                       3



            Canyon Fuel Company, LLC
            ------------------------
            Report of Coopers & Lybrand, LLP, Independent Auditors;

            Balance Sheet at December 31, 1997;

            Statement  of  Operations  for the period  from  December  20,  1996
            (inception) through December 31, 1997;

            Statement of Members'  Equity for the period from  December 20, 1996
            (inception) through December 31, 1997;

            Statements  of Cash  Flows for the period  from  December  20,  1996
            (inception) through December 31, 1997; and

            Notes to Financial Statements.

            -----------------------------
            * To be filed by  amendment  pursuant  to Form  8-K,  Item  7(a) (4)
            within 60 days after this report was required to be filed.


      (b)   The following unaudited pro forma financial  information is filed as
            part of this Current Report on Form 8-K*:

            Unaudited Pro Forma Financial Information;

            Unaudited Pro Forma Combined Balance Sheet as of March 31, 1998;

            Notes  to  Unaudited  Pro  Forma  Combined Balance Sheet as of March
            31, 1998;

            Unaudited Pro Forma Combined Statement of Income for the year  ended
            December 31, 1997;

            Notes to Unaudited  Pro Forma  Combined  Statement of Income for the
            year ended December 31, 1997;

            Unaudited  Pro Forma  Combined  Statement  of  Income  for the three
            months ended March 31, 1998; and

            Notes to Unaudited  Pro Forma  Combined  Statement of Income for the
            three months ended March 31, 1998.

            -----------------------------
            * To be filed by amendment pursuant to Form 8-K, Item 7(a)(4) within
            60 days after this report was required to be filed.

                                       4




      (c)   The following Exhibits are filed  with  or incorporated by reference
            as part of this Current Report on Form 8-K:

            Exhibit No.             Description
            -----------             -----------

            2.1                     Purchase and  Sale  Agreement  dated  as  of
                                    March  22,  1998  among  Atlantic  Richfield
                                    Company, ARCO Uinta Coal Company, Arch Coal,
                                    Inc.    and   Arch    Western    Acquisition
                                    Corporation**

            2.2                     Contribution  Agreement   among  Arch  Coal,
                                    Inc., Arch Western Arch Western  Acquisition
                                    Corporation,   Atlantic  Richfield  Company,
                                    Delta   Housing   Inc.   and  Arch   Western
                                    Resources LLC dated as of March 22, 1998**

            2.3                     Limited Liability  Company Agreement of Arch
                                    Western  Resources  LLC, dated as of June 1,
                                    1998  between   Arch   Western   Acquisition
                                    Corporation and Delta Housing Inc.

            2.4                     Tax  Sharing  Agreement  dated as of June 1,
                                    1998 by and  among  Arch  Coal,  Inc.,  Arch
                                    Western   Acquisition   Corporation,    Arch
                                    Western Resources LLC and Delta Housing Inc.

            4.1                     $600,000,000   Revolving   Credit  Facility,
                                    $300,000,000  Term Loan Credit  Agreement by
                                    and among Arch Coal, Inc., the Lenders party
                                    thereto, PNC Bank, National Association,  as
                                    Administrative  Agent, Morgan Guaranty Trust
                                    Company of New York, as  Syndication  Agent,
                                    and   First   Union    National   Bank,   as
                                    Documentation  Agent  dated  as  of  June 1,
                                    1998


                                       5


            4.2                     $675,000,000 Term Loan Credit Agreement   by
                                    and among Arch Western  Resources,  LLC, the
                                    Banks  party  thereto,  PNC  Bank,  National
                                    Association, as Administrative Agent, Morgan
                                    Guaranty  Trust  Company  of  New  York,  as
                                    Syndication  Agent, and NationsBank N.A., as
                                    Documentation Agent  dated  as  of  June  1,
                                    1998

            4.3                     Omnibus Amendment Agreement dated as of June
                                    1, 1998 in  respect  of Arch Coal  Trust No.
                                    1998-1,   Parent   Guaranty  and  Suretyship
                                    Agreement,   Lease   Intended  as  Security,
                                    Subsidiary Guaranty and Suretyship Agreement
                                    each dated  as  of  January 15,  1998, among
                                    Apogee Coal Company, Catenary  Coal Company,
                                    Hobet Mining, Inc., Arch Coal,  Inc., Great-
                                    West Life & Annuity Insurance  Company, Bank
                                    of Montreal, Barclays Bank, PLC, First Union
                                    National  Bank,  BA   Leasing   and  Capital
                                    Corporation, First Security  Bank,  National
                                    Association, Arch Coal Sales Company,  Inc.,
                                    Ark  Land  Company  and  Mingo  Logan   Coal
                                    Company

            23.1                    Consent of Coopers & Lybrand LLP***

            -----------
            Certain exhibits and schedules to the Exhibits filed  herewith  have
            been omitted in accordance with  Item 601(b)(2) of Regulation S-K. A
            copy of any omitted exhibit  or  schedule  will  be furnished to the
            Commission upon request.
 
            **  Portions of the exhibit have been omitted pursuant to  a request
            for confidential treatment.

            *** To  be  filed  by amendment concurrently with the filing of Item
            7(a) information.

                                       6





                                   SIGNATURES

            Pursuant to the requirements of the Securities Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned hereunto duly authorized.

Dated:  June 15, 1998               ARCH COAL, INC.

                                    By: /s/ Jeffry N. Quinn
                                        -----------------------------
                                        Jeffry N. Quinn
                                        Senior Vice President -
                                        Law & Human Resources,
                                        General Counsel and Secretary





                                  EXHIBIT INDEX
                                  -------------


         Exhibit No.                Description
         -----------                -----------
            2.1                     Purchase  and  Sale  Agreement  dated  as of
                                    March  22,  1998  among  Atlantic  Richfield
                                    Company, ARCO Uinta Coal Company, Arch Coal,
                                    Inc.    and   Arch    Western    Acquisition
                                    Corporation*

            2.2                     Contribution  Agreement  among   Arch  Coal,
                                    Inc., Arch Western Arch Western  Acquisition
                                    Corporation,   Atlantic  Richfield  Company,
                                    Delta   Housing   Inc.   and  Arch   Western
                                    Resources LLC dated as of March 22, 1998*

            2.3                     Limited   Liability   Company  Agreement  of
                                    Arch Western Resources LLC, dated as of June
                                    1, 1998  between  Arch  Western  Acquisition
                                    Corporation and Delta Housing Inc.

            2.4                     Tax  Sharing  Agreement  dated as of June 1,
                                    1998 by and  among  Arch  Coal,  Inc.,  Arch
                                    Western   Acquisition   Corporation,    Arch
                                    Western Resources LLC and Delta Housing Inc.

            4.1                     $600,000,000  Revolving   Credit   Facility,
                                    $300,000,000  Term Loan Credit  Agreement by
                                    and among Arch Coal, Inc., the Lenders party
                                    thereto, PNC Bank, National Association,  as
                                    Administrative  Agent, Morgan Guaranty Trust
                                    Company of New York, as  Syndication  Agent,
                                    and   First   Union    National   Bank,   as
                                    Documentation  Agent  dated  as  of  June 1,
                                    1998

            4.2                     $675,000,000 Term Loan Credit Agreement   by
                                    and among Arch Western  Resources,  LLC, the
                                    Banks  party  thereto,  PNC  Bank,  National
                                    Association, as Administrative Agent, Morgan
                                    Guaranty  Trust  Company  of  New  York,  as
                                    Syndication  Agent, and NationsBank N.A., as
                                    Documentation  Agent  dated  as  of  June 1,
                                    1998





            4.3                     Omnibus Amendment Agreement dated as of June
                                    1, 1998 in  respect  of Arch Coal  Trust No.
                                    1998-1,   Parent   Guaranty  and  Suretyship
                                    Agreement,   Lease   Intended  as  Security,
                                    Subsidiary Guaranty and Suretyship Agreement
                                    each  dated as of  January 15,  1998,  among
                                    Apogee Coal Company, Catenary  Coal Company,
                                    Hobet Mining, Inc., Arch Coal,  Inc., Great-
                                    West Life & Annuity Insurance  Company, Bank
                                    of Montreal, Barclays Bank, PLC, First Union
                                    National  Bank,  BA   Leasing   and  Capital
                                    Corporation, First Security  Bank,  National
                                    Association, Arch Coal Sales Company,  Inc.,
                                    Ark  Land  Company  and  Mingo  Logan   Coal
                                    Company

             -----------------
               Certain  exhibits  and schedules to the Exhibits  filed  herewith
               have   been  omitted   in  accordance  with  Item  601(b)(2)   of
               Regulation S-K. A copy of   any  omitted exhibit or schedule will
               be furnished to the Commission upon request.

             * Portions  of  the exhibit have been omitted pursuant to a request
               for confidential treatment. 




                                                                     EXHIBIT 2.1


                                                                                





                           PURCHASE AND SALE AGREEMENT

                                      AMONG

                           ATLANTIC RICHFIELD COMPANY,

                            ARCO UINTA COAL COMPANY,

                                ARCH COAL, INC.,

                                       AND

                      ARCH WESTERN ACQUISITION CORPORATION


     *    Portions of  this  document  have been  omitted  pursuant to a request
          for  confidential  treatment  filed with the  Securities  and Exchange
          Commission  (the  "Commission")  pursuant to Rule 24b-2 under the U.S.
          Securities  Exchange Act of 1934, as amended.  Such portions have been
          filed  separately  with  the  Commission  and are  identified  in this
          document   by   the   following   legend:   "[Confidential   Treatment
          Requested]*."







                                      
                                TABLE OF CONTENTS

ARTICLE 1 Definitions.........................................................1
  1.1  Definitions ...........................................................1
  1.2  Cross References, Interpretation ......................................9
ARTICLE 2 Purchase and Sale of LLC Interests..................................9
  2.1  Sale of LLC Interests .................................................9
  2.2  Payment of Purchase Price .............................................9
  2.3  Adjustment to Unadjusted Purchase Price ...............................9
  2.4  Transfer Taxes .......................................................11
ARTICLE 3 Closing............................................................11
  3.1  Other Transactions ...................................................11
  3.2  Closing Date .........................................................12
  3.3  ARCO and Seller's Deliveries .........................................12
  3.4  Arch's and Buyer's Deliveries ........................................13
  3.5  Simultaneous Transactions ............................................14
ARTICLE 4 Representations and Warranties of ARCO and Seller..................14
  4.1  Organization and Good Standing of ARCO and Seller ....................14
  4.2  Authority ............................................................14
  4.3  No Violations ........................................................14
  4.4  Approvals, Consents and Other Actions ................................14
  4.5  Formation and Good Standing of the Companies .........................14
  4.6  Title to the LLC Interests ...........................................15
  4.7  Capitalization .......................................................15
  4.8  Real Property ........................................................15
  4.9  Buildings, Structures and Tangible Personal Property; Other 
       Securities ...........................................................16
  4.10 Material Contracts ...................................................16
  4.11 Insurance Policies ...................................................16
  4.12 Taxes ................................................................16
  4.13 Licenses, Permits, Authorizations ....................................17
  4.14 Litigation ...........................................................17
  4.15 Compliance with Laws .................................................17
  4.16 Labor Matters ........................................................17
  4.17 Employee Benefit Plans ...............................................17
  4.18 Bank Accounts ........................................................19
  4.19 Broker Liability .....................................................19
  4.20 Financial Statements .................................................19
  4.21 Black Lung Disclosure ................................................19
  4.22 Conduct of Business ..................................................20
  4.23 Assets ...............................................................20
  4.24 CERCLA................................................................20
  4.25 Disclaimer of Certain Representations and Warranties .................20
  4.26 No Other Commitment to Sell LLC Interests ............................20
  4.27 Absence of Undisclosed Liabilities ...................................20


                                       i


ARTICLE 5 Representations and Warranties of Arch and Buyer...................21
  5.1  Organization and Good Standing .......................................21
  5.2  Authority ............................................................21
  5.3  No Violations ........................................................21
  5.4  Approvals and Consents ...............................................21
  5.5  Financial Capability .................................................21
  5.6  Accredited Investor ..................................................21
  5.7  Investment Intent ....................................................21
  5.8  Arch's and Buyer's Inquiry ...........................................22
  5.9  Broker Liability .....................................................22
  5.10 Qualification, Compliance with Acreage Limitations ...................22
  5.11 No Independent Contact with ITOCHU ...................................22
ARTICLE 6 Covenants and Agreements of the Parties............................22
  6.1  Access to Information ................................................22
  6.2  Conduct of the Business Pending the Closing ..........................24
  6.3  Notification .........................................................24
  6.4  Antitrust Notification ...............................................24
  6.5  Fees and Expenses ....................................................25
  6.6  Publicity ............................................................25
  6.7  Post-Closing Assistance ..............................................25
  6.8  Guarantees ...........................................................25
  6.9  Name Changes .........................................................25
  6.10 Surety Bonds .........................................................26
  6.11 Black Lung Liability .................................................26
  6.12 Litigation Support ...................................................26
  6.13 Insurance ............................................................27
  6.14 Arch's and Buyer's Environmental Responsibilities ....................27
  6.15 ARCO's and Seller's Environmental Responsibilities  ..................27
  6.16 Other Liabilities ....................................................27
  6.17 ITOCHU Buy/Sell Agreement ............................................28
  6.18 Commercially Reasonable Efforts ......................................28
  6.19 [Confidential Treatment Requested]*...................................28
  6.20 Substitute Member in CFC Agreement ...................................30
  6.21 West Elk Mine Surface Facilities .....................................30
  6.22 Disclosure Schedules .................................................31
ARTICLE 7 Employees and Employee Benefits....................................31
  7.1  Retention of Employees and Continuation of Benefits ..................31
  7.2  Retention of Retirement Plans for Companies ..........................31
  7.3  ARCO's Pension Plan ..................................................32
  7.4  Thrift Plan ..........................................................32
  7.5  Other Employee Benefits ..............................................32
  7.6  Flexible Spending Accounts ...........................................33
  7.7  Cooperation ..........................................................33
  7.8  Black Lung Matters ...................................................33
  7.9  Employee Termination by Buyer ........................................33


                                       ii

ARTICLE 8 Taxes..............................................................34
  8.1  Certain Tax Matters ..................................................34
ARTICLE 9 Indemnification....................................................35
  9.1  Arch's and Buyer's Indemnification ...................................35
  9.2  ARCO's and Seller's Indemnification ..................................36
  9.3  Monetary Limitation ..................................................36
  9.4  Nature and Survival; Time Limits .....................................37
  9.5  Limitation on Remedies; Mitigation ...................................37
  9.6  General Provisions ...................................................37
  9.7  Tax Treatment ........................................................38
ARTICLE 10 Conditions to Closing.............................................39
  10.1  Conditions Precedent to Obligations of Arch and Buyer ...............39
  10.2  Conditions Precedent to Obligations of ARCO and Seller ..............40
ARTICLE 11 Termination of Agreement..........................................41
  11.1  Termination Before Closing ..........................................41
  11.2  Effect of Termination ...............................................41
ARTICLE 12 Miscellaneous.....................................................41
  12.1  Entire Agreement ....................................................41
  12.2  Construction ........................................................42
  12.3  Governing Law .......................................................42
  12.4  Notices .............................................................42
  12.5  Waiver ..............................................................42
  12.6  Binding Effect; Assignment ..........................................43
  12.7  Amendment ...........................................................43
  12.8  Counterparts ........................................................43
  12.9  No Third Party Beneficiaries ........................................43
  12.10 Jurisdiction; Service of Process ....................................43
  12.11 Disclaimer for Communications .......................................44


                                   ATTACHMENTS

Disclosure Schedule
Exhibit A (referenced in Section 1.1, "Preliminary Interim Date Balance
          Sheet" definition)
Exhibit B (referenced in Section 1.1, "Seller's Knowledge" definition) 
Exhibit C (referenced in Section 7.9(b)) 
Exhibit D (referenced in Section 12.10(b))





                                      iii



      THIS PURCHASE AND SALE  AGREEMENT  (the  "Agreement")  is made and entered
into as of March 22,  1998 (the  "Effective  Date"),  among  Atlantic  Richfield
Company, a Delaware  corporation  ("ARCO"),  ARCO Uinta Coal Company, a Delaware
corporation  ("Seller"),   Arch  Western  Acquisition  Corporation,  a  Delaware
corporation ("Buyer"), and Arch Coal, Inc., a Delaware corporation ("Arch").

                                    Recitals

      A.  On the  Closing  Date,  Seller  will  be the  owner  of (i) all of the
membership  interests  in  Mountain  Coal  Company  L.L.C.,  a Delaware  limited
liability  company ("MCC"),  (ii) all of the membership  interests in a Delaware
limited  liability  company to be formed by Seller ("AU Sub"),  and (iii) 65% of
the  membership  interests  in Canyon  Fuel  Company,  LLC, a  Delaware  limited
liability  company  ("CFC," and together with MCC and AU Sub,  collectively  the
"Companies,"  and each  individually,  a  "Company").  Seller's  65%  membership
interest  in CFC is  referred  to  herein  as the "CFC  Interests,"  and the CFC
Interests,  together  with Seller's  membership  interest in MCC and AU Sub, are
referred to herein as the "LLC Interests."

      B. Subject to the terms and  conditions  hereof,  Buyer wishes to purchase
from Seller, and Seller wishes to sell to Buyer, all of the LLC Interests on the
terms and subject to the conditions set forth herein.

      C. Simultaneously with the execution and delivery of this Agreement, ARCO,
Delta  Housing  Inc., a Delaware  corporation  ("Delta"),  Arch,  Buyer and Arch
Western Resources LLC, a Delaware limited liability company, are entering into a
Contribution Agreement (the "Contribution Agreement").

      D. The  satisfaction  of the conditions  precedent to closing set forth in
the  Contribution  Agreement  are  conditions  precedent  to the  Closing of the
transactions and obligations set forth in this Agreement.


                                    Agreement

      In  consideration  of, and  subject to, the mutual  promises,  agreements,
terms and conditions made herein, and intending to be legally bound, the parties
agree as follows:


                                    ARTICLE 1
                                   Definitions

      1.1  Definitions.  As used  herein,  the  following  terms  shall have the
meanings set forth below:

      "ACC" shall mean the United States assets of ARCO Coal Company, a division
of ARCO.



      "Adjustment" shall have the meaning set forth in Section 2.3(b).

       [Confidential Treatment Requested]*

       [Confidential Treatment Requested]*

      "Affiliate"  of any  specified  Person  shall mean any other  Person  that
directly  or  indirectly  through  one  or  more  intermediaries   controls,  is
controlled by or is under common control with,  such specified  Person,  and the
term  "affiliated  with" shall have a correlative  meaning.  For the 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.  As used with  respect to ARCO,  "Affiliate"  shall not include  ARCO
Chemical Company, a Delaware corporation,  or Vastar Resources, Inc., a Delaware
corporation.  As used with  respect to Arch  (except for the purposes of Section
9.2), "Affiliate" shall not include Ashland Inc., a Kentucky corporation, or any
of its subsidiaries other than Arch.

      "Agent" shall have the meaning set forth in Section 12.10(b).

      "Agreement"  shall have the meaning set forth in the  introduction to this
Agreement.

      "Antitrust Division" shall have the meaning set forth in Section 6.4.

      "Applicable Rate" shall mean six percent per annum.

      "Arch"  shall  have the  meaning  set  forth in the  introduction  to this
Agreement.

      "ARCO"  shall  have the  meaning  set  forth in the  introduction  to this
Agreement.

      "ARCO  Accumulation and Savings Plans" shall have the meaning set forth in
Section 7.4.

      "ARCO Retirement Plan" shall have the meaning set forth in Section 7.3.

      "Audited Financial Statements" shall have the meaning set forth in Section
2.3(a).

      "AU Sub"  shall  have  the  meaning  set  forth  in the  Recitals  to this
Agreement.

      "Bankruptcy"   shall  mean  (i)  the  commencement  of  any  voluntary  or
involuntary  bankruptcy  case by or against a Person as debtor under Title 11 of
the  United  States  Code or any  successor  or  equivalent  statute,  (ii)  the
insolvency  or inability of a Person

                                       2


to satisfy its obligations as they become due or (iii) the general assignment by
any Person for the benefit of creditors under state Law.

      "Black Lung Discount Rate" shall mean seven percent per annum.

      "Buyer"  shall  have the  meaning  set forth in the  introduction  to this
Agreement.

      "Buyer Indemnitees" shall have the meaning set forth in Section 9.2.

      "Buyer's Retirement Plan" shall have the meaning set forth in Section 7.3.

      "Buyer's Savings Plan" shall have the meaning set forth in Section 7.4.

      "CERCLA"  shall mean the  Federal  Comprehensive  Environmental  Response,
Compensation  and  Liability  Act (as amended by the  Superfund  Amendments  and
Reauthorization Act of 1986).

      "CFC" shall have the meaning set forth in the Recitals to this Agreement.

      "CFC  Agreement"  shall  mean the  Second  Amended  and  Restated  Limited
Liability Company Agreement of Canyon Fuel Company,  LLC, dated as of January 1,
1997, as in effect on the Closing Date.

      "CFC  Interests"  shall have the meaning set forth in the Recitals to this
Agreement.

      "Closing" shall have the meaning set forth in Section 3.2.

      "Closing Date" shall have the meaning set forth in Section 3.2.

      "Closing  Date  Balance  Sheet"  shall  mean  the  unaudited,  pro  forma,
combined,  consolidated  balance  sheet  of the  Companies  as of the  close  of
business  on the  Closing  Date,  which  shall be  derived  from  the  combined,
consolidated  unaudited  balance  sheet of ACC as of the same date,  prepared as
though the  Proposed  Transactions  had not been  consummated.  The Closing Date
Balance  Sheet  shall be prepared on a basis  consistent  with the Interim  Date
Balance Sheet.

      "Closing Date Members' Equity" shall have the meaning set forth in Section
2.3(b).

      [Confidential Treatment Requested]*

      [Confidential Treatment Requested]*

                                       3


      [Confidential Treatment Requested]*

      [Confidential Treatment Requested]*

      "Code" shall mean the Internal Revenue Code of 1986, as amended.

      [Confidential Treatment Requested]*

      "Combined  Buyer's  Losses"  shall have the  meaning  set forth in Section
9.3(a).

      "Company" or "Companies"  shall have the meaning set forth in the Recitals
to this Agreement.

      "Contribution  Agreement" shall have the meaning set forth in the Recitals
to this Agreement.

      "Delta"  shall  have  the  meaning  set  forth  in the  Recitals  to  this
Agreement.

      "Disagreement Notice" shall have the meaning set forth in Section 2.3(c).

      "Disclosure  Schedule" shall mean the Disclosure Schedule attached to this
Agreement and incorporated herein for all purposes, which is the same Disclosure
Schedule as is attached to and incorporated in the Contribution Agreement.

      "Effective  Date" shall have the meaning set forth in the  introduction to
this Agreement.

      "Employees" shall have the meaning set forth in Section 4.17(a).

      "Environmental  Laws"  shall mean Laws aimed at  abatement  of  pollution;
protection  of  the  environment;  ensuring  public  safety  from  environmental
hazards;  management,  storage or control of  Hazardous  Materials;  releases or
threatened  releases of  Hazardous  Materials  into the  environment,  including
ambient air, surface water and  groundwater;  and all other Laws relating to the
manufacturing,  processing,  distribution,  use, treatment,  storage,  disposal,
handling or transportation of Hazardous  Materials,  including CERCLA, Clean Air
Act,  Clean Water Act,  Solid  Wastes  Disposal  Act (as amended by the Resource
Conservation and Recovery Act), Toxic Substances Control Act, Emergency Planning
and Community  Right to Know Act,  Surface Mining Control and  Reclamation  Act,
Mine Safety and Health Act, Safe Drinking Water Act and any  regulations  issued
under each of such statutes, and any state or local counterparts,  and any other
Laws to the extent relating to reclamation of lands affected by mining.

                                       4


      "Environmental Liabilities" shall mean any and all claims, actions, causes
of action, damages,  losses,  liabilities,  obligations,  penalties,  judgments,
amounts  paid in  settlement,  assessments,  costs,  disbursements  or  expenses
(including  attorneys' fees and costs,  experts' fees and costs and consultants'
fees and  costs) of any kind or nature  (including  those  absolute,  accrued or
contingent,  unknown or otherwise  and including  further,  liability for study,
testing or investigatory  costs,  cleanup costs,  response costs, removal costs,
remediation costs, containment costs, restoration costs, corrective action costs
or business losses) arising out of, based on, resulting from or alleging (i) the
presence,   release,   threatened  release,   discharge  or  emission  into  the
environment of any Hazardous  Materials existing or arising on, beneath or above
any  property,  including  claims with  respect to other  properties  based upon
claims relating to migration or emanation (or threatened migration or emanation)
of Hazardous  Materials from the property to such other  properties,  whether or
not   immediately   adjacent  to  the  property,   (ii)  the  violation  of  any
Environmental  Laws  involving  any property,  including  claims with respect to
other  properties  based upon claims  relating to  migration  or  emanation  (or
threatened  migration or emanation) of Hazardous  Materials from the property to
such other properties,  whether or not immediately adjacent to the property, and
(iii) natural  resources  damages,  penalties or fines,  or property  damages or
personal injuries claimed by private (non-governmental) parties.

      "ERISA" shall have the meaning set forth in Section 4.17(a).

      "Final   Judgment"   shall  mean  a  judgment  by  a  court  of  competent
jurisdiction  or a binding award in arbitration  from which no further appeal or
review may be taken, a settlement or a confession of judgment.

      "FTC" shall have the meaning set forth in Section 6.4.

      "GAAP" shall mean generally  accepted  accounting  principles in effect in
the United States, from time to time.

      "Hazardous  Materials"  shall  mean any waste or other  substance  that is
listed,  defined,  designated or classified  as, or otherwise  determined to be,
hazardous,  radio  active  or toxic or a  pollutant  or a  contaminant  under or
pursuant to any Environmental Law, and specifically  including petroleum and all
derivatives  thereof or  synthetic  substitutes  therefor,  PCBs and asbestos or
asbestos-containing materials.

      "HSR Act" shall mean the Hart-Scott-Rodino  Antitrust  Improvements Act of
1976, as amended.

      "Indemnified Party" shall have the meaning set forth in Section 9.6(a).

      [Confidential Treatment Requested]*

      "Indemnifying Party" shall have the meaning set forth in Section 9.6(a).

                                       5


      "Independent  Accountants"  shall  have the  meaning  set forth in Section
2.3(d).

      "Intended Use" shall have the meaning set forth in Section 6.21(a).

      "Interim Date" shall mean December 31, 1997.

      "Interim  Date  Balance  Sheet"  shall  mean  the  unaudited,  pro  forma,
combined, consolidated,  balance sheet for the Companies, which shall be derived
from and consistent with the combined, consolidated audited balance sheet of ACC
as of the close of business on the Interim Date.  The Interim Date Balance Sheet
shall be  prepared  on a basis  consistent  with the  Preliminary  Interim  Date
Balance Sheet and, except for changes with respect to corporate  adjustments and
income tax  calculations  and the effect thereof on total member's equity in the
Companies,  will be  substantially  identical  to the  Preliminary  Interim Date
Balance Sheet.

      "Interim Date Members' Equity" shall have the meaning set forth in Section
2.3(b).

      "ITOCHU" shall mean ITOCHU Coal International Inc.

      "Laws" shall mean all existing Federal, state and local laws (statutory or
common), rules,  ordinances,  regulations,  grants, leases, orders,  directives,
judgments,  decrees and other  governmental  restrictions of any kind or nature,
including  permits  and  other  similar   requirements,   whether   legislative,
municipal, administrative or judicial in nature.

      "LLC  Interests"  shall have the meaning set forth in the Recitals to this
Agreement.

      "Losses" shall have the meaning set forth in Section 9.3(a).

      "Material  Adverse Effect" (i) as used in Sections 3.3(i),  6.22,  10.1(a)
and  11.1(b),  shall  mean a  breach  or  breaches  of the  representations  and
warranties  of ARCO and/or  Seller  under this  Agreement  and ARCO and/or Delta
under  the  Contribution  Agreement  that  in the  aggregate,  if  the  Proposed
Transactions were consummated,  would give rise to  indemnification  obligations
owed to Buyer  Indemnitees  by ARCO and/or Seller under this  Agreement and ARCO
and/or Delta under the Contribution  Agreement (without regard to any applicable
limits in Section  9.3 of this  Agreement  or Section  10.3 of the  Contribution
Agreement), together totaling more than One Hundred and Ten Million Dollars, and
(ii) as used in Section 10.1(g), shall mean (without duplication) the sum of (a)
aggregate  reductions  in the  actual  value of the  business  of the  Companies
(excluding  any  reduction  attributable  to the  portion  of  CFC's  membership
interests owned by ITOCHU) and TBCC, on a combined, consolidated basis and taken
as a whole,  resulting  from any events or  occurrences  referred  to in Section
10.1(g),  and (b) a breach or breaches of the  representations and warranties of
ARCO  and/or  Seller  under  this  Agreement  and ARCO  and/or  Delta  under the

                                       6


Contribution Agreement that in the aggregate,  if the Proposed Transactions were
consummated,  would  give  rise to  indemnification  obligations  owed to  Buyer
Indemnitees  by ARCO and/or  Seller under this  Agreement  and ARCO and/or Delta
under the  Contribution  Agreement  (without regard to any applicable  limits in
Section 9.3 of this  Agreement or Section 10.3 of the  Contribution  Agreement),
together totaling more than One Hundred and Ten Million Dollars.

      "MCC" shall have the meaning set forth in the Recitals to this Agreement.

      "Other Liabilities"' shall have the meaning set forth in Section 6.16(b).

      "Other Properties" shall have the meaning set forth in Section 6.15.

      "Participants" shall have the meaning set forth in Section 7.5.

      "PBGC" shall have the meaning set forth in Section 4.17(e).

      "Performance Bonds" shall have the meaning set forth in Section 6.10.

      [Confidential Treatment Requested]*

      "Person"  shall  mean and  include,  any  individual,  partnership,  joint
venture,  corporation,  limited liability company,  trust,  joint-stock company,
unincorporated entity or association, organization or other legal entity.

      "Plans" shall have the meaning set forth in Section 4.17(a).

      "Post-Closing  Surety Bonds" and "Post-Closing Surety Bond" shall have the
meaning set forth in Section 6.10.

      "Pre-Closing  Tax  Period"  shall  have the  meaning  set forth in Section
8.1(a).

      "Preliminary  Interim Date Balance Sheet" shall mean the document attached
as Exhibit A.

      "Present  Value Benefit" shall mean the present value (based on a discount
rate equal to the short-term applicable federal rate as determined under Section
1274(d)  of the  Code at the  time  of  determination,  and  assuming  that  the
Indemnified  Party will be liable for income taxes at all relevant  times at the
maximum marginal rates) of any income tax benefit.

      "Properties" shall have the meaning set forth in Section 6.14.

      "Proposed Transactions" shall have the meaning set forth in Section 3.2.

      "Purchase Price" shall have the meaning set forth in Section 2.2.

                                       7


      "Report" shall have the meaning set forth in Section 2.3(d).

      "Retirement Plans" shall have the meaning set forth in Section 7.2.

      "Securities Act" shall mean the Securities Act of 1933, as amended.

      "Seller"  shall have the  meaning  set forth in the  introduction  to this
Agreement.

      "Seller Indemnitees" shall have the meaning set forth in Section 9.1.

      "Seller's  Group"  shall mean ARCO,  Seller and any  Affiliate  of ARCO or
Seller (other than the Companies).

      "Seller's  Knowledge"  shall mean the actual  knowledge of the individuals
identified on Exhibit B, without any duty of inquiry.

      [Confidential Treatment Requested]*

      [Confidential Treatment Requested]*

      "Statement" shall have the meaning set forth in Section 2.3(b).

      "Substitute  Surety  Bonds" and  "Substitute  Surety  Bond" shall have the
meaning set forth in Section 6.10.

      "Surety  Bonds" and  "Surety  Bond"  shall have the  meaning  set forth in
Section 6.10.

      "Surface Movement" shall have the meaning set forth in Section 6.21(a).

      "Tax" or "Taxes" shall mean any tax or taxes, similar charge, fee, impost,
levy or other assessment (including income taxes, severance taxes, excise taxes,
sales taxes,  franchise taxes, real estate taxes,  Transfer Taxes, transfer gain
taxes,  value-added  taxes,  use taxes,  ad valorem  taxes,  withholding  taxes,
payroll  taxes  or  minimum  taxes),  together  with  any  related  liabilities,
penalties,  fines,  additions to tax or interest imposed by the United States or
any state,  county,  local or foreign government agency or taxing authority,  or
any subdivision thereof.

      "Tax Return" or "Tax Returns" shall mean all returns,  reports,  estimates
and  information  statements  relating to, or required to be filed in connection
with any Taxes  pursuant to the statutes,  rules and  regulations  of the United
States or any state, county, local or foreign government subdivision,  agency or
taxing authority.

                                       8


      "TBCC" shall mean Thunder Basin Coal Company,  L.L.C.,  a Delaware limited
liability company.

      "Transfer Taxes" shall have the meaning set forth in Section 2.4.

      "Transferees" shall have the meaning set forth in Section 7.1(a).

      "Unadjusted  Purchase  Price"  shall have the meaning set forth in Section
2.2.

      "Unaudited  Financial  Statements"  shall  have the  meaning  set forth in
Section 4.20.

      "VEBA" shall have the meaning set forth in Section 4.17(a).

      "West Elk  Surface  Movement  Event"  shall have the  meaning set forth in
Section 6.21(b).

      1.2  Cross References,  Interpretation.  References to "Articles" refer to
Articles of this  Agreement.  References  to  "Sections"  refer to Sections  and
subsections  of this  Agreement.  Whenever the  singular  number is used in this
Agreement  and when  required by the context,  the same shall include the plural
and vice versa,  and the masculine  gender shall include the feminine and neuter
genders and vice versa.  Whenever the word "including" is used in this Agreement
it shall be read to mean "including  without  limitation."  The headings in this
Agreement  are inserted for  convenience  only and are not intended to describe,
interpret,  define or limit the scope, extent or intent of this Agreement or any
provision hereof.

                                   ARTICLE 2
                       PURCHASE AND SALE OF LLC INTERESTS

      2.1  Sale of LLC Interests. At  the Closing, Seller  shall  sell, transfer
and deliver to Buyer,  and Buyer shall purchase from Seller,  the LLC Interests,
subject to the terms and conditions set forth herein.

      2.2  Payment of Purchase Price. At the Closing, Buyer shall pay to Seller,
in  immediately  available  funds,  by wire  transfer to the account or accounts
designated  by Seller  not later  than two days prior to the  Closing  Date,  an
aggregate of Three Hundred Ninety Million U.S. Dollars  (U.S.$390,000,000)  (the
"Unadjusted Purchase Price"), which shall be subject to the adjustment set forth
in Section 2.3 (as adjusted, the "Purchase Price").

      2.3  Adjustment to Unadjusted Purchase Price.  

           (a)  Seller  shall  deliver to Buyer as soon as  available, but in no
event later than 30 days after the  Effective  Date,  the  consolidated  balance
sheet of ACC at December 31, 1997, and 1996, and its consolidated  statements of
income,  of equity  investment  and of cash flows for each of the three years in
the period ended December 31, 1997,  together with the related notes thereto and
the respective  audit opinion  thereon of the  independent  auditors of ACC (the
"Audited Financial Statements"). Within 30 days after the Effective Date, Seller
shall  prepare

                                       9


and deliver to Buyer a copy of the Interim  Date Balance  Sheet.  Within 90 days
after the Closing  Date,  Seller shall  prepare and deliver to Buyer the Closing
Date Balance Sheet.

           (b)  The   Unadjusted   Purchase   Price  shall  be   adjusted   (the
"Adjustment") (i) upwards on a dollar-for-dollar  basis for up to $10 million of
capital expenditures made by any of the Companies during the period from October
1,  1997,   to  December  31,   1997;   and  (ii)  upwards  or  downwards  on  a
dollar-for-dollar  basis  for the  amount  by which  total  members'  equity  as
reflected on the Closing Date Balance Sheet (the "Closing Date Members' Equity")
exceeds or is less than total  members'  equity as reflected on the Interim Date
Balance  Sheet  (the  "Interim  Date  Members'  Equity").  For  purposes  of the
preceding  sentence,  the change in total  members'  equity will include the net
change in intercompany accounts. During the period from the Interim Date through
the  Closing  Date,  intercompany  accounts  will,  in  part,  (i)  increase  by
contributions of cash for operating costs and capital by Seller's Group and (ii)
decrease by cash distributions to Seller's Group. In determining the Adjustment,
any change in deferred tax asset or deferred tax liability  from that  reflected
on the Interim Date Balance Sheet and the  corresponding  effect on Closing Date
Members'  Equity,  except for provisions  made in the ordinary course related to
income  earned  since the Interim  Date,  shall be ignored.  If the Closing Date
Members'  Equity exceeds the Interim Date Members'  Equity,  the Buyer shall pay
Seller an amount  equal to such excess as set forth  below.  If the Interim Date
Members' Equity exceeds the Closing Date Members'  Equity,  the Seller shall pay
Buyer an amount  equal to such excess as set forth below.  Seller shall  prepare
and deliver to Buyer,  simultaneously  with the  delivery  of the  Closing  Date
Balance Sheet, a statement (the "Statement")  setting forth in reasonable detail
Seller's calculation of Closing Date Members' Equity.

           (c)  If Buyer disagrees  with the Closing Date  Balance  Sheet or the
Statement,  it shall,  within 30 days  after the  receipt  of the  Closing  Date
Balance Sheet and the Statement,  deliver a notice to Seller (the  "Disagreement
Notice"),  setting forth its  calculation of the Adjustment and  specifying,  in
reasonable  detail,  those items or amounts in the Closing  Date  Balance  Sheet
and/or the  Statement  as to which  Buyer  disagrees  and the  reasons  for such
disagreement.  Buyer  shall be deemed to have  agreed with all items and amounts
contained in the Closing Date Balance Sheet and the  Statement  other than those
specified  in a  timely  Disagreement  Notice.  If  Buyer  does  not  deliver  a
Disagreement  Notice to Seller within such 30-day period,  Buyer shall be deemed
to have accepted the Closing Date Balance Sheet and the Statement, whereupon the
Closing Date Balance Sheet and the Statement shall become final and binding.

           (d)  If a Disagreement Notice is timely  delivered to Seller pursuant
to this  Section 2.3,  the parties  shall use their good faith  efforts to reach
agreement on the disputed items or amounts in order to determine the Adjustment,
which in no event  shall be more  favorable  to  Seller  than  reflected  in the
Statement nor more favorable to Buyer than shown in the  calculations  delivered
by Buyer pursuant to the Disagreement  Notice. If the parties do not resolve all
disputed  items or  amounts  within ten  business  days  after  delivery  of the
Disagreement  Notice,  this Agreement and the disputed items and amounts will be
submitted to an independent  nationally  recognized  accounting firm without any
current  material  financial  relationship  to either Buyer or Seller,  or their
respective Affiliates (the "Independent  Accountants"),  as mutually selected by


                                       10


Seller and Buyer,  or if Seller and Buyer cannot agree,  as  recommended  by the
independent  accountants  regularly  employed  to  audit  Seller's  and  Buyer's
financial statements,  for determination of the appropriate  Adjustment pursuant
to this Section  2.3. The written  report of the  Independent  Accountants  (the
"Report") shall be delivered to Seller and Buyer promptly, but in no event later
than  30 days  after  such  disputed  items  are  submitted  to the  Independent
Accountants,  and shall be final,  conclusive and binding upon the parties.  The
procedures for resolution of disputes  concerning the Closing Date Balance Sheet
and the  Statement  set forth in Sections  2.3(c) and 2.3(d)  shall be final and
exclusive of any other litigation, proceeding, contest, appeal or arbitration in
relation  thereto,  so that no party  shall be  entitled  to subject  any claim,
controversy  or dispute with respect to the foregoing to  arbitration  or to any
court or tribunal. The fees and expenses of the Independent Accountants shall be
borne equally by Seller and Buyer.

           (e)  Within five business days after the final  determination  of the
Adjustment,  Buyer shall pay Seller or Seller  shall pay Buyer,  as the case may
be, a sum of money equal to the Adjustment, plus interest at the Applicable Rate
from the  Closing  Date to the date the  payment  is made.  Any  amount  payable
pursuant to this Section 2.3(e) will be made in immediately  available  funds to
an account or accounts designated by the party receiving such payment.

           (f)  From the Closing  Date  until  the  final  determination  of the
Adjustment,    Seller,   including   its   officers,   employees,   agents   and
representatives,  and the  Independent  Accountants,  shall  have  access to the
Companies  and their  books,  records  and  employees  who are  responsible  for
financial matters in order to assist in preparing the Closing Date Balance Sheet
and the Statement and in  determining  the  Adjustment.  Buyer shall provide and
shall cause the  Companies  to provide any  assistance  reasonably  requested by
Seller in connection with the foregoing.

      2.4  Transfer  Taxes.  Buyer shall be solely  liable for and shall pay all
applicable sales, transfer, use, stamp, conveyance,  value-added,  real property
transfer,  recording,  stock transfer and other similar taxes, if any,  together
with all  recording or filing fees,  notarial  fees and other  similar  costs of
Closing,  that may be imposed  upon,  or  payable,  collectible  or  incurred in
connection with the transfer of the LLC Interests to Buyer  ("Transfer  Taxes").
Buyer  shall  indemnify  and hold  harmless  any member of  Seller's  Group with
respect to all Transfer Taxes.

                                   ARTICLE 3
                                    CLOSING

      3.1  Other Transactions.

           (a) Prior to or  concurrently  with the  Closing,  each of Seller and
Buyer shall take,  or cause to be taken,  the actions  required of such party by
this Section 3.1 and in accordance  with the  transactions  contemplated  in the
Contribution Agreement.

           (b) Prior to the Closing,  ARCO shall transfer,  or shall cause to be
transferred,  to AU Sub the properties,  rights or interests  indicated as being
owned by AU Sub on the Disclosure Schedule.

                                       11


      3.2  Closing  Date.  The    closing  ("Closing")   of   the   transactions
contemplated  herein (the "Proposed  Transactions"),  including the purchase and
sale of the LLC Interests, shall take place in New York, New York, at a mutually
agreeable site at 10:00 A.M.,  local time, on the later of (a) 45 days after the
date  hereof  or (b) the  third  business  day  after  the  satisfaction  of all
conditions  to Closing  set forth in  Sections  10.1 and 10.2,  or at such other
place or time as the parties may mutually agree. The date upon which the Closing
occurs is referred to in this Agreement as the "Closing Date."

      3.3  ARCO's and Seller's  Deliveries.  ARCO and Seller shall  deliver,  or
cause to be delivered, to Buyer at the Closing the following:

           (a)  duly   executed   assignment  documents  transferring   the  LLC
Interests from Seller to Buyer;

           (b)  all minute books, membership records and other books and records
of the Companies;

           (c)  a copy, certified as of the Closing  Date, by ARCO's or Seller's
Secretary or Assistant  Secretary,  as the case may be, of the resolutions  duly
adopted  by  the  Board  of  Directors  of  ARCO  and  Seller,  authorizing  the
transactions contemplated by this Agreement;

           (d)  short form certificates  of existence  and/or good  standing for
ARCO, Seller and each Company in their respective jurisdictions of incorporation
or  formation,  as  certified  as of a recent date by the  Secretary of State or
other appropriate authority of such jurisdictions;

           (e)  the opinion of counsel to ARCO required by Section 10.1(d);

           (f)  copies of the certificate  of  formation  for each  Company,  as
certified  as of a recent date by the  Secretary  of State or other  appropriate
authority of their respective jurisdiction of formation;

           (g)  copies  of the  limited  liability  company  agreements  of each
Company  as in  effect  on the  Closing  Date,  certified  by a duly  authorized
representative of each Company;

           (h)  certificates of the Secretary or Assistant Secretary of ARCO and
Seller,  as the  case  may  be,  certifying  as of the  Closing  Date  as to the
incumbency and signatures of the officer(s) of ARCO and/or Seller  authorized to
sign this Agreement and the other documents to be delivered hereunder,  together
with evidence of the incumbency of each such Secretary or Assistant Secretary;

           (i)  certificates  dated the  Closing  Date of  officers  of ARCO and
Seller, as the case may be, stating that the  representations  and warranties of
ARCO and Seller, as the case may be, set forth herein remain true and correct in
all  respects  on and as of the  Closing  Date as if made on and as of such date
(except for  representations  and warranties  made as of a specific date,  which
shall be true and  correct  in all  respects  as of such  date),  except for any
breach  or  breaches  of such  representations  and  warranties  that  would not
individually or in the aggregate have a 



                                       12


Material  Adverse  Effect,  and that all covenants and conditions to be complied
with and  performed  by ARCO  and/or  Seller  on or prior to the  Closing  Date,
including notifications under Section 6.3, have been substantially complied with
or performed; and

           (j)  the resignations of  the  officers  and directors  of MCC and AU
Sub,  and any  officers and  directors  of CFC that are  employees  of ARCO,  as
required pursuant to Section 10.1(f).

      3.4  Arch's and Buyer's  Deliveries.  Arch  and  Buyer  shall  deliver, or
cause to be delivered, to Seller at the Closing the following:

           (a)  the Unadjusted Purchase Price in the manner and amount specified
in Section 2.2;

           (b)  a copy, certified  as of the  Closing  Date by Arch's or Buyer's
Secretary or Assistant  Secretary,  as the case may be, of the resolutions  duly
adopted  by  the  Board  of  Directors  of  Arch  and  Buyer,   authorizing  the
transactions contemplated by this Agreement;

           (c)  short form certificates  of good  standing for Arch and Buyer in
their respective jurisdiction of incorporation, as certified as of a recent date
by the Secretary of State or other appropriate authority of such jurisdiction;

           (d)  the opinion of counsel to Buyer required by Section 10.2(d);

           (e)  copies of the certificates of incorporation  of  Arch and Buyer,
as certified as of a recent date by the Secretary of State or other  appropriate
authority of their respective jurisdiction of incorporation;

           (f)  copies  of the  bylaws  of Arch and  Buyer as in  effect  on the
Closing  Date,  certified as of the Closing  Date by the  Secretary or Assistant
Secretary of Arch or Buyer, as the case may be;

           (g)  certificates of the Secretary or Assistant Secretary of Arch and
Buyer,  as the  case  may  be,  certifying  as of  the  Closing  Date  as to the
incumbency and signatures of the officer(s) or representatives of Arch and Buyer
authorized  to sign this  Agreement  and the  other  documents  to be  delivered
hereunder,  together with evidence of the  incumbency of each such  Secretary or
Assistant Secretary; and

           (h)  certificates dated the  Closing  Date of an officer of Buyer and
an officer of Arch,  as the case may be,  stating that the  representations  and
warranties  of Arch and Buyer,  as the case may be, set forth herein remain true
and correct in all material respects on and as of the Closing Date as if made on
and as of such date  (except for  representations  and  warranties  made as of a
specified date,  which shall be true and correct in all material  respects as of
such  date)  and that all  covenants  and  conditions  to be  complied  with and
performed  by Arch  and/or  Buyer on or  prior to the  Closing  Date  have  been
substantially complied with or performed.

                                       13


      3.5  Simultaneous  Transactions.  All of the  transactions  and deliveries
identified  in this  Article 3 shall be deemed  to occur  simultaneously  on the
Closing Date, and no one  transaction  shall be deemed  completed  until all are
completed.

                                   ARTICLE 4
                REPRESENTATIONS AND WARRANTIES OF ARCO AND SELLER

      ARCO and Seller represent and warrant,  jointly and severally, to Arch and
Buyer, as of the Effective Date (or such other date as is specified therein), as
follows:

      4.1  Organization and Good Standing of  ARCO  and Seller. ARCO  and Seller
are corporations duly incorporated,  validly existing and in good standing under
the laws of their respective states of incorporation.

      4.2  Authority. ARCO and Seller have full corporate power and authority to
enter into this Agreement and to perform their respective obligations hereunder.
This  Agreement  constitutes a valid and binding  obligation of each of ARCO and
Seller,  enforceable  against  ARCO and  Seller in  accordance  with its  terms,
subject to applicable  laws of bankruptcy,  insolvency,  fraudulent  conveyance,
reorganization,  moratorium  and similar laws  affecting  creditors'  rights and
remedies generally,  and to general principles of equity,  regardless of whether
such enforceability is considered in a proceeding in equity or at law.

      4.3  No Violations.  Except as set forth in Section 4.3 of the  Disclosure
Schedule,  the  execution  and delivery of this  Agreement by ARCO and Seller do
not, and the consummation of the transactions  contemplated hereby will not, (i)
violate any provisions of the certificate of  incorporation or bylaws of ARCO or
Seller or of the limited liability company agreement of any Company; (ii) result
in the breach of, or constitute a default under, any material agreement or other
material  instrument to which ARCO, Seller or any Company is a party or to which
any of their  respective  properties  or assets are  bound;  (iii)  violate  any
statute, rule, regulation,  ordinance,  code, order, judgment, writ, injunction,
decree or award  applicable to ARCO,  Seller or any Company or their  respective
properties or assets;  or (iv) constitute an event that,  with notice,  lapse of
time or both, would result in any such violation, breach or default.

      4.4  Approvals, Consents and Other Actions. Except (i) with respect to the
filings  required under the HSR Act, (ii) as  contemplated  by this Agreement or
(iii) as set  forth in  Section  4.4 of the  Disclosure  Schedule,  no  consent,
approval,   license,   permit,  order  or  authorization  of,  or  registration,
declaration  or filing with,  any court,  administrative  agency,  commission or
other governmental authority or instrumentality,  or any third party is required
to be made or obtained by or with respect to ARCO or Seller in  connection  with
the execution, delivery and performance of this Agreement by ARCO or Seller.

      4.5  Formation and Good Standing of the Companies. Each of MCC and CFC is,
and as of the Closing Date, AU Sub shall be, a limited liability  company,  duly
organized,  validly  existing  and in good  standing  under  the  laws of  their
respective states of formation.


                                       14


      4.6  Title to the LLC  Interests.  Seller holds or will hold of record and
owns or will own  beneficially,  and will transfer or cause to be transferred to
Buyer on the Closing Date, the LLC Interests, and, upon delivery to Buyer at the
Closing of assignment documents in accordance with Section 3.3(a),  registration
of the transfer of the LLC Interests on the books of each respective Company and
payment of the Unadjusted Purchase Price therefor, Seller will transfer to Buyer
the LLC Interests, free and clear of any security interests,  pledges, liens and
encumbrances, except as set forth in the limited liability company agreements of
each Company.

      4.7  Capitalization.  Section 4.7 of the Disclosure  Schedule sets forth a
list of the Companies,  their  respective  jurisdictions  of formation and their
respective ownership of outstanding membership interests as of the Closing Date.
ARCO,  Seller  and/or their  Affiliates  own all of the  outstanding  membership
interests of MCC and 65% of the outstanding  membership  interests of CFC. As of
the Closing Date, Seller will own all of the outstanding membership interests of
AU Sub. Except as set forth in the limited liability company  agreements of each
Company and except as set forth in Section 4.7 of the Disclosure Schedule, as of
the  Closing   Date,   no  Company   will  have  any   outstanding   securities,
subscriptions, options or other agreements or commitments obligating it to issue
additional membership interests or any other securities.

      4.8  Real Property.  Section 4.8 of the Disclosure Schedule sets forth, as
of the Closing Date, a list of all material  real  property,  leaseholds,  water
rights  and other  material  interests  in real  property  or water  held by the
Companies.  Except as set forth in Section 4.8 of the Disclosure Schedule,  each
Company  will hold,  as of the Closing  Date,  an interest in the real  property
described in Section 4.8 of the  Disclosure  Schedule  sufficient to permit each
Company to operate its  businesses in the ordinary  course and  consistent  with
past practices, according to the terms of the instrument, conveyance or document
creating such  interest,  free and clear of all liens,  encumbrances,  equities,
claims, covenants, conditions, reservations,  restrictions, easements, rights of
way and  other  agreements,  except  for (a)  liens  for  Taxes  not yet due and
payable,  or that may  hereafter  be paid  without  penalty,  or that are  being
contested  in good  faith  by  appropriate  proceedings  or that are  listed  or
described in the Disclosure Schedule,  (b) liens in favor of vendors,  carriers,
warehousemen,  repairmen, mechanics, workmen and materialmen and construction or
similar liens arising by operation of law or in the ordinary  course of business
in respect of  obligations  that are not yet due or that are being  contested in
good faith by appropriate  proceedings,  (c) liens to be released at or prior to
the Closing,  (d) rights  reserved to or vested in any  Federal,  state or local
governmental  body,  authority  or agency to control or  regulate  any such real
property  interests in any manner, (e) easements,  reservations,  rights-of-way,
restrictions,  covenants, conditions and other similar encumbrances,  whether of
record or apparent on the premises (including road, highway, pipeline,  railroad
and  utility  easements,  and  defects  in the  chain  of  title),  that  do not
materially and adversely  affect the present use of such real property,  and (f)
other  defects  and  irregularities  in  title  or  encumbrances  that  are  not
substantial or material in character,  amount or extent.  Except as set forth in
Section 4.8 of the Disclosure Schedule, each of the material leases,  subleases,
easements,  licenses and  agreements  described in Section 4.8 of the Disclosure
Schedule is in full force and effect  according to the terms of each  respective
instrument,  and to Seller's Knowledge,  each holder of such leases,  subleases,
easements,  licenses and agreements has complied with all material  requirements
in  connection  therewith,  and  there is 

                                       15


not under any such lease, sublease, easement, license or agreement, any existing
material breach or default (or event that,  with notice,  lapse of time or both,
would constitute a material breach or default) by a Company.

      4.9  Buildings,   Structures  and  Tangible   Personal   Property;   Other
Securities.  Section  4.9 of the  Disclosure  Schedule  lists  (i) all  material
buildings,  structures  and  improvements  and all material  items of machinery,
equipment and other tangible  personal  property owned or leased by ARCO, Seller
or any of their Affiliates as of February 28, 1998, that will be owned or leased
by any Company on the Closing Date,  and (ii) all securities of any other Person
held by any of the  Companies on the Closing Date.  Since  February 28, 1998, no
such assets have been  acquired or disposed of except in the ordinary  course of
business.

      4.10 Material Contracts. Section 4.10 of the Disclosure Schedule lists all
material  contracts and  agreements  and all documents  evidencing  rights of or
commitments  by any Company to which any  Company is a party or its  property or
assets are bound as of the Closing Date.  Except as set forth in Section 4.10 of
the Disclosure Schedule,  each such contract,  agreement and document is in full
force and effect according to the terms of each respective instrument,  and each
Company  which  is a party  to such  contracts,  agreements  and  documents  has
complied with all requirements in connection  therewith,  and there is not under
any such  contract,  agreement or document,  any existing  breach or default (or
event that,  with notice,  lapse of time or both,  would  constitute a breach or
default) by a Company.

      4.11 Insurance Policies. Section 4.11 of the Disclosure Schedule lists all
policies of insurance issued by third-party insurers for the 1998 policy period,
including amounts of coverage thereof, that are maintained by ARCO or Seller for
the benefit of the  Companies or by a Company for which such Company is named as
an insured  party,  in each case as of the Closing Date.  Except as set forth in
Section 4.11 of the  Disclosure  Schedule,  such  policies are in full force and
effect and all premiums due have been paid. 

      4.12 Taxes.

           (a)  Except  as set  forth  in  Section  4.12(a)  of  the  Disclosure
Schedule,  with respect to Tax Returns  that relate to taxable  periods that end
before  January 1, 1997,  each  Company has filed or caused to be filed with the
appropriate  local,  state,  Federal and foreign  governmental  entities all Tax
Returns  required to be filed by such  Companies on or prior to the Closing Date
(taking into account all extensions of due dates),  and has paid or caused to be
paid or adequately provided for all Taxes shown thereon as owing.

           (b)  Except  as set  forth  in  Section  4.12(b)  of  the  Disclosure
Schedule, with respect to Tax Returns that relate to taxable periods that end on
or after January 1, 1997,  each Company has filed or caused to be filed with the
appropriate  local,  state,  Federal and foreign  governmental  entities all Tax
Returns  required to be filed by such  Companies on or prior to the Closing Date
(taking into account all extensions of due dates),  and has paid or caused to be
paid or  adequately  provided  for all Taxes  shown  thereon  as owing.  For all
taxable  periods  that begin prior to the Closing Date for which a Tax Return is
not due on or prior to the Closing Date (whether or not such taxable period ends
on or after the Closing  Date),  the Closing Date Balance 

                                       16


Sheet shall provide an adequate  reserve for Taxes to fully pay such Taxes up to
and  including  the Closing Date (as if the Taxable  Period ended on the Closing
Date).

      4.13  Licenses,  Permits,  Authorizations.  Section 4.13 of the Disclosure
Schedule lists all material licenses,  permits (including mining permits and the
amount of any bond or other surety for each mining permit), certificates, bonds,
consents,  rights and other such  authorizations  issued or  granted,  as of the
Closing Date, to each of the Companies by local,  state or Federal  governmental
authorities  or agencies.  Except as set forth in Section 4.13 of the Disclosure
Schedule, each of the licenses, permits,  certificates,  bonds, consents, rights
and other authorizations listed in Section 4.13 of the Disclosure Schedule is in
full force and effect according to the material terms of each  instrument,  each
holder of such licenses,  permits,  certificates,  bonds,  consents,  rights and
other  authorizations has complied with all material  requirements in connection
therewith,  and  there is not under any such  licenses,  permits,  certificates,
bonds, consents, rights and other authorizations any existing material breach or
default (or event that, with notice,  lapse of time or both,  would constitute a
material breach or default) by a Company.

      4.14  Litigation.  Except as set forth in Section  4.14 of the  Disclosure
Schedule,  (i)  none  of the  Companies  is a party  to any  lawsuit,  claim  or
proceeding or to Seller's  Knowledge,  any  investigation,  and (ii) none of the
Companies  is in  default  under any  judgment,  order or  decree of any  court,
administrative   agency  or  commission  or  other  governmental   authority  or
instrumentality applicable to it or any of its properties or assets.

      4.15  Compliance  with Laws.  Except as set forth in  Section  4.15 of the
Disclosure  Schedule,  each of the  Companies is in  compliance  in all material
respects with all  applicable  statutes,  laws,  ordinances,  rules,  orders and
regulations of any governmental authority or instrumentality.

      4.16  Labor Matters. Except as set forth in Section 4.16 of the Disclosure
Schedule,  none  of  the  Companies  is a  party  to any  collective  bargaining
agreement with any labor union or association, there are no formal negotiations,
demands or proposals  that are pending or have been  recently  conducted or made
with or by any labor  union or  association,  and there are no pending  strikes,
work stoppages or material labor disputes involving the Companies.

      4.17  Employee Benefit Plans.

            (a) Section 4.17 of the Disclosure Schedule sets forth a list of all
"employee  benefit  plans" as defined in  Section 3 of the  Employee  Retirement
Income  Security Act of 1974,  as amended  ("ERISA"),  and any other  pension or
retirement,  savings,  profit  sharing,  deferred  compensation,   stock  option
(including  restricted or  performance  units),  severance,  vacation,  medical,
vision,   dental,  long  term  disability,   life  insurance,   group  accident,
occupational  death,  business travel, long term care,  educational  assistance,
floating holiday,  personal business,  gainshare,  bonus,  financial counseling,
welfare or sick  leave or other  employee  benefit  plan,  procedure,  policy or
practice of any nature,  as well as any  employment,  consulting,  engagement or
retention  agreement or agreements,  and any trust or funding mechanism for each
plan  or  arrangement  described  above  (collectively,  the  "Plans")  covering
employees of a Company and 

                                       17


any employees of ARCO and/or Seller whose employment is related primarily to one
or more of the businesses of the Companies (collectively, the "Employees"). With
respect to each Plan  maintained  by the  Companies,  ARCO  and/or  Seller  have
delivered  to Buyer  true,  correct and  complete  copies of all  documents  and
summary plan  descriptions  creating or  evidencing  any such Plan,  and, to the
extent applicable,  the most recent (i) determination letter and any outstanding
request  for  determination  letter for such Plan;  (ii) Form 5500 and  attached
Schedule B (including any related actuarial valuation report) for such Plan; and
(iii) ruling letter and any outstanding request for a ruling letter with respect
to the tax-exempt  status of any Voluntary  Employees'  Beneficiary  Association
("VEBA") as defined in Code Section 501(c)(9).

            (b) Except as set forth in Section 4.17 of the Disclosure  Schedule,
each Plan complies with and has been  administered,  operated and  maintained in
compliance with all applicable  material provisions of ERISA, the Code and other
applicable laws. Except as set forth in Section 4.17 of the Disclosure Schedule,
none of the Companies has engaged in a prohibited transaction that would subject
it to a material tax imposed under Section 4975 of the Code.

            (c) Neither  Seller nor any  Company is or has within the  preceding
five  years  been a party to or  contributed  to any  "multi-employer  plan," as
defined in Section  4001(a)(3) of ERISA.  Except as set forth in Section 4.17 of
the Disclosure  Schedule,  neither Seller nor any Company has been a party to or
contributed to any such multi-employer plan since September 26, 1980.

            (d) Each Plan that is intended to qualify under Code Sections 401(a)
and 501(a) is so  qualified  and has been  determined  by the  Internal  Revenue
Service to so qualify or has an outstanding  determination  letter request,  and
nothing has occurred to cause the loss of the Plan's  qualified status since the
issuance  of the most  recent  favorable  determination  letter  by the IRS with
respect to such Plan.

            (e) No  accumulated  funding  deficiency,  except for annual minimum
contributions  which are not yet due, within the meaning of ERISA Section 302 or
Code Section 412 has been  incurred  with respect to any Plan of the  Companies.
The  Companies do not have any  liability  for (i) any lien imposed  under ERISA
Section 302(f) or Code Section 412(n), (ii) any interest payments required under
ERISA Section  302(e) or Code Section  412(m) or (iii) any excise tax imposed by
Code Section 4971. The Pension  Benefit  Guaranty  Corporation  ("PBGC") has not
instituted or threatened a proceeding to terminate any Plan pursuant to Subtitle
1 of Title IV of ERISA.  No Plan has been the subject of a reportable  event (as
defined in ERISA  Section  4043) as to which a notice  would be  required  to be
filed with the PBGC.

            (f) With respect to each Plan, no action,  suit,  grievance,  claim,
arbitration or other manner of litigation with respect to the assets of the Plan
(other than  routine  claims for benefits  made in the  ordinary  course of Plan
administration  for which Plan  administrator  review  procedures  have not been
exhausted) is pending, or to Seller's Knowledge,  threatened or imminent against
or with  respect to the Plan or any Plan  sponsor or  fiduciary  (as  defined in
ERISA Section 3(21)).


                                       18


            (g) Except  as  otherwise  provided  in  this  Agreement,  each Plan
(including  any  Plan  covering  former  employees  of  any  Company)  which  is
established  and maintained by the Companies may be amended or terminated by the
Companies or Buyer on or at any time after the Closing Date.

            (h) No  payment  under any Plan  made  within  two  years  after the
Closing Date shall constitute an "excess  parachute  payment" under Section 280G
of the Code.

      4.18  Bank  Accounts. Section 4.18 of  the Disclosure Schedule  sets forth
the name of each bank, savings and loan or other financial  institution in which
any Company has any account or safe deposit box.

      4.19  Broker  Liability.  With  respect to any  broker,  finder or similar
consultant, retained by, or acting on behalf of ARCO, Seller or their Affiliates
in connection with this Agreement or the transactions  contemplated hereby, ARCO
and Seller shall be solely responsible and liable for any brokerage, finder's or
similar  consultant's fee or other commission in respect of such broker,  finder
or similar consultant.

      4.20  Financial  Statements.   The  Audited  Financial  Statements  to  be
delivered  in  accordance  with  Section  2.3(a)  shall  have been  prepared  in
accordance  with GAAP  consistently  applied during the periods  involved and in
accordance  with  Regulation S-X under the  Securities  Exchange Act of 1934, as
amended.  The audited  balance  sheets of ACC at  December  31,  1997,  and 1996
(including the notes thereto),  present fairly the financial  position of ACC at
such dates, and the consolidated  statement of income,  of equity investment and
of cash flows  (including  the notes thereto) for each of the three years in the
period ended December 31, 1997, fairly present the results of operations, equity
investment and cash flows of ACC for each of such years.  The unaudited  balance
sheets  (if  any) of ACC as of the  last  day of each  calendar  quarter  ending
subsequent to December 31, 1997, and prior to the Closing Date, and consolidated
statements of income,  of equity  investment and of cash flows for the quarterly
periods then ended (the "Unaudited Financial  Statements") have been prepared in
accordance  with GAAP  consistently  applied during the periods  involved and in
accordance  with  Regulation S-X under the  Securities  Exchange Act of 1934, as
amended.  Each balance  sheet (if any) included  among the  Unaudited  Financial
Statements  (including the notes thereto) fairly presents the financial position
of ACC as of the date thereof,  and each  consolidated  statement of income,  of
equity  investment  and of cash flows  included  among the  Unaudited  Financial
Statements  (including  the  notes  thereto)  fairly  presents  the  results  of
operations,  equity  investment and cash flows of ACC for each period presented.
The Interim  Date  Balance  Sheet and the  Closing  Date  Balance  Sheet will be
derived from the combined,  consolidated balance sheets of ACC. The Interim Date
Balance Sheet  (including  the related  notes) will fairly  present the combined
consolidated financial position of the Companies as of its date.

      4.21  Black Lung Disclosure. The present actuarial value (determined using
the Black Lung Discount Rate) of the  Companies'  black lung liability as of the
Interim Date does not exceed that which has been  reserved for by the  Companies
on the Interim Date Balance Sheet. 

                                       19


      4.22  Conduct  of  Business.  Except as set forth in  Section  4.22 of the
Disclosure Schedule,  since the Interim Date, the Companies have conducted their
respective  businesses  only in, and have not engaged in any  transaction  other
than in, the ordinary and usual course of such businesses or as described in the
Contribution  Agreement,  and there has not been any change by the  Companies in
accounting principles, practices or methods that is not required by GAAP. Except
as provided for herein and other than in the  ordinary  course  consistent  with
past practice, since the Interim Date there has not been (i) any increase in the
compensation  payable or which could  become  payable by the  Companies to their
respective  officers or employees or (ii) any amendment of any of the Companies'
Plans.

      4.23  Assets.  Except  as set  forth  in  Section  4.23 of the  Disclosure
Schedule, prior to the Closing Date, ARCO and/or Seller will have transferred or
caused to be transferred to the Companies all tangible and intangible  assets of
every  description  held by ARCO,  Seller or any Affiliate of ARCO and/or Seller
under  intercompany  agreements  and  arrangements  with  ARCO,  Seller  or  any
Affiliate  of ARCO  and/or  Seller  or  otherwise  and used  exclusively  by the
Companies in the conduct of the  Companies'  respective  businesses on and since
the Interim Date.

      4.24  CERCLA.  None of the Properties  is listed on the National  Priority
List  pursuant  to  CERCLA  or  on  any  similar  list  pursuant  to  any  state
Environmental Laws.

      4.25  Disclaimer of Certain Representations and Warranties. ARCH AND BUYER
ACKNOWLEDGE THAT, EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT,  NONE OF ARCO,
SELLER  OR ANY  AFFILIATE,  EMPLOYEE  OR  AGENT OF ARCO OR  SELLER  HAS MADE ANY
REPRESENTATION,  PROMISE,  COVENANT OR WARRANTY  REGARDING ANY OF THE COMPANIES,
THEIR PROPERTIES, ASSETS, BUSINESS,  OPERATIONS,  LIABILITIES OR OBLIGATIONS, OR
OTHERWISE. ARCO AND SELLER HEREBY DISCLAIM ANY IMPLIED WARRANTIES, INCLUDING ANY
IMPLIED  WARRANTIES OF  MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN.

      4.26  No Other Commitment to Sell LLC  Interests.  Neither ARCO nor Seller
has sold or has committed to sell the LLC Interests to any other Person,  except
to the extent  that  ITOCHU may have the right to  initiate  certain  procedures
under the  provisions  contained in Articles 9 and 10 of the CFC Agreement  with
respect to the CFC Interests.

      4.27  Absence of Undisclosed  Liabilities.  To Seller's Knowledge, none of
the Companies has any material  liabilities,  whether  accrued,  or  contingent,
other than (i) liabilities  (or reserves  therefor) set forth in the Preliminary
Interim  Date  Balance  Sheet,  (ii)  liabilities  set  forth in the  Disclosure
Schedule,  and (iii)  liabilities  incurred  since  the date of the  Preliminary
Interim Date Balance Sheet in connection  with this Agreement or in the ordinary
course of business, consistent with past practices.


                                       20

                                   ARTICLE 5
                REPRESENTATIONS AND WARRANTIES OF ARCH AND BUYER

      Arch and Buyer represent and warrant,  jointly and severally,  to ARCO and
Seller, as of the Effective Date, as follows:

      5.1  Organization and Good Standing.  Arch and Buyer are corporations duly
incorporated,  validly  existing  and in good  standing  under the laws of their
states of incorporation.

      5.2  Authority.  Arch and Buyer have full corporate power and authority to
enter into this Agreement and to perform their respective obligations hereunder.
This  Agreement  constitutes a valid and binding  obligation of each of Arch and
Buyer,  enforceable against Arch and Buyer in accordance with its terms, subject
to  applicable   laws  of   bankruptcy,   insolvency,   fraudulent   conveyance,
reorganization,  moratorium  and similar laws  affecting  creditors'  rights and
remedies generally,  and to general principles of equity,  regardless of whether
such enforceability is considered in a proceeding in equity or at law.

      5.3  No Violations.  The execution and delivery of this  Agreement by Arch
and Buyer does not, and the consummation of the transactions contemplated hereby
will not, (i) violate any of the provisions of the certificates of incorporation
or bylaws of Arch or Buyer; (ii) result inthe breach of, or constitute a default
under,  any material  agreement or other  material  instrument  to which Arch or
Buyer is a party or to which any of their  respective  properties  or assets are
bound;  (iii) violate any statute,  rule,  regulation,  ordinance,  code, order,
judgment,  writ, injunction,  decree or award applicable to Arch, Buyer or their
respective  properties or assets; or (iv) constitute an event that, with notice,
lapse of time or both, would result in any such violation, breach or default.

      5.4  Approvals and Consents.  Except with respect to the filings  required
under the HSR Act, no consent, approval, license, permit, order or authorization
of, or  registration,  declaration  or filing  with,  any court,  administrative
agency,  commission or other governmental  authority or instrumentality,  or any
third party is  required  to be made or  obtained by or with  respect to Arch or
Buyer in  connection  with  the  execution,  delivery  and  performance  of this
Agreement by Arch or Buyer.

      5.5  Financial Capability. Arch and Buyer have the financial capability to
perform all of their obligations  under this Agreement,  and Buyer has available
all funds  necessary to pay the Unadjusted  Purchase  Price,  the Adjustment (if
payable by Buyer) and any other amounts contemplated by this Agreement.

      5.6  Accredited  Investor.  Buyer is an "accredited  investor"  within the
meaning of Rule 501(a)(1), (2), (3) or (7) of the Securities Act.

      5.7  Investment  Intent.  Buyer is acquiring the LLC Interests for its own
account  for the  purpose of  investment  and not with a view to, or for sale in
connection  with, any  distribution  thereof in any transaction that would be in
violation of the securities laws of the United States or 

                                       21


any state thereof.  Arch and Buyer each  acknowledge that the LLC Interests have
not  been  registered  or  qualified  under,  and are sold in  reliance  upon an
exemption  from the  registration  requirements  of, the  Securities Act and any
applicable  state  securities or "Blue Sky" laws, and may not be offered,  sold,
transferred,  pledged,  hypothecated  or  otherwise  assigned  unless  they  are
registered under the Securities Act and any applicable  securities or "Blue Sky"
laws of any state or an exemption from such registration is available.

      5.8  Arch's and Buyer's Inquiry.  Arch and Buyer and their representatives
have reviewed or received copies of, or had the opportunity to review, including
in a data room maintained by Seller, such information from ARCO, Seller and each
of the Companies as they have  requested,  and have had the  opportunity to make
such inquiry of  representatives  of ARCO,  Seller and each of the  Companies as
they  deem   appropriate.   Arch  and  Buyer   acknowledge  that  there  are  no
representations  or  warranties,  expressed or implied,  except as expressly set
forth in this Agreement.

      5.9  Broker  Liability.  With  respect  to any  broker,  finder or similar
consultant,  retained  by, or acting on behalf of Arch or Buyer,  in  connection
with this Agreement or the Proposed Transactions, Arch or Buyer, as the case may
be,  shall be solely  responsible  and liable  for any  brokerage,  finder's  or
similar  consultant's fee or other commission in respect of such broker,  finder
or similar consultant.

      5.10  Qualification, Compliance with Acreage Limitations. Each of Arch and
Buyer is qualified  under all  applicable  Laws to hold the interests in Federal
and state coal  leases it will  acquire at the  Closing.  Immediately  after the
consummation of the Proposed  Transactions,  neither Arch nor Buyer will itself,
directly or  indirectly,  or in  combination  with any Person,  own  holdings of
Federal or state coal leases in excess of any applicable limitations.

      5.11  No Independent  Contact  with  ITOCHU.  None  of  Arch,  Buyer,  any
Affiliate of either or any officer, director,  employee, agent or representative
of any of the  foregoing  has, or prior to the Closing  will have,  communicated
with or contacted  ITOCHU in respect of the  transactions  contemplated  by this
Agreement,  other than in the presence of one or more representatives of ARCO or
as otherwise authorized by ARCO.

                                   ARTICLE 6
                    COVENANTS AND AGREEMENTS OF THE PARTIES

      6.1  Access to Information.

           (a)  Arch and Buyer acknowledge  that  prior to the  Effective  Date,
Seller  has  caused  each of the  Companies  to give  Buyer  and its  authorized
representatives  reasonable access to the employees,  offices,  properties and a
data room  containing  certain  books and  records  of the  Companies  and their
predecessors, has permitted Buyer to make inspections of and tour the Companies'
mines and has furnished  Buyer with certain  financial  and  operating  data and
other information with respect to the business, assets, properties,  operations,
liabilities  and  obligations  of each of the Companies and their  predecessors.
Prior to the Closing  Date,  Buyer shall have  reasonable  access  during normal
business hours to the operations,  facilities,  employees and 

                                       22


representatives of Seller, the Companies or ARCO as reasonably  necessary to (i)
verify the representations and warranties given by Seller and/or ARCO hereunder,
or by ARCO  and/or  Delta  under  the  Contribution  Agreement,  and (ii)  begin
planning  for  an  orderly  transition  process  with  respect  to  transactions
contemplated by this Agreement. Except as set forth in the preceding sentence or
otherwise provided in this Agreement, from and after the Effective Date, neither
Arch  nor  Buyer  shall  have  the  right  to  access  the  employees,  offices,
properties, books and records of any of the Companies, to inspect the Companies'
mines or other properties or to inspect or have furnished financial or operating
data or other  information  with respect to the  business,  assets,  properties,
operations, liabilities or obligations of Seller or any of the Companies.

           (b)  Prior to the  Closing, Buyer  shall  keep (and  shall  cause its
directors,  officers,  employees,  representatives,  advisors and  Affiliates to
keep) all  information  relating to each of the  Companies  (including  any such
information received prior to the date hereof) confidential,  and shall use such
information  only,  on  the  terms  and  conditions  as  are  set  forth  in the
confidentiality   agreements  between  Seller  and  Buyer,   together  with  any
supplements or amendments  thereto  reasonably  requested by Seller from time to
time.  After  the  Closing,  each  party  hereto  agrees  to keep the  terms and
conditions  of  this  Agreement  confidential,  and  to  redact  any  provisions
reasonably  requested by any other party  (including  Sections  6.19 and Section
6.21) from  copies of this  Agreement  filed with the  Securities  and  Exchange
Commission, except for such matters as may be required to be disclosed by law or
applicable  stock exchange  requirements or that are generally  available in the
public  domain  other  than as a result  of a breach of this  Agreement  by such
party.

           (c)  After the Closing,  Buyer  shall,  at its own  expense or at the
expense of the Companies,  cause each Company to preserve and keep, or transport
to a storage site of its own  selection  where it shall  preserve and keep,  the
books and records of each of the Companies  obtained by Buyer or retained by the
Companies,  including  financial  or  business  transaction  records,  books  of
original  entry,  tax records and  supporting  documents,  for a period of seven
years from the Closing Date or such longer period if required  under  applicable
Laws.  Within 60 days after the Closing,  Seller shall provide Buyer with a list
or  inventory  of  the  document  types  and  inclusive  dates  of  the  records
transmitted  to Buyer or  retained by the  Companies.  Buyer shall make or shall
cause the Companies to make such acquired or retained records as are dated up to
the Closing Date and included in the inventory provided by Seller, including the
general  ledger and mining  reports,  available  to Seller as may be  reasonably
requested by Seller in  connection  with,  among other  things,  any of Seller's
financial reporting or Tax filing obligations,  for a period of seven years from
the Closing Date or such longer period if required under  applicable Laws. For a
period of 15 years after the Closing Date, Buyer shall notify Seller in writing,
on an annual basis, of the document types and, if applicable, inclusive dates of
any such retained records, that it or the Companies intend to destroy during the
following one-year period. If Seller desires access to such records for a period
of time longer than  specified  in Buyer's  annual  notice,  Seller shall notify
Buyer in writing,  not more than 60 days following  Seller's  receipt of Buyer's
annual notice, of its desire to retain such records, and Buyer shall deliver, or
cause the  Companies  to  deliver,  such  records to Seller.  If Seller does not
notify Buyer of its desire to retain records 

                                       23


within such 60-day  period,  Buyer or the  Companies may dispose of such records
according to prudent  records  management  practices  in the ordinary  course of
business.

           (d)  The parties hereby acknowledge  that any in-house counsel of the
Companies or Seller who are Employees and who  participated in the  preparation,
negotiation or consummation of this Agreement or the  transactions  contemplated
hereby were providing legal  representation for the Seller and,  notwithstanding
any other provision of this Agreement,  neither the Companies or Seller nor such
counsel shall be required to disclose under any  circumstance any information or
documents covered by the attorney-client  privilege or the work-product doctrine
as  such  information  or  documents  were  developed  in  the  course  of  such
representation.  All such  information  and documents  shall remain the sole and
exclusive property of Seller.

      6.2  Conduct of the Business Pending the Closing.  From the Effective Date
to the Closing Date, except in connection with the transactions  contemplated by
this Agreement and the Contribution  Agreement,  or as otherwise consented to in
writing by Buyer (which consent shall not be unreasonably withheld,  conditioned
or delayed),  Seller and/or ARCO shall use commercially  reasonable efforts, and
consistent with its obligations under the limited  liability company  agreements
of each of the Companies and TBCC, to cause each Company and TBCC to (a) conduct
its business in the ordinary course and consistent  with past practices,  except
that (i) none of the  properties  or assets  listed in the  Disclosure  Schedule
valued  at  $250,000  or more may be  transferred,  disposed  of  encumbered  or
hypothecated,  (ii) no individual capital  expenditure by any Company or TBCC in
excess of $1 million or capital expenditures  aggregating (for all Companies and
TBCC) in excess of $25 million  shall be made or committed  and (iii) no Company
or TBCC shall enter into any coal supply  agreement with a term in excess of one
year or materially amend any coal supply  agreement  disclosed in the Disclosure
Schedule having a term in excess of one year (but TBCC shall have the right, but
not the  obligation,  to bid on the Thunder  Cloud  Federal  Lease Tract on such
terms and conditions, including the amount of any bonus bid, as it elects in its
sole  discretion),  (b) keep in full  force and  effect  its  limited  liability
company  existence,  (c)  comply  in all  material  respects  with all  material
contracts,  agreements  and  commitments  set  forth  in  Section  4.10  of  the
Disclosure  Schedule  to which it is a party,  (d) use  commercially  reasonable
efforts to retain its  employees  and maintain its business  relationships  with
customers  and suppliers  and (e) maintain all  facilities,  equipment and other
tangible assets in accordance with past maintenance practices of such Company or
TBCC.

      6.3  Notification. Between the Effective Date and the Closing Date, Seller
and Buyer will each,  promptly upon becoming aware thereof,  notify the other in
writing of any fact or condition  that causes or  constitutes a breach of any of
the other party's  representations  and warranties made as of the Effective Date
or of any  default  in the  other  party's  performance  of  its  covenants  and
agreements herein.

      6.4  Antitrust  Notification.  Seller  and Buyer  shall,  as  promptly  as
practicable,  but in no event later than ten business  days after the  Effective
Date,  file with the Federal  Trade  Commission  (the  "FTC") and the  Antitrust
Division  of  the   Department  of  Justice  (the   "Antitrust   Division")  the
notification and report form required for the Proposed  Transactions pursuant to
the HSR Act.  Seller  and Buyer  shall  furnish  to each  other  such  necessary
information and 

                                       24


reasonable  assistance as may be requested in connection with the preparation of
any filing  required  to be made under the HSR Act.  Seller and Buyer  shall use
commercially  reasonable  efforts to respond as promptly as  practicable  to all
inquiries  received  from  the  FTC or the  Antitrust  Division  for  additional
information  or  documentation  and to obtain as  promptly  as  practicable  any
clearance  required  under  the HSR Act for  the  purchase  and  sale of the LLC
Interests.

      6.5  Fees and Expenses.  Except as otherwise specifically provided in this
Agreement,  Seller and Buyer shall bear their own fees and expenses  incurred in
connection with this Agreement  (including fees and expenses of their respective
investment  bankers)  and in  connection  with all  obligations  required  to be
performed by each of them under this Agreement.

      6.6  Publicity.  Except as otherwise  required by law or applicable  stock
exchange  requirements,  no party hereto shall issue any press release or public
statement  relating to or  concerning  this  Agreement or the matters  contained
herein,  without  obtaining the prior  approval of the other party hereto of the
contents and the manner of presentation and publication thereof,  which approval
shall not be unreasonably withheld, conditioned or delayed.

      6.7  Post-Closing  Assistance.  From and after the Closing Date,  upon the
request of either  Arch or Buyer,  on the one hand,  or ARCO or  Seller,  on the
other,  the parties hereto shall do,  execute,  acknowledge and deliver all such
further acts, assurances, deeds, assignments,  transfers,  conveyances and other
instruments and papers as may be reasonably required or appropriate to carry out
the transactions contemplated by this Agreement.

      6.8  Guarantees.  ARCO and/or  Seller have  provided  certain  guarantees,
indemnities  and  similar  obligations  with  respect  to the  Companies,  which
guarantees,  indemnities  and  obligations  are set forth in Section  6.8 of the
Disclosure Schedule.  Arch and Buyer agree to cooperate with ARCO and Seller and
use their best  efforts to cause the release of each such  guarantee,  indemnity
and obligation, including the substitution of Arch, Buyer and/or an Affiliate of
Arch or Buyer as the guarantor,  indemnitor or responsible  party thereunder and
the release of ARCO and Seller,  on or as soon as practicable after the Closing.
Without  limiting the  foregoing,  Arch and Buyer hereby  undertake,  assume and
agree to  perform,  pay and  discharge  all  such  guarantees,  indemnities  and
obligations,  and Arch and Buyer shall indemnify and hold harmless any member of
Seller's Group, including any officers,  directors or Affiliates of such member,
with  respect to all Losses  arising out of or  relating to any such  guarantee,
indemnity or obligation.

      6.9  Name Changes.  No  later  than  30 days  following  the Closing Date,
Buyer shall amend the certificate of incorporation of each Company to remove the
word "ARCO" or any  similarity or reference  thereto.  The new corporate name of
the Companies  adopted by Buyer shall not contain any word or words  confusingly
similar to "ARCO" or the "Atlantic  Richfield Company." No later than six months
following the Closing Date, Buyer shall remove the marks and names "ARCO," "ARCO
COAL" and "ATLANTIC  RICHFIELD" and the Spark Design and any other words,  names
or symbols proprietary to Seller,  from all tangible and intangible  properties,
real and personal, acquired by Buyer hereunder.

                                       25


      6.10  Surety  Bonds.  Buyer will use  commercially  reasonable  efforts to
submit surety bonds (collectively, "Substitute Surety Bonds" and individually, a
"Substitute  Surety Bond"),  effective as of the Closing,  in  substitution  for
ARCO's or  Seller's  surety  bonds  listed  in  Section  4.13 of the  Disclosure
Schedule  (collectively,  "Surety Bonds" and individually,  a "Surety Bond"). If
all the  Substitute  Surety  Bonds are not  effective  90 days after the Closing
Date, Buyer shall be required to pay ARCO or Seller, in consideration of ARCO or
Seller  keeping in effect those Surety Bonds for which a Substitute  Surety Bond
is not  then  effective  (collectively,  the  "Post-Closing  Surety  Bonds"  and
individually,  a "Post-Closing Surety Bond"), an amount equal to one-half of one
percent of the face  value of the  Post-Closing  Surety  Bonds per month (or pro
rata portion thereof) until such time as Substitute  Surety Bonds are effective,
it being agreed that the aggregate face value of the  Post-Closing  Surety Bonds
shall be reduced  dollar-for-dollar by the face value of Substitute Surety Bonds
as such Substitute  Surety Bonds become effective after the Closing Date without
regard to whether any of the  Post-Closing  Surety  Bonds are  released.  In the
event Substitute  Surety Bonds in substitution  for all the Post-Closing  Surety
Bonds are not  effective  within 180 days  after the  Closing  Date,  in lieu of
Buyer's payment obligation under the preceding sentence, Buyer shall obtain, for
the benefit of ARCO and/or Seller,  performance bonds or other assurances,  from
such surety providers and with such terms and conditions  reasonably  acceptable
to ARCO and Seller (the "Performance Bonds") in an aggregate face value equal to
the  aggregate  face value of the  Post-Closing  Surety  Bonds on and after such
180th day, it being  agreed  that the  aggregate  face value of the  Performance
Bonds shall be reduced  dollar-for-dollar by the face value of Substitute Surety
Bonds as such Substitute Surety Bonds thereafter become effective without regard
to whether any of the Post-Closing Surety Bonds secured by the Performance Bonds
are released. Without limiting the foregoing, Arch and Buyer shall indemnify and
hold harmless each member of Seller's  Group with respect to all Losses  arising
under the Surety Bonds.

      6.11  Black Lung Liability.  Arch and Buyer have reviewed any reserves and
accruals of the Companies,  including  those which are with respect to potential
liability under the Black Lung Benefits Act of 1972, as amended,  the Black Lung
Benefits Reform Act of 1977, as amended,  and other applicable Federal and state
black lung acts or laws designed to provide such  benefits to  employees.  Buyer
acknowledges  that, except with respect to any breach of the  representation and
warranty  made by Seller in Section  4.21 in respect of black lung  liabilities,
any Loss in respect of black lung shall not form the basis for any  assertion of
a breach of a representation or warranty contained in this Agreement.

      6.12  Litigation Support.  From and after the Closing Date, Arch and Buyer
shall  indemnify and hold harmless each member of Seller's Group with respect to
all Losses arising out of or relating to any matter set forth in Section 4.14 of
the Disclosure Schedule.  Without limiting the foregoing,  if and for so long as
ARCO or Seller is defending or contesting any action, suit, proceeding, hearing,
investigation,  charge,  complaint,  claim or demand in connection  with (i) any
transaction  contemplated  under  this  Agreement  or (ii) any fact,  situation,
circumstance,  status, condition,  activity, practice, plan, occurrence,  event,
incident,  action, failure to act or transaction involving any of the Companies,
Arch and Buyer shall  cooperate  and shall cause the  Companies to cooperate (on
and after the  Closing  Date) with ARCO or Seller and its  counsel and agents in
such defense or contest, make available its and their personnel and provide 

                                       26


such  testimony  and  access to its and  their  books  and  records  as shall be
necessary in connection with such defense or contest, all at Buyer's cost.

      6.13  Insurance.  Buyer has reviewed the  insurance  policies set forth in
Section 4.11 of the Disclosure  Schedule.  Seller agrees that all such insurance
policies  shall remain in full force and effect until the Closing.  All coverage
and benefits under such insurance  policies and any other insurance  policies of
Seller or its  Affiliates  (subject  to the terms  thereof)  shall  cease at the
Closing.  On and after the Closing Date,  Buyer shall be solely  responsible for
obtaining and maintaining any and all insurance coverage and protection relating
to the respective  business,  assets,  properties,  operations,  liabilities and
obligations of the Companies.

      6.14  Arch's and  Buyer's Environmental  Responsibilities.  Arch and Buyer
hereby acknowledge and agree that all Environmental Liabilities asserted against
the Companies with respect or related to any property  listed in Section 6.14 of
the Disclosure Schedule (the "Properties") shall be retained by the Companies on
and following the Closing Date, and that all Environmental  Liabilities asserted
against any member of Seller's  Group with respect or related to the  Properties
shall be assumed by Arch and Buyer.  From and after the Closing  Date,  Arch and
Buyer shall  perform,  pay and discharge or cause the Companies to perform,  pay
and  discharge  all retained and assumed  Environmental  Liabilities,  and shall
indemnify and hold  harmless each member of Seller's  Group with respect to such
Environmental Liabilities.

      6.15  ARCO's and Seller's Environmental Responsibilities.  ARCO and Seller
hereby acknowledge and agree that all Environmental  Liabilities  resulting from
the ownership or operation of properties  other than the Properties  (the "Other
Properties") by the Companies or any of their predecessors or Affiliates (unless
caused by Buyer, Arch, the Companies or any of their respective Affiliates on or
after the Closing Date) shall be assumed by ARCO and Seller.  From and after the
Closing  Date,  ARCO  and  Seller  shall  perform,  pay and  discharge  any such
Environmental  Liabilities  assumed  pursuant to this  Section  6.15,  and shall
indemnify  and  hold  harmless  each  Buyer  Indemnitee  with  respect  to  such
Environmental Liabilities.

      6.16  Other Liabilities.

            (a)  Except as otherwise expressly  provided in this  Agreement  and
without  limiting ARCO's or Seller's  liability for breaches of  representations
and warranties and defaults of covenants and agreements under this Agreement and
the Contribution Agreement, in addition to the Environmental  Liabilities,  Arch
and Buyer  hereby  acknowledge  and agree  that all Other  Liabilities  shall be
retained by the Companies on and following the Closing Date. Except with respect
to Other  Liabilities  retained by Seller or required to be  indemnified by ARCO
and/or Seller, in each case as expressly  provided under this Agreement,  and by
ARCO and/or Delta,  in each case as expressly  provided  under the  Contribution
Agreement,  from and  after  the  Closing  Date,  Buyer  shall  perform,  pay or
discharge  or cause the  Companies  to  perform,  pay or  discharge  such  Other
Liabilities,  and shall indemnify and hold harmless any member of Seller's Group
and any  officer,  director,  employee,  agent or  Affiliate of such member with
respect to such Other Liabilities.

                                       27


            (b)  "Other  Liabilities"  shall mean any and all  claims,  actions,
causes  of  action,  damages,  losses,  liabilities,   obligations,   penalties,
judgments,  amounts paid in settlement,  assessments,  costs,  disbursements  or
expenses  (including  attorneys'  fees and  costs,  experts'  fees and costs and
consultants'  fees and costs) of any kind or  nature,  whether  existing  on the
Closing  Date  or  arising  thereafter   (including  those  absolute,   accrued,
contingent,  unknown or otherwise),  that are asserted  against a Company or any
member of Seller's Group  (including  liability for property  damages,  business
losses,  personal  injuries,  penalties or fines and any losses of any character
whatsoever arising from or relating to any surface slippage or subsidence at the
West Elk Mine,  except as provided in Section  6.21) arising out of, based on or
relating  to  the  business,  assets,  properties,  operations,  liabilities  or
obligations of any and all Companies, other than Environmental Liabilities.

      6.17  ITOCHU Buy/Sell  Agreement.  Seller and Buyer  acknowledge  that the
execution and delivery of this  Agreement may give ITOCHU the right to initiate,
at its election, certain procedures under the provisions contained in Articles 9
and 10 of the CFC Agreement and agree to use commercially  reasonable efforts to
cause  ITOCHU to waive any such  rights  relating to the  Proposed  Transactions
prior to the Closing  Date.  Within five days after the Effective  Date,  Seller
shall give ITOCHU a "notice of proposed  Transfer"  pursuant to Section 9.1.2 of
the CFC Agreement.

      6.18  Commercially Reasonable  Efforts.  Each of Seller and Buyer will use
commercially  reasonable efforts to take all actions and do all things necessary
in order to consummate and make effective the transactions  contemplated by this
Agreement  (including  the  satisfaction,  but not the  waiver,  of the  closing
conditions set forth in Sections 10.1 and 10.2).

      6.19 [Confidential Treatment Requested; material omitted from pp. 28-30.]*

                                       28




                                       29



      6.20  Substitute  Member  in  CFC  Agreement. Buyer  shall  use  its  best
efforts,  in  accordance  with the  terms  of the CFC  Agreement,  to cause  any
references  to  Seller in the CFC  Agreement  to be  amended  to refer to Buyer,
including  references to Seller contained in Sections 5.2.5, 5.7, 5.10, 6.1, 9.1
and 10.5.3 of the CFC Agreement.

      6.21  West Elk Mine Surface Facilities.

            (a)  The parties hereto acknowledge  that movement of the surface of
the earth (a "Surface  Movement") at the West Elk Mine has in the past required,
and may after the Effective Date require,  certain remedial  activities in order
to permit the use,  including the  conveying and loading of coal (the  "Intended
Use"),  of the  surface  facilities  of the West Elk Mine.  Prior to the Closing
Date,  Seller and ARCO  shall take such  periodic  remedial  activities  as they
reasonably  determine are  appropriate to permit the Intended Use of the surface
facilities of the West Elk Mine. In addition,  to the extent remedial activities
are required as a result of a Surface  Movement  occurring  prior to the Closing
Date, if not previously remediated, Seller and/or ARCO shall, at their election,
either (i) during  the 15-day  period  following  the  Closing  Date  perform at
Seller's and/or ARCO's cost and expense such actions as are reasonably  required
to permit the Intended Use of the surface  facilities  of the West Elk Mine,  or
(ii)  reimburse  Buyer for the  actual  costs  reasonably  incurred  by Buyer to
perform, during the 15-day period following the Closing Date, actions reasonably
required to permit the  Intended Use of the surface  facilities  of the West Elk
Mine. During such 15-day period,  Buyer and Arch shall 

                                       30


reasonably  cooperate with ARCO and Seller in any activities conducted by either
pursuant to this Section 6.21(a).

            (b)  If any Surface Movement  occurs  prior to the Closing Date that
precludes the Intended Use of the surface  facilities of the West Elk Mine,  and
that is not capable of being  substantially  remedied  within the 15-day  period
following the Closing Date or which is not  substantially  remedied by Seller or
ARCO within such 15-day period  pursuant to Section 6.21(a) (a "West Elk Surface
Movement  Event"),  Seller  and ARCO shall  indemnify  and hold  harmless  Buyer
against any and all Losses  caused by and  resulting  from such West Elk Surface
Movement Event.  ARCO and Seller shall have no obligation to indemnify any Buyer
Indemnitee for any Losses arising from or relating to any Surface  Movement that
occurs at the West Elk Mine on or after the Closing Date.

      6.22  Disclosure  Schedules.  The parties  hereto shall have ten (10) days
after the Effective Date to revise the Disclosure  Schedules delivered hereunder
by written notice to the other party;  provided,  however, that no such revision
shall materially alter the nature or effect of the specific item so modified, or
alone or in the aggregate have a Material Adverse Effect. The revised Disclosure
Schedules shall become the Disclosure Schedules to the Agreement as if initially
attached hereto.

                                   ARTICLE 7
                        EMPLOYEES AND EMPLOYEE BENEFITS

      7.1  Retention of Employees and Continuation of Benefits.

           (a)  Section 7.1(a) of the  Disclosure  Schedule sets forth a list of
the Employees  who will be retained in employment by the Buyer  ("Transferees"),
which list shall be updated and  supplemented  by ARCO and agreed to by Buyer on
and as of the Closing Date.  Buyer shall take such action as may be necessary to
provide that as of the Closing Date, the  Transferees  shall remain  employed by
the  Companies or shall be employed by Buyer and  Transferees  shall,  except as
otherwise  provided,  participate in Buyer's  employee  benefit plans offered to
similarly situated employees.

           (b)  Without limiting the foregoing,  for purposes of this Article 7,
Buyer shall ensure that on and following the Closing Date, the Transferees shall
receive  credit with  respect to any benefit  plan,  arrangement  or other right
whether contemplated in Section 4.17 of the Disclosure Schedule or otherwise for
any period of employment  with ARCO or the Companies  (including  any applicable
predecessors  or  Affiliates)  prior to the  Closing  Date for  eligibility  and
vesting purposes under each employee  benefit plan,  arrangement or other right;
provided,  however,  that in no event shall any  Transferees be given credit for
any such  purpose  for any period of  employment  that was not  counted for such
purpose under any applicable plan,  arrangement or Plan of ARCO or the Companies
prior to the Closing Date.

      7.2  Retention  of  Retirement  Plans for  Companies.  Section  7.2 of the
Disclosure  Schedule sets forth a list of any retirement  plan  established  and
maintained by the Companies (collectively,  the "Retirement Plans"). Buyer shall
take such action as may be necessary to cause 

                                       31


any  applicable  Company to continue to administer  and maintain its  respective
Retirement  Plan until  December 31, 1998.  On and  following  the Closing Date,
Buyer  shall be  responsible  for  retaining  the  sponsorship  and all  assets,
accounts,  liabilities  and  obligations of the Retirement  Plans  applicable to
Transferees  or former  employees of the applicable  Companies,  and Buyer shall
release,  indemnify and hold harmless ARCO and any member of Seller's Group with
respect to all Losses arising out of or relating to the Retirement Plans.  Buyer
agrees that if, after December 31, 1998, the defined benefit  Retirement Plan is
merged into the Buyer's  Retirement  Plan,  the opening  balance  credits in the
Buyer's  Retirement  Plan with respect to Transferees  shall be no less than the
assets  of  the  merged  Retirement  Plan  allocable  to  the  Transferees,  and
Transferees shall be entitled to the transition credits,  though not longer than
December  31, 2012,  based on their years of  Retirement  Plan  benefit  accrual
service,  as  provided  by the  Buyer's  Retirement  Plan as of the date of such
merger.

      7.3  ARCO's Pension Plan. As of the Closing Date, any  Transferees who are
participants in the Atlantic Richfield  Retirement Plan II (the "ARCO Retirement
Plan") shall no longer participate in such plan. Buyer shall take such action as
may be necessary  to provide  that all such  Transferees  shall  participate  in
Buyer's cash balance  defined benefit  retirement plan (the "Buyer's  Retirement
Plan").   Buyer  understands  and  agrees  that  the  accrued  benefits  of  any
Transferees  under the ARCO  Retirement  Plan shall not increase  following  the
Closing  Date and  that  any  surplus  under  such  plan  with  respect  to such
Transferees  shall be retained by ARCO.  Buyer  agrees to provide  open  balance
credits in Buyer's  Retirement  Plan with  respect to  Transferees  based on the
Transferee's  monthly  accrued  benefit under the ARCO  Retirement  Plan and the
conversion factor under the Buyer's Retirement Plan, as in effect on the Closing
Date.  Such  Transferee's  open balance  credits shall be reduced by the present
value of the Transferee's  accrued benefit under the ARCO Retirement Plan. Buyer
also agrees to provide  Transferee's with transition credits,  though not longer
than  December 31, 2012,  based on their years of ARCO  Retirement  Plan benefit
accrual service,  as provided under Buyer's Retirement Plan, as in effect on the
Closing Date.

      7.4  Thrift  Plan.  As of  the  Closing  Date,  any  Transferees  who  are
participants  in the Atlantic  Richfield  Capital  Accumulation  Plan II and the
Atlantic  Richfield  Savings Plan II (collectively,  the "ARCO  Accumulation and
Savings Plans") shall no longer participate in such plans. Buyer shall take such
action  as  may  be  necessary  to  provide  that  all  such  Transferees  shall
participate in Buyer's defined  contribution  retirement plan(s)  (collectively,
the  "Buyer's  Savings  Plan").  Buyer  shall allow  Transferees  to make direct
rollovers  under  Section  401(a)(31)  of the Code or elective  transfers  under
Treas.  Reg.  1.411(d)-4,   Q&A-3  of  their  account  balances  from  the  ARCO
Accumulation  and  Savings  Plans to  Buyer's  Savings  Plan.  Buyer and  Seller
understand and acknowledge  that  Transferees  who are  participants in the ARCO
Accumulation  and  Savings  Plans may at their  election  choose to leave  their
contributions in either or both of the ARCO Accumulation and Savings Plans.

      7.5  Other Employee Benefits. Except as specifically set forth in Sections
7.2, 7.3 and 7.4, as of the Closing Date (i)  Employees of ARCO or the Companies
(and their respective  beneficiaries and dependents) shall no longer participate
in any employee  benefit plan or  arrangement  maintained by ARCO and (ii) Buyer
and the  Companies  shall  assume  or retain  (as  

                                       32


applicable) all liabilities  relating to Transferees or former  employees of the
Companies (and their respective beneficiaries and dependents).  Without limiting
the  provisions of Section 7.1,  Buyer shall  continue to provide until December
31, 1998 under plans comparable to plans applicable to Transferees  prior to the
Closing,  the  following  benefits:  (i) the  group  health  coverage  currently
provided to the  Transferees,  former  employees  and their  dependents,  or any
sub-group thereof (collectively, the "Participants"), or comparable group health
coverage  which  shall (A)  waive  any  pre-existing  condition  limitations  on
benefits for the Participants, (B) waive any eligibility waiting periods for the
Participants, and (C) give effect, in determining or applying any deductible and
maximum  out-of-pocket  limitations,  to claims incurred,  amounts paid by or on
behalf of and amounts reimbursed to the Participants under ARCO's or a Company's
group health plan during the calendar year in effect as of the Closing Date, and
(ii) benefits under the employee  benefit plans described in Section 4.17 of the
Disclosure  Schedule.  Without  limiting the foregoing,  Buyer agrees to provide
coverage  to the  Transferees  as required by the  Consolidated  Omnibus  Budget
Reconciliation Act of 1985.

      7.6  Flexible Spending Accounts.  Seller and Buyer agree to cooperate with
each  other in all  reasonable  respects  to effect an  orderly  transition  for
Employees  from the  flexible  spending  account  plans in which such  Employees
currently  participate to Buyer's  comparable  plans as  appropriate  and to the
extent permitted by applicable law.

      7.7  Cooperation.  Seller and Buyer agree to cooperate  with each other in
all  reasonable  respects with respect to  administrative  issues arising out of
this  Agreement  that relate to the Plans of Seller,  Buyer or their  respective
Affiliates.

      7.8  Black Lung  Matters.  After the  Closing,  and  subject to Arch's and
Buyer's  right  to  indemnity  for  ARCO's   and/or   Seller's   breach  of  its
representation  and warranty in Section 4.21 of this Agreement,  Buyer shall pay
or cause the Companies to pay all  liabilities of Seller or the Companies  under
the Federal  Mine  Safety and Health Act of 1977,  as  amended,  and  applicable
Federal and state laws for claims for disability or death due to "black lung" or
pneumoconiosis, whenever created.

      7.9  Employee Termination by Buyer.

           (a)  In the event the employment of any  Transferee is terminated for
any or no reason  following the Closing Date,  ARCO shall have no liability with
respect to any severance or other  post-employment  benefits  applicable to such
termination,  and Buyer shall indemnify and hold harmless ARCO and any member of
Seller's Group for all losses, claims, damages, liabilities,  costs and expenses
(including any attorney  fees) arising out of or relating to any  termination of
employment or any severance or other post-employment benefit with respect to the
Transferees  following the Closing Date.  Without limiting the foregoing,  Buyer
agrees to defend  and  indemnify  ARCO or any member of  Seller's  Group for any
losses, claims, damages, liabilities, costs and expenses (including any attorney
fees)  arising  out of or  relating  to any claim  for  severance  benefits  for
whatever  reason  or  basis,  including  a change  of a  Transferee's  terms and
conditions  of  employment  with the Buyer such as a change in  compensation  or
employee benefit plans.

                                       33



           (b)  Without limiting the generality of the  foregoing,  in the event
the employment of any Transferee is terminated for any or no reason,  other than
for cause in accordance with Buyer's applicable disciplinary procedures, if any,
within one year following the Closing Date,  Buyer shall provide such Transferee
severance  benefits,  including the payment of an allowance and the continuation
of medical and dental  coverage and the R-60, in accordance  with the provisions
of the Atlantic Richfield Special  Termination  Allowance Plan, as amended,  the
Atlantic Richfield Termination Allowance Plan Policy Provisions, the Canyon Fuel
Company Special  Termination  Allowance Plan and the Canyon Fuel Company Special
Termination  Plan  Policy  Provisions,  copies of which are  attached  hereto as
Exhibit C, and any individual severance arrangement as set forth in Section 4.17
of the Disclosure  Schedule,  applicable to the Transferees prior to the Closing
Date.

           (c)  Notwithstanding anything else in this Agreement, Buyer shall not
be required to provide  severance  benefits for any of the individuals set forth
in Section 7.9(c) of the Disclosure Schedule.


                                    ARTICLE 8
                                      TAXES

      8.1  Certain Tax Matters.

           (a)  Seller will  prepare and file or cause to be prepared  and filed
all Tax Returns for each Company  required to be filed prior to the Closing Date
with the  appropriate  United  States,  state,  local and  foreign  governmental
entities  for any  taxable  period of each  Company  that ends on or before  the
Closing Date (the "Pre-Closing Tax Period"). Seller will make all payments shown
thereon as owing with  respect to any such Tax Return.  Seller will prepare and,
if required to do so by applicable law,  deliver to Buyer for signing and filing
any state income Tax Returns of each Company with respect to any Pre-Closing Tax
Period  (including  any  short  period)  that have not been  filed  prior to the
Closing Date.  Buyer will make all payments  shown thereon as owing with respect
to any such Tax Return.

           (b)  Except as otherwise  provided  in  Section 8.1(a) or (c),  Buyer
will prepare and file or cause to be prepared and filed all Tax Returns for each
Company that are required to be filed with the appropriate United States, state,
local and  foreign  governmental  entities  for all periods as to which such Tax
Returns are due after the Closing  Date.  Buyer will pay or cause to be paid all
Taxes required to be paid with respect to such Tax Returns.

           (c)  With respect to any taxable period that would  otherwise include
but  not  end  on the  Closing  Date,  to the  extent  permissible  pursuant  to
applicable  law, Seller will, and Buyer will cause each Company to, (i) take all
steps as are or may be reasonably  necessary,  including the filing of elections
or returns with applicable  taxing  authorities,  to cause such period to end on
the Closing Date; or (ii) if clause (i) is  inapplicable,  report the operations
of each  Company  only for the portion of such period  ending on or  immediately
before the Closing Date in a combined,  consolidated or unitary Tax Return filed
by Seller,  notwithstanding that such taxable period does not end on the Closing
Date.  If clause (ii) applies to a taxable  period of a Company,  the portion of
such taxable period included in such return filed by Seller will be 

                                       34


treated as a Pre-Closing  Tax Period  described in Section 8.1(a) and Buyer will
not be  responsible  for filing  such  return for such year  pursuant to Section
8.1(b).

           (d)  In order to assist Seller in the preparation  of all Tax Returns
that  Seller is  required  to prepare  pursuant  to Section  8.1(a),  Buyer will
prepare or cause each  Company to prepare and deliver  within 60 days of receipt
Seller's standard Federal and state tax return data gathering  packages relating
to the Companies.  In addition to providing  such packages,  Buyer will promptly
provide or cause to be provided to Seller such other  information  as Seller may
reasonably request  (including access to books,  records and personnel) in order
for the operations of the Companies to be properly reported in such Tax Returns,
for the  preparation  for any Tax audit or for the prosecution or defense of any
claim, suit or proceeding relating to Taxes.

           (e)  To the extent refunds of Taxes are not  recorded  on the Closing
Balance  Sheet,  Buyer  will pay or cause to be paid to Seller  all  refunds  or
credits of Taxes (including any interest thereon) received by Buyer or CFC after
the Closing  Date and  attributable  to Taxes paid by Seller with respect to any
Pre-Closing Tax Period. Such payment will be made to Seller within 30 days after
receipt of any such refund  from or  allowance  of such  credit by the  relevant
taxing authority.

           (f)  Seller will indemnify  and hold Buyer  harmless from and against
any and all liability for any taxable period as a result of Treasury  Regulation
Section  1.1502-6 (or any comparable  provision of state or local law) for taxes
of any  corporation or other entity,  other than the Companies,  which is or has
been affiliated with the Seller.

                                   ARTICLE 9
                                INDEMNIFICATION

      9.1  Arch's  and  Buyer's  Indemnification.   Subject  to  any  applicable
limitations set forth in this Article 9, Arch and Buyer,  jointly and severally,
shall  indemnify  and hold  harmless  each  member of  Seller's  Group and their
respective officers, directors, employees, agents and Affiliates, other than the
Companies (collectively, the Seller Indemnitees"),  from and against any and all
Losses to which they or any of them may become subject, including as a result of
claims by third  parties,  to the extent caused by: 

           (a)  any breach or  default  in  performance  by Arch or Buyer of any
covenant,  obligation or agreement of Arch or Buyer contained in this Agreement,
including those  obligations of Arch and Buyer set forth in Articles 3, 6, 7 and
8 hereof,  specifically including any covenant,  obligation or agreement of Arch
or Buyer in respect of  Environmental  Liabilities  related to the Properties as
provided in Section  6.14,  and in respect of Other  Liabilities  as provided in
Section 6.16(a); or

           (b)  any breach of any  representation  or  warranty  made by Arch or
Buyer in this  Agreement or in any  certificate,  instrument  or other  document
delivered by or on behalf of Arch or Buyer at the Closing;

                                       35


and as otherwise expressly provided for in this Agreement,  including in respect
of Transfer Taxes as provided in Section 2.4.

      9.2  ARCO's  and  Seller's  Indemnification.  Subject  to  any  applicable
limitations set forth in this Article 9, ARCO and Seller, jointly and severally,
shall  indemnify and hold harmless Arch,  Buyer and their  respective  officers,
directors,  employees,  agents and Affiliates,  including after the Closing, the
Companies (other than CFC) and their officers, directors,  employees, agents and
Affiliates (collectively, the "Buyer Indemnitees"), from and against any and all
Losses to which they or any of them may become subject, including as a result of
claims by third parties, to the extent caused by:

           (a)  any breach or default in performance  by ARCO or Seller,  as the
case  may be,  of any  covenant,  obligation  or  agreement  of  ARCO or  Seller
contained in this Agreement  including those  obligations of ARCO and Seller set
forth in Articles 3, 6, 7 and 8 hereof,  specifically  including  any  covenant,
obligation  or  agreement  of  ARCO  or  Seller  in  respect  of   Environmental
Liabilities  related to the ownership or operation of the Other  Properties,  as
provided  in Section  6.15,  and in respect of  certain  Tax  liabilities  under
Section 8.1(f); or

           (b)  any breach of any  representation  or  warranty  made by ARCO or
Seller in this  Agreement or in any  certificate,  instrument or other  document
delivered by or on behalf of ARCO or Seller at the Closing;

and as otherwise expressly provided for in this Agreement.

      9.3  Monetary Limitation.

           (a)  As used in this  Agreement,  "Losses"  shall  mean  any  losses,
claims,  damages,  liabilities,  out-of-pocket  costs  and  expenses  (including
judgment  costs  of  settlement  and  reasonable  attorneys',  consultants'  and
experts'  fees).  "Other  Losses"  shall  mean  any  Losses  as  defined  in the
Contribution  Agreement.  "Combined  Buyer's Losses" shall mean the aggregate of
all Losses of Buyer  Indemnitees and all Other Losses of Buyer  Indemnitees that
ARCO,  Seller or Delta are  obligated  to  indemnify  against  pursuant  to this
Agreement or pursuant to the  Contribution  Agreement,  [Confidential  Treatment
Requested]*.  Notwithstanding  the  foregoing,  the dollar  amount of any Losses
shall be  determined  after  taking into  account the  limitations  set forth in
Section 9.6(d).

           (b)  ARCO, Seller and Delta shall have no obligation to indemnify any
Buyer  Indemnitee  pursuant  to Section  9.2  (other  than for any breach of the
representations,  warranties or covenants  set forth in Sections  4.6,  4.12(b),
4.26, 6.15 and 6.21),  unless and until the Combined  Buyer's Losses incurred or
sustained  by all  Buyer  Indemnitees  exceeds  $25  million  (provided  that no
individual  Loss or Other Loss of less than  $500,000  shall be counted  against
such $25 million),  and then only for the excess over $25 million.  In addition,
the liability of ARCO,  Seller and Delta to indemnify the Buyer  Indemnitees for
Combined  Buyer's  Losses (other than Losses  arising under  Sections 4.6, 4.26,
6.15  and  6.21  of this  Agreement  [Confidential  Treatment
Requested]* shall in no event exceed $500 million in the aggregate.

                                       36


      9.4  Nature and Survival; Time Limits.

           (a) All  representations and warranties set forth in Articles 4 and 5
shall survive the Closing and continue in effect until the first  anniversary of
the Closing Date, at which time any and all liability arising out of or relating
to such representations and warranties shall terminate, provided that ARCO's and
Seller's representations and warranties under Section 4.6 as to title to the LLC
Interests to which Buyer's  indemnification  obligations apply shall survive the
Closing for three years. Any claim against any party hereto for  indemnification
pursuant  to this  Agreement  as a result  of any  breach of  representation  or
warranty made by such party must be made promptly,  and in all events within the
period of time during which such representation or warranty survives the Closing
pursuant to this Section 9.4(a), if any.

           (b)  Except  for the  representations  and  warranties  described  in
Section  9.4(a),  all covenants,  obligations  and agreements of the parties set
forth in this Agreement,  including those obligations set forth in Articles 6, 7
and 8 hereof, shall survive indefinitely.

      9.5  Limitation on Remedies; Mitigation.  The indemnification  provided in
this Agreement,  subject to any applicable limitations thereto set forth in this
Agreement,  shall be the sole and exclusive  remedy available to a party for any
breach,  default  or  violation  of  this  Agreement  by the  other  party.  The
Indemnified Party shall use all reasonable efforts to mitigate any Losses.

      9.6  General  Provisions.  In the case of any  claim  for  indemnification
brought pursuant to this Agreement:

           (a)  The party entitled to indemnification (the "Indemnified  Party")
shall notify the party obligated to provide  indemnification  (the "Indemnifying
Party")  promptly upon (i) receipt of notice of the commencement of the claim by
a third party for which  indemnification  is sought  pursuant to this Agreement,
(ii) becoming  aware of a claim for  indemnification  not involving a claim by a
third  party and (iii)  the  occurrence  of any  material  event or change  with
respect to any ongoing claim,  in writing and in reasonable  detail,  and within
any applicable time limits specified in this Agreement.

           (b)  In case any such claim is brought against any Indemnified Party,
and it  notifies  the  Indemnifying  Party of the  commencement  thereof,  or in
respect of any  ongoing  action,  the  Indemnifying  Party will be  entitled  to
participate  therein  and,  to the  extent it may wish,  jointly  with any other
Indemnifying Party similarly notified, to assume the defense thereof. Subsequent
to such assumption of defense, the Indemnifying Party shall not be liable to the
Indemnified Party for any legal or other expenses  subsequently  incurred by the
Indemnified  Party in connection with the defense  thereof;  provided,  however,
that the Indemnified Party shall thereafter have the right to participate in the
defense of such claim and to be represented,  solely at its expense, by advisory
counsel selected by it. In all cases in which the Indemnifying Party assumes the
defense of such claim,  the Indemnifying  Party shall control such defense,  and
any settlement of such claim shall require the consent of the Indemnified Party,
which  consent  may  not  be  unreasonably  withheld,  conditioned  or  delayed.
Notwithstanding  anything to the  contrary  contained  in this  Section 9.6, the
Indemnified  Party shall have the right to employ  separate  

                                       37


counsel at its sole cost and  expense if there  shall be  available  one or more
defenses or one or more  counterclaims  available to the Indemnified Party which
conflicts  with one or more  defenses  or one or more  claims  or  counterclaims
available to the Indemnifying Party. Whether or not the Indemnifying Party shall
have assumed the defense of a claim for which the Indemnified  Party is entitled
to be  indemnified,  the  Indemnified  Party shall not admit any liability  with
respect to, or settle,  compromise  or  discharge,  such claim without the prior
written  consent  of  the  Indemnifying   Party,  which  consent  shall  not  be
unreasonably withheld, conditioned or delayed.

           (c)  The Indemnified  Party will, at the expense of the  Indemnifying
Party,  cooperate and consult with the Indemnifying  Party in the defense of any
such action and shall furnish any  documents and endeavor to make  available any
witnesses under its control.

           (d)  Any indemnification  payment  shall be (i) limited to the Losses
actually incurred (after giving effect to the Present Value Benefit, realized or
realizable by the  Indemnified  Party in  connection  with or as a result of the
incurrence of the Loss for which the indemnity  payment is to be made) and shall
not  include  punitive  damages,   indirect  damages  or  consequential  damages
(including  lost  profits)  incurred  by  the  Indemnified  Party,  (ii)  net of
insurance  proceeds  received  by the  Indemnified  Party  (and  the  amount  of
indemnification payable under this Agreement shall not include the amount of any
insurance proceeds actually recovered by the Indemnified Party with respect to a
Loss) and (iii) in the case of Buyer  Indemnitees,  net of any  reserves  of the
Companies  reflected on the Interim Date Balance Sheet applicable  thereto.  The
foregoing limitations shall apply before application of the monetary limitations
specified  in  Section  9.3(b).  If the amount to be netted  hereunder  from any
payment by the Indemnifying Party is determined after the Indemnifying Party has
already  paid any amount  required to be paid  pursuant to this  Agreement,  the
Indemnified  Party shall repay to the  Indemnifying  Party,  promptly after such
determination,  any amount that the Indemnifying Party would not have had to pay
pursuant to this Agreement had such  determination been made at the time of such
payment.

           (e)  Notwithstanding  anything to the contrary  contained herein, any
indemnification obligation of Seller or ARCO pursuant to this Agreement relating
to a Loss  realized  by CFC  shall  be  limited  to  reflect  the  then-existing
ownership  percentage of the  membership  interests in CFC owned by Buyer and/or
its  Affiliates  (without  giving  effect to any increase in Buyer's  and/or its
Affiliates'  ownership of membership  interests in CFC subsequent to the Closing
Date).

      9.7  Tax Treatment.  Any indemnity payment by Arch and/or Buyer under this
Agreement  shall  be  treated  as an  increase  in the  Purchase  Price  for tax
purposes,  and any indemnity  payment by ARCO and/or Seller under this Agreement
shall be treated as a decrease in the  Purchase  Price for tax  purposes  unless
otherwise  required by applicable Laws, in which case such payment shall be made
in an amount  sufficient to indemnify the party on a net after-tax  basis taking
into account any tax deduction allowed the indemnified party with respect to the
indemnified event.


                                       38


                                   ARTICLE 10
                             CONDITIONS TO CLOSING

      10.1 Conditions Precedent to Obligations of Arch and Buyer. The obligation
of Arch and Buyer to purchase  and pay for the LLC  Interests  is subject to the
satisfaction  (or waiver by Buyer),  prior to or on the Closing Date, of each of
the following conditions: 

           (a)  Any breach or breaches of the representations  and warranties of
ARCO or Seller contained in this Agreement or in the  Contribution  Agreement at
and as of the Closing  Date,  after giving  effect to such  representations  and
warranties   as  though  made  on  and  as  of  the  Closing  Date  (except  for
representations  and warranties made as of a specific date, which shall be given
effect as of such date),  that alone or in the  aggregate do not have a Material
Adverse Effect.

           (b)  ARCO and Seller shall have performed or complied in all material
respects with all  obligations  and covenants  required by this  Agreement to be
performed  or  complied  with by  ARCO or  Seller  prior  to or at the  Closing,
including notifications under Section 6.3.

           (c)  The waiting period  under the HSR Act shall have expired or been
terminated,  and neither the Antitrust Division nor the FTC shall have indicated
its  objection  to, or its intent to challenge as violative of any Federal laws,
any of the transactions contemplated by the Agreement.

           (d)  Buyer shall have received an opinion, dated the Closing Date, of
counsel  employed by ARCO, in form and substance  reasonably  acceptable to Arch
and Buyer.

           (e)  There shall not be in effect any injunction  or order  issued by
any court or administrative agency of competent  jurisdiction  preventing in any
material  respect the  consummation  of the  transactions  contemplated  by this
Agreement on the Closing Date.

           (f)  Buyer shall have received such resignations  of the officers and
directors of the Companies as shall have been  requested by Buyer in writing not
less than 30 days  prior to the  Closing  Date,  subject  to the  provisions  of
Article 7.

           (g)  Since the Effective  Date, there have been no adverse  events or
occurrences,  other than adverse  events or  occurrences  as a result of general
economic  conditions  or other  conditions  affecting  the industry in which the
Companies  operate  (including  fluctuations  in coal prices and  legislative or
regulatory  conditions)  that  together  with the total  amount of the claims of
Buyer  Indemnitees for ARCO's or Seller's breaches of their  representations  or
warranties  contained in this Agreement or the Contribution  Agreement as of the
Closing Date, have a Material Adverse Effect.

           (h)  The  transactions  contemplated  in  the  Contribution Agreement
shall be consummated concurrently with the Closing.


                                       39


      If the Closing occurs,  nothing in this Section 10.1 shall be construed to
limit  Buyer's  indemnification  rights or the  amount  of  ARCO's  or  Seller's
indemnification  obligations,  and it is expressly  agreed that unless waived in
writing by Arch and Buyer at or prior to the  Closing,  any remedy  available to
Arch  or  Buyer  for  ARCO's  or  Seller's  breach  of its  representations  and
warranties or  substantial  failure to perform or comply with any  obligation or
covenant,  including Arch's or Seller's  indemnification  obligations  after the
Closing  in respect  of such  breaches  and  failures  occurring  on or prior to
Closing, shall survive Closing and be unaffected thereby.

      10.2  Conditions   Precedent  to  Obligations  of  ARCO  and  Seller.  The
obligation  of ARCO and Seller to sell and deliver the LLC Interests to Arch and
Buyer is subject to the satisfaction  (or waiver by Seller),  prior to or on the
Closing Date, of each of the following conditions:

            (a)  The representations  and warranties of Arch and Buyer contained
in this Agreement  shall be true and correct in all material  respects at and as
of the  Closing  Date,  with the same  effect  as  though  made on and as of the
Closing Date (except for  representations  and warranties  made as of a specific
date of which  shall be true and  correct in all  material  respects  as of such
date).

            (b)  Arch and Buyer shall have performed or complied in all material
respects with all  obligations  and covenants  required by this  Agreement to be
performed or complied with by Arch or Buyer prior to or at the Closing.

            (c)  The waiting period under the HSR Act shall have expired or been
terminated,  and neither the Antitrust Division nor the FTC shall have indicated
its  objection  to, or its intent to challenge as violative of any Federal laws,
any of the transactions contemplated by this Agreement.

            (d)  Seller shall have received an opinion,  dated the Closing Date,
of counsel for Buyer,  in form and substance  reasonably  acceptable to ARCO and
Seller.

            (e)  There shall not be in effect any injunction  or order issued by
any court or  administrative  agency of competent  jurisdiction  preventing  the
consummation of the  transactions  contemplated by this Agreement on the Closing
Date.

            (f)  The transactions  contemplated  in the  Contribution  Agreement
shall be consummated concurrently with the Closing.

            (g)  Any consents necessary to transfer  operating permits for mines
owned by any of the Companies  shall have been  obtained,  unless Arch and Buyer
shall have agreed to  indemnify  ARCO and Seller from any Losses  arising out of
the failure to obtain such consents.

      If the Closing occurs,  nothing in this Section 10.2 shall be construed to
limit  ARCO's or  Seller's  indemnification  rights  or the  amount of Arch's or
Buyer's  indemnification  obligations,  and it is expressly agreed that,  unless
waived by ARCO and  Seller in  writing  at or prior to the  Closing,  any remedy
available   to  ARCO  or  Seller  for   Arch's  or   Buyer's   breach  of  their

                                       40


representations  and warranties or substantial failure to perform or comply with
any  obligation  or  covenant,  including  Arch's  and  Buyer's  indemnification
obligations after the Closing in respect of such breaches and failures occurring
on or prior to Closing, shall survive Closing and be unaffected thereby.

                                   ARTICLE 11
                            TERMINATION OF AGREEMENT

      11.1  Termination Before Closing.  This Agreement may be terminated at any
time before Closing:

            (a)  by the mutual  consent  of  ARCO,  Seller,  Arch  and  Buyer in
writing;

            (b)  by Buyer(i) if there  have been  breaches  by ARCO or Seller of
any  representations  or  warranties  of ARCO and/or  Seller  contained  in this
Agreement or in the Contribution Agreement that alone or in the aggregate have a
Material  Adverse Effect,  and if the breaches have continued for a period of 30
days  following  Buyer's  notification  to Seller of such  breaches,  or (ii) if
events have occurred  which have made it  impossible  to satisfy the  conditions
precedent to the obligations of Arch and Buyer set forth in Section 10.1;

            (c)  by Seller (i) if there have been material  breaches  by Arch or
Buyer of any  representations  or warranties  of Arch and/or Buyer  contained in
this  Agreement  or in the  Contribution  Agreement,  and if the  breaches  have
continued for a period of 30 days following  Seller's  notification  to Buyer of
such breaches,  or (ii) if events have occurred which have made it impossible to
satisfy the conditions precedent to the obligations of ARCO and Seller set forth
in Section 10.2;

            (d)  by Buyer if  Closing  has not  occurred  on or prior to 75 days
after the Effective  Date other than  primarily as a result of Buyer's breach or
default of this Agreement; or

            (e)  by Seller  if  the  Closing  has not occurred on or prior to 75
days  after the  Effective  Date other than  primarily  as a result of  Seller's
breach or default of this Agreement.

      11.2  Effect of Termination.  If this Agreement is terminated  pursuant to
Section 11.1,  all further  obligations of the parties under this Agreement will
terminate  and  there  shall be no  liability  on the part of any  party to this
Agreement, except for material willful breaches of and intentional misstatements
in or  pursuant  to this  Agreement  prior  to the  time  of  such  termination;
provided, however, that the obligations in Sections 6.1(b), 6.5, 6.6, 11.2, 12.3
and 12.10 shall survive the termination of this Agreement.

                                   ARTICLE 12
                                 MISCELLANEOUS

      12.1  Entire Agreement.  This  Agreement,  including  the Exhibits and the
Disclosure  Schedule,  and, to the extent  referenced  herein,  the Contribution
Agreement  set forth the entire  

                                       41


agreement  and  understanding  of the  parties in  respect  of the  transactions
contemplated  herein and supersedes any previous  agreements and  understandings
between the parties with respect thereto.

      12.2  Construction.   This   Agreement  is   the  result  of   arms-length
negotiations  between,  and has been prepared and reviewed by, each party hereto
and its respective  counsel.  Accordingly,  this Agreement shall be deemed to be
the product of each party hereto.

      12.3  Governing Law. The validity of this Agreement,  the  construction of
its terms and the  interpretation of the rights and duties of the parties hereto
shall be  governed  by the  substantive  laws of the State of  Delaware  without
regard to the  principles  of  conflict  of laws of the State of Delaware or any
other jurisdiction  (except those that cannot be waived) that would call for the
application of the substantive law of any  jurisdiction  other than the State of
Delaware.

      12.4  Notices. All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing,  by facsimile,  by overnight
courier or by registered or certified  mail,  postage prepaid and return receipt
requested,  and  shall be  deemed to have  been  duly  given or made  upon:  (i)
delivery by hand,  (ii) one business day after being sent by overnight  courier,
(iii) four  business  days after  being  deposited  in the United  States  mail,
postage  prepaid,  or  (iv) in the  case  of  transmission  by  facsimile,  when
confirmation of receipt is obtained.  Such communications shall be addressed and
directed to the parties listed below as follows:  

     If to Seller or ARCO:         Atlantic Richfield Company 
                                   515 South  Flower  Street 
                                   Los  Angeles,  CA 90071  
                                   Facsimile: 213-486-0170 (Treasurer)
                                   Facsimile: 213-486-1544 (General Counsel)
                                   Attention: Treasurer
                                   Attention: General Counsel

     If to Buyer:                  Arch Western Acquisition Corporation
                                   c/o Arch Coal, Inc.
                                   CityPlace One, Suite 300
                                   St. Louis, Missouri 63141
                                   Facsimile: 314-994-2734
                                   Attention: Jeffry N. Quinn

     If to Arch:                   Arch Coal, Inc.
                                   CityPlace One, Suite 300
                                   St. Louis, Missouri 63141
                                   Facsimile: 314-994-2734
                                   Attention:  Jeffry N. Quinn

      12.5  Waiver.  Waivers of or consents to  departures  from the  provisions
hereof may be given; provided, however, that the same shall be in writing and be
signed  by each of the parties  


                                       42


hereto.  No such waiver or consent  shall be construed as a waiver of or consent
to any other departure from any such provisions or any other provisions hereof.

      12.6  Binding Effect; Assignment. This Agreement shall be binding upon and
inure  to the  benefit  of the  parties  and  their  respective  successors  and
permitted  assigns.  No  assignment  of  this  Agreement  or of  any  rights  or
obligations  hereunder  may be  made,  in whole or in  part,  by any  party  (by
operation of law or otherwise)  without the prior  written  consent of the other
party hereto, and any purported assignment without consent shall be void.

      12.7  Amendment.   This  Agreement  may   not  be  amended,   modified  or
supplemented  unless  the same  shall be in  writing  and  signed by each of the
parties hereto.

      12.8  Counterparts. This Agreement may  be  executed in counterparts, each
of which shall be an original,  but all of which together  shall  constitute one
and the same document.

      12.9  No Third Party  Beneficiaries. The terms, agreements  and provisions
of the parties set forth in this  Agreement are not intended for, nor shall they
be for the  benefit  of or  enforceable  by,  any  Person  not a  party  hereto,
including each of the Companies.

      12.10 Jurisdiction; Service of Process.

            (a)  Each party to this Agreement hereby irrevocably  submits itself
to the  non-exclusive  jurisdiction  of the  Supreme  Court for the State of New
York,  sitting in the Borough of Manhattan,  or the United States District Court
for the Southern  District of New York, (i) for the purposes of any suit, action
or other proceeding brought by any other party, or its respective  successors or
assigns  arising out of this  Agreement  or  transactions  contemplated  by this
Agreement  or  the  Contribution  Agreement,   (ii)  to  enforce  a  resolution,
settlement,  order or award made pursuant  thereto,  or any  obligation  for the
payment of money contained  herein.  To the extent  permitted by applicable Law,
each party to the Agreement hereby waives,  and agrees not to assert,  by way of
motion, as a defense, or otherwise, in any such suit, action or proceeding,  any
claim  that  (a)  it is  not  personally  subject  to  the  jurisdiction  of the
above-named  courts,  (b) the  suit,  action  or  proceeding  is  brought  in an
inconvenient forum, (c) the venue of the suit, action or proceeding is improper,
or (d) a  resolution,  settlement  or order made  pursuant  thereto,  or such an
obligation  for the  payment of money,  may not be enforced in or by such court.
Nothing  contained  herein shall be deemed to waive the right of a party to seek
removal  of a matter  from  state  court to  Federal  court if such  removal  is
otherwise permissible.

            (b)  Each party to this  Agreement  hereby  consents  to  service of
process on it at the office for service of process set forth below as its office
for service of process and additionally  irrevocably designates and appoints the
person named in Exhibit D as its "Agent" and attorney-in-fact to receive service
of process in any action,  suit or  proceeding  with respect to any matter as to
which it  submits to  jurisdiction  as set forth  above,  it being  agreed  that
service  upon  Agent  shall  constitute  valid  service  upon  the  party or its
successors or assigns.  Each party agrees that (x) the sole  responsibilities of
the Agent shall be (i) to receive such process,  (ii) to send a copy of any such
process so  received  to such  party,  by  registered  airmail,  return  receipt
requested,  at the  address  for it set forth in  Section  12.4,  or at the last
address  filled  in  writing  by 


                                       43


it with the Agent, and (iii) to give prompt telecopied notice of receipt thereof
to it at such address (y) the Agent shall have no responsibility for the receipt
or nonreceipt by the respective  party of such process,  nor for any performance
or  nonperformance  by the  respective  party or its  respective  successors  or
assigns,  and (z)  failure  of the Agent to send a copy of any such  process  or
otherwise to give notice  thereof to the  respective  party shall not affect the
validity of such service or any judgment in any action, suit or proceeding based
thereon.  If service of process cannot be effected in the foregoing manner, each
party further irrevocably consents to the service of process in any action, suit
or  proceeding  by the  mailing of copies  thereof by  registered  or  certified
airmail,  postage prepaid,  return receipt  requested,  to it at its address set
forth in Section 12.4 hereof. The foregoing,  however, shall not limit the right
of the party to serve process in any other manner permitted by Law. Any judgment
against a party in any suit for which such party has no further  right of appeal
shall be conclusive,  and may be enforced in other  jurisdictions by suit on the
judgment,  a certified or true copy of which shall be conclusive evidence of the
fact and of the amount of any  indebtedness  or liability of such party  therein
described;  provided,  however, that the plaintiff may at its option bring suit,
or institute other judicial proceedings, against such party or any of its assets
in the  courts of any  country or place  where such party or such  assets may be
found.  Each party further  covenants and agrees that for 3 years  following the
Closing  Date,  it shall  maintain  a duly  appointed  agent for the  service of
summonses and other legal processes in New York.

            (c)  For purposes of this Section  12.10,  the Agent and offices for
service of process for each of the parties shall be as set forth on Exhibit D or
such other person or offices as shall be  designated  in writing by any party to
the other parties.

      12.11 Disclaimer for Communications. Except as and to the extent set forth
in  this  Agreement  ARCO,  Seller  and  their  respective  Affiliates  make  no
representation,  promise,  covenant or warranty  regarding any of the Companies,
their assets, business,  operations,  liabilities or obligations,  or otherwise,
and disclaim all liability and responsibility for any representation,  warranty,
disclosure  or statement  made or  communicated  (orally or in writing) to Arch,
Buyer or their respective Affiliates or to any officer,  stockholder,  director,
employee, agent, consultant or representative of Arch, Buyer or their respective
Affiliates, including any information provided by any investment banking firm or
other agent of ARCO or Seller,  or any  opinion,  statement  or advice which may
have been provided to Arch,  Buyer or its respective  Affiliates by any officer,
stockholder,  director,  employee,  agent, consultant or representative of ARCO,
Seller or the Companies.



                                       44



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

                                    ATLANTIC RICHFIELD COMPANY

                                    /s/ Terry G. Dallas
                                    ------------------------------------------
                                    By:  Terry G. Dallas
                                    Title: Senior Vice President and Treasurer


                                    ARCO UINTA COAL COMPANY

                                    /s/ Charles P. Cooley
                                    ------------------------------------------
                                    By:  Charles P. Cooley
                                    Title: Treasurer


                                    ARCH COAL, INC.

                                    /s/ David B. Peugh
                                    ------------------------------------------
                                    By: David B. Peugh
                                        --------------------------------------
                                    Title: Vice President 
                                           -----------------------------------  


                                    ARCH WESTERN ACQUISITION
                                    CORPORATION

                                    /s/ Jeffry N. Quinn   
                                    ------------------------------------------
                                    By: Jeffry N. Quinn
                                        --------------------------------------
                                    Title: President
                                           -----------------------------------






                                       45


                             DISCLOSURE SCHEDULES TO
                         THE PURCHASE AND SALE AGREEMENT


I.    DISCLOSURE SCHEDULE - Atlantic Richfield Company
            Schedule 4.3    No Violations
            Schedule 4.4    Approvals, Consents and Other Actions
            Schedule 4.8    Real Property
            Schedule 4.11   Insurance Policies
            Schedule 4.14   Litigation
            Schedule 4.17   Employee Benefit Plans
            Schedule 4.23   Assets
            Schedule 6.8    Guarantees
            Schedule 7.1    Retention of Employees and Continuation of Benefits
            Schedule 7.2    Retention of Retirement Plans for Companies
            Schedule 7.9(c) Employee Termination By Buyer

II.   DISCLOSURE SCHEDULE - AU SUB
            Schedule 4.3    No Violations
            Schedule 4.4    Approvals, Consents and Other Actions
            Schedule 4.7    Capitalization
            Schedule 4.9    Buildings, Structures and Tangible Personal Property
            Schedule 4.10   Material Contracts
            Schedule 4.12   Taxes
            Schedule 4.15   Compliance with Laws
            Schedule 4.16   Labor Matters
            Schedule 4.18   Bank Accounts
            Schedule 4.22   Conduct of Business

III.  DISCLOSURE SCHEDULE - Mountain Coal Company,  L.L.C. 
            Schedule 4.3    No Violations  
            Schedule 4.4    Approvals,  Consents and Other  Actions
            Schedule 4.7    Capitalization  
            Schedule 4.8    Real Property 
            Schedule 4.9    Buildings, Structures and Tangible Personal Property
            Schedule 4.10   Material Contracts
            Schedule 4.11   Insurance Policies
            Schedule 4.12   Taxes
            Schedule 4.13   Licenses, Permits, Authorizations
            Schedule 4.14   Litigation  
            Schedule 4.15   Compliance with Laws 
            Schedule 4.16   Labor Matters  
            Schedule 4.17   Employee Benefit Plans 
            Schedule 4.18   Bank  Accounts   
            Schedule 4.22   Conduct of Business
            Schedule 4.23   Assets 
            Schedule 6.8    Guarantees  
            Schedule 6.14   Environmental Matters/Properties  
            Schedule 7.1    Retention of Employees and Continuation of Benefits
            Schedule 7.2    Retention of Retirement Plans for Companies




IV.   DISCLOSURE SCHEDULE - Canyon Fuel Company, L.L.C.
            Schedule 4.3    No Violations
            Schedule 4.4    Approvals, Consents and Other Actions
            Schedule 4.7    Capitalization
            Schedule 4.8    Real Property
            Schedule 4.9    Buildings, Structures and Tangible Personal Property
            Schedule 4.10   Material Contracts
            Schedule 4.11   Insurance Policies
            Schedule 4.12   Taxes
            Schedule 4.13   Licenses, Permits, Authorizations   
            Schedule 4.14   Litigation  
            Schedule 4.15   Compliance with Laws 
            Schedule 4.16   Labor Matters  
            Schedule 4.17   Employee Benefit Plans 
            Schedule 4.18   Bank  Accounts   
            Schedule 4.22   Conduct of Business
            Schedule 4.23   Assets 
            Schedule 6.8    Guarantees  
            Schedule 6.14   Environmental Matters/Properties 
            Schedule 7.1    Retention of Employees and Continuation of Benefits
            Schedule 7.2    Retention of Retirement Plans for Companies

V.    DISCLOSURE SCHEDULE - Thunder Basin Coal Company, L.L.C.  
            Schedule 4.3    No Violations 
            Schedule 4.4    Approvals, Consents and Other Actions
            Schedule 4.7    Capitalization  
            Schedule 4.8    Real Property 
            Schedule 4.9    Buildings, Structures and Tangible Personal Property
            Schedule 4.10   Material Contracts
            Schedule 4.11   Insurance Policies
            Schedule 4.12   Taxes
            Schedule 4.13   Licenses, Permits, Authorizations 
            Schedule 4.14   Litigation  
            Schedule 4.15   Compliance with Laws 
            Schedule 4.16   Labor Matters  
            Schedule 4.17   Employee Benefit Plans 
            Schedule 4.18   Bank  Accounts   
            Schedule 4.22   Conduct of Business
            Schedule 4.23   Assets  
            Schedule 7.8    Guarantees  
            Schedule 7.14   Environmental Matters/Properties
            Schedule 8.1    Retention of Employees and Continuation of Benefits
            Schedule 8.2    Retention of Retirement Plans for Companies

VI.   DISCLOSURE SCHEDULE - State Leases LLC
            Schedule 4.4    Approvals, Consents and Other Actions
            Schedule 4.8    Real  Property

VII.  DISCLOSURE SCHEDULE - Acquisition Corp.
            Schedule 5.3    No Violations
            Schedule 5.4    Approvals, Consents and Other Actions
            Schedule 5.8    Title to Membership Interests
            Schedule 5.9    Capitalization
            Schedule 5.10   Real Property
    


            Schedule 5.11   Buildings, Structures and Tangible Personal Property
            Schedule 5.12   Material Contracts
            Schedule 5.13   Insurance Policies
            Schedule 5.14   Taxes
            Schedule 5.15   Licenses, Permits, Authorizations   
            Schedule 5.16   Litigation  
            Schedule 5.17   Compliance with Laws 
            Schedule 5.18   Labor Matters  
            Schedule 5.19   Employee Benefit Plans 
            Schedule 5.20   Bank Accounts 
            Schedule 5.22   Absence of Undisclosed Liabilities 
            Schedule 5.23   Assets



                                                                     EXHIBIT 2.2


                             CONTRIBUTION AGREEMENT


                                      among


                                 ARCH COAL, INC.

                      ARCH WESTERN ACQUISITION CORPORATION

                           ATLANTIC RICHFIELD COMPANY

                               DELTA HOUSING INC.

                                       and

                           ARCH WESTERN RESOURCES LLC





                              Dated: MARCH 22, 1998

     *    Portions of  this  document  have been  omitted  pursuant to a request
          for  confidential  treatment  filed with the  Securities  and Exchange
          Commission  (the  "Commission")  pursuant to Rule 24b-2 under the U.S.
          Securities  Exchange Act of 1934, as amended.  Such portions have been
          filed  separately  with  the  Commission  and are  identified  in this
          document   by   the   following   legend:   "[Confidential   Treatment
          Requested]*."








                                TABLE OF CONTENTS


ARTICLE 1  DEFINITIONS.....................................................2

1.1     DEFINITIONS........................................................2

1.2     CROSS REFERENCES, INTERPRETATION..................................10


ARTICLE 2  CONTRIBUTIONS TO THE COMPANY...................................10

2.1     CONTRIBUTION OF CONTRIBUTED MEMBERSHIP INTERESTS..................10

2.2     CASH CONTRIBUTION.................................................11

2.3     MEMBERSHIP INTERESTS..............................................11

2.4     FURTHER ASSURANCES................................................11

2.5     TRANSFER TAXES....................................................11
 
2.6     ADJUSTMENT TO SPECIAL DISTRIBUTION................................12
  
2.7     LITTLE THUNDER LEASE..............................................13


ARTICLE 3  CLOSING........................................................14

3.1     ARCO PRE-CLOSING ACTIONS..........................................14

3.2     ARCH PRE-CLOSING ACTIONS..........................................14

3.3     CLOSING DATE......................................................15

3.4     CLOSING ACTIONS...................................................15

3.5     SIMULTANEOUS TRANSACTIONS.........................................17


ARTICLE 4  REPRESENTATIONS AND WARRANTIES OF ARCO AND DELTA HOUSING.......17

4.1     ORGANIZATION AND GOOD STANDING....................................17

4.2     AUTHORITY.........................................................17

4.3     NO VIOLATIONS.....................................................17

4.4     APPROVALS, CONSENTS AND OTHER ACTIONS.............................18

4.5     FORMATION AND GOOD STANDING OF TBCC AND SL........................18

4.6     TITLE TO THE MEMBERSHIP INTERESTS.................................18




4.7     CAPITALIZATION....................................................18
 
4.8     REAL PROPERTY.....................................................18

4.9     BUILDINGS, STRUCTURES AND TANGIBLE PERSONAL PROPERTY..............19

4.10    MATERIAL CONTRACTS................................................19

4.11    INSURANCE POLICIES................................................19

4.12    TAXES.............................................................20

4.13    LICENSES, PERMITS, AUTHORIZATIONS.................................20

4.14    LITIGATION........................................................20

4.15    COMPLIANCE WITH LAWS..............................................20

4.16    LABOR MATTERS.....................................................21

4.17    EMPLOYEE BENEFIT PLANS............................................21

4.18    BANK ACCOUNTS.....................................................22

4.19    BROKER LIABILITY..................................................22

4.20    FINANCIAL STATEMENTS..............................................22

4.21    BLACK LUNG DISCLOSURE.............................................23

4.22    CONDUCT OF BUSINESS...............................................23

4.23    ASSETS............................................................23

4.24    CERCLA............................................................23

4.25    DISCLAIMER OF CERTAIN REPRESENTATIONS AND WARRANTIES..............23

4.26    NO OTHER COMMITMENT TO SELL LLC INTERESTS.........................24

4.27    ABSENCE OF UNDISCLOSED LIABILITIES................................24


ARTICLE 5  REPRESENTATIONS AND WARRANTIES OF ARCH AND ACQUISITION CORP....24

5.1     ORGANIZATION AND GOOD STANDING....................................24

5.2     AUTHORITY.........................................................24

5.3     NO VIOLATIONS.....................................................24

5.4     APPROVALS, CONSENTS AND OTHER ACTIONS.............................24




5.5     FINANCIAL CAPABILITY..............................................25

5.6     ARCH'S AND ACQUISITION CORP.'S INQUIRY............................25

5.7     ORGANIZATION, QUALIFICATION AND GOOD STANDING OF AOW..............25

5.8     TITLE TO THE MEMBERSHIP INTERESTS.................................25

5.9     CAPITALIZATION....................................................25

5.10    REAL PROPERTY.....................................................25

5.11    BUILDINGS, STRUCTURES AND TANGIBLE PERSONAL PROPERTY..............26

5.12    MATERIAL CONTRACTS................................................26

5.13    INSURANCE POLICIES................................................26

5.14    TAXES.............................................................26

5.15    LICENSES, PERMITS, AUTHORIZATIONS.................................26

5.16    LITIGATION........................................................27

5.17    COMPLIANCE WITH LAWS..............................................27

5.18    LABOR MATTERS.....................................................27

5.19    EMPLOYEE BENEFIT PLANS............................................27

5.20    BANK ACCOUNTS.....................................................28

5.21    FINANCIAL STATEMENTS..............................................28

5.22    BROKER LIABILITY..................................................28

5.23    ASSETS............................................................28

5.24    QUALIFICATION, COMPLIANCE WITH ACREAGE LIMITATIONS................28

5.25    CERCLA............................................................28

5.26    DISCLAIMER OF CERTAIN REPRESENTATIONS AND WARRANTIES..............28

5.27    BLACK LUNG DISCLOSURE.............................................28

5.28    ABSENCE OF UNDISCLOSED LIABILITIES................................29





ARTICLE 6  REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................29

6.1     DUE ORGANIZATION; GOOD STANDING AND POWER.........................29

6.2     AUTHORIZATION AND VALIDITY OF AGREEMENT...........................29

6.3     NO CONSENTS REQUIRED; NO CONFLICT WITH INSTRUMENTS TO WHICH THE 
        COMPANY IS A PARTY................................................29

6.4     ACCREDITED INVESTOR...............................................29

6.5     INVESTMENT INTENT.................................................30


ARTICLE 7  COVENANTS AND AGREEMENTS OF THE PARTIES........................30

7.1     ACCESS TO INFORMATION.............................................30

7.2     CONDUCT OF THE BUSINESS PENDING THE CLOSING.......................31

7.3     NOTIFICATION......................................................32

7.4     ANTITRUST NOTIFICATION............................................32

7.5     FEES AND EXPENSES.................................................32

7.6     PUBLICITY.........................................................32

7.7     POST-CLOSING ASSISTANCE...........................................32

7.8     GUARANTEES........................................................33

7.9     NAME CHANGES......................................................33

7.10    SURETY BONDS......................................................33

7.11    BLACK LUNG LIABILITY..............................................34

7.12    LITIGATION SUPPORT................................................34

7.13    INSURANCE.........................................................34

7.14    ARCH'S AND ACQUISITION CORP.'S ENVIRONMENTAL RESPONSIBILITIES.....34

7.15    ARCO'S AND DELTA HOUSING'S ENVIRONMENTAL RESPONSIBILITIES.........35

7.16    OTHER LIABILITIES.................................................35

7.17    DISCLOSURE SCHEDULES..............................................35

7.18    COMMERCIALLY REASONABLE EFFORTS...................................35



ARTICLE 8  EMPLOYEES AND EMPLOYEE BENEFITS................................36

8.1     RETENTION OF EMPLOYEES AND CONTINUATION OF BENEFITS...............36

8.2     RETENTION OF RETIREMENT PLANS FOR ARCO PARTIES....................36

8.3     ARCO'S PENSION PLAN...............................................36

8.4     THRIFT PLAN.......................................................37

8.5     OTHER EMPLOYEE BENEFITS...........................................37

8.6     FLEXIBLE SPENDING ACCOUNTS........................................37

8.7     COOPERATION.......................................................38

8.8     BLACK LUNG MATTERS................................................38

8.9     TRANSFEREE TERMINATION BY ARCH....................................38


ARTICLE 9  TAXES..........................................................39

9.1     ARCO TAX MATTERS..................................................39

9.2     ARCH TAX MATTERS..................................................40


ARTICLE 10  INDEMNIFICATION...............................................41

10.1    ARCH'S AND ACQUISITION CORP.'S INDEMNIFICATION....................41

10.2    ARCO'S AND DELTA HOUSING'S INDEMNIFICATION........................41

10.3    MONETARY LIMITATION...............................................43

10.4    NATURE AND SURVIVAL; TIME LIMITS..................................43

10.5    LIMITATION ON REMEDIES; MITIGATION................................43

10.6    GENERAL PROVISIONS................................................44

10.7    TAX TREATMENT.....................................................45

10.8    COOPERATION AND COMMUNICATION.....................................45

10.9    EFFECTING THE INDEMNITY...........................................46


ARTICLE 11  CONDITIONS TO CLOSING.........................................46

11.1    CONDITIONS PRECEDENT TO OBLIGATIONS OF ARCH AND ACQUISITION CORP..46

11.2    CONDITIONS PRECEDENT TO OBLIGATIONS OF ARCO AND DELTA HOUSING.....47



ARTICLE 12  TERMINATION OF AGREEMENT......................................48

12.1    TERMINATION BEFORE CLOSING........................................48

12.2    EFFECT OF TERMINATION.............................................49


ARTICLE 13  MISCELLANEOUS.................................................49

13.1    ENTIRE AGREEMENT..................................................49

13.2    CONSTRUCTION......................................................49

13.3    GOVERNING LAW.....................................................49

13.4    NOTICES...........................................................49

13.5    WAIVER............................................................50

13.6    BINDING EFFECT; ASSIGNMENT........................................50

13.7    AMENDMENT.........................................................50

13.8    COUNTERPARTS......................................................50

13.9    NO THIRD PARTY BENEFICIARIES......................................50

13.10   JURISDICTION; SERVICE OF PROCESS..................................50

13.11   DISCLAIMER FOR COMMUNICATIONS.....................................52




                   LIST OF SCHEDULES AND EXHIBITS TO AGREEMENT

SCHEDULES

ARCO DISCLOSURE SCHEDULE
ARCH DISCLOSURE SCHEDULE

EXHIBITS

EXHIBIT 1.1        INDIVIDUALS WITH KNOWLEDGE
EXHIBIT 2.6        PRELIMINARY INTERIM DATE BALANCE SHEET
EXHIBIT 3.4(c)(1)  COMPANY AGREEMENT
EXHIBIT 3.4(c)(2)  TAX SHARING AGREEMENT
EXHIBIT 8.9(b)     TERMINATION PLANS AND PROVISIONS
EXHIBIT 13.10(b)   AGENT FOR SERVICE 







                             CONTRIBUTION AGREEMENT


         THIS CONTRIBUTION  AGREEMENT (the  "AGREEMENT"),  dated as of March 22,
1998 (the  "EFFECTIVE  DATE")  among Arch  Coal,  Inc.,  a Delaware  corporation
("ARCH"),   Arch  Western  Acquisition   Corporation,   a  Delaware  corporation
("ACQUISITION  CORP."),  Atlantic  Richfield  Company,  a  Delaware  corporation
("ARCO"), Delta Housing Inc., a Delaware corporation ("DELTA HOUSING"), and Arch
Western Resources LLC, a Delaware limited liability company (the "Company").

         WHEREAS,  ARCO currently owns all of the  outstanding  capital stock of
ARCO Uinta, and ARCO Uinta will own all of the outstanding  membership interests
in AUS; and

         WHEREAS,  ARCO Uinta will sell all of its  membership  interests in MCC
LLC, CFC and AUS to Acquisition  Corp. for the  consideration and upon the terms
and conditions set forth in the Purchase Agreement; and

         WHEREAS,  ARCO will  transfer  its  interest  in TBCC to the Company in
exchange for a membership interest in the Company; and

         WHEREAS, ARCO will contribute its membership interest in the Company to
Delta Housing; and

         WHEREAS,  Delta  Housing  will  transfer to the Company its  membership
interest in SL; and

         WHEREAS,  Acquisition  Corp. will transfer its membership  interests in
AOW, AUS, MCC LLC and CFC to the Company in exchange for membership interests in
the Company; and

         WHEREAS,  the Company desires to accept the assignment,  conveyance and
transfer of the membership interests in TBCC, SL, AOW, AUS, MCC LLC and CFC upon
the terms and conditions hereinafter set forth; and

         WHEREAS,  Acquisition  Corp. and Delta Housing desire to enter into the
Company  Agreement  to govern the conduct and  operation  of the Company and its
business after the Closing;

         NOW  THEREFORE,  in  consideration  of the  premises  and of the mutual
covenants of the parties hereto, it is hereby agreed as follows:





                                    ARTICLE 1
                                   DEFINITIONS

         1.1  DEFINITIONS.  As used herein,  the following  terms shall have the
meanings set forth below:

         "ACC"  shall  mean the United  States  assets of ARCO Coal  Company,  a
division of ARCO.

         "ACQUISITION CORP." shall have the meaning set forth in the Preamble.

         "ACT" shall mean ARCO Coal Terminal, a Delaware corporation.

         "ADJUSTMENT" shall have the meaning set forth in Section 2.6(b).

         "AFFILIATE"  of any  specified  Person shall mean any other Person that
directly  or  indirectly  through  one  or  more  intermediaries   controls,  is
controlled by, or is under common control with, such specified  Person,  and the
term "affiliated  with" shall have a correlative  meaning.  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.  As used with  respect  to any Arch Party  (except  for  purposes  of
Section  10.2),   "Affiliate"   shall  not  include  Ashland  Inc.,  a  Kentucky
corporation, or any of its subsidiaries other than Arch. As used with respect to
any ARCO Party,  "Affiliate" shall not include ARCO Chemical Company, a Delaware
corporation, or Vastar Resources, Inc., a Delaware corporation.

         "AGENT" shall have the meaning set forth in Section 13.10(b).

         "AGREED RATE" shall mean six percent per annum.

         "AGREEMENT" shall have the meaning set forth in the Preamble.

         "ANTITRUST DIVISION" shall have the meaning set forth in Section 7.4.

         "AOW" means Arch of Wyoming LLC, a Delaware limited liability company.

         "AOW CLOSING  DATE  BALANCE  SHEET" shall have the meaning set forth in
Section 5.21.

         "ARCH" shall have the meaning set forth in the Preamble.

         "ARCH  DISCLOSURE  SCHEDULE"  shall mean the document  attached  hereto
titled as such.

         "ARCH INDEMNITEES" shall mean Arch and the Arch Parties.





                                       2


         "ARCH  OF  WYOMING"  shall  mean  Arch of  Wyoming,  Inc.,  a  Delaware
corporation.

         "ARCH PARTIES" shall mean Acquisition Corp., AOW, MCC LLC, AUS and CFC.

         "ARCH  PRE-CLOSING  TAX  PERIOD"  shall have the  meaning  set forth in
Section 9.2(a).

         "ARCH'S  RETIREMENT  PLAN"  shall have the meaning set forth in Section
8.3.

         "ARCH'S SAVINGS PLAN" shall have the meaning set forth in Section 8.4.

         "ARK"  shall  mean  Ark  Land  Company,  a  Delaware   corporation  and
wholly-owned subsidiary of Arch.

         "ARCO" shall have the meaning set forth in the Preamble.

         "ARCO  ACCUMULATION AND SAVINGS PLANS" shall have the meaning set forth
in Section 8.4.

         "ARCO DISCLOSURE  SCHEDULE" shall mean the document attached hereto and
titled as such.

         "ARCO INDEMNITEES" shall mean ARCO and the ARCO Parties.

         "ARCO PARTIES" shall mean SL and TBCC.

         "ARCO RETIREMENT PLAN" shall have the meaning set forth in Section 8.3.

         "ARCO   UINTA"  shall  mean  ARCO  Uinta  Coal   Company,   a  Delaware
corporation.

         "ASSIGNMENT AND ASSUMPTION  AGREEMENT" shall have the meaning set forth
in Section 10.8(e).

         "AUS" means a Delaware limited  liability  company to be formed by ARCO
Uinta.

         "AUDITED  FINANCIAL  STATEMENTS"  shall have the  meaning  set forth in
Section 2.6(a).

         "AUTHORITY"  shall mean any  government or  governmental  or regulatory
body  thereof,  or  political  subdivision  thereof,  whether  federal  (or  any
commonwealth,  territory or possession thereof), state, local or foreign, or any
agency,  department  or  instrumentality  thereof,  or any  court or  arbitrator
(public or private).

         "BANKRUPTCY"  shall  mean  (i) the  commencement  of any  voluntary  or
involuntary  bankruptcy  case by or against a Person as debtor under Title 11 of
the  United  States  Code or any  successor  or  equivalent  statute,  (ii)  the
insolvency  or the  inability  of a Person to satisfy  its  obligations  as they
become due or (iii) the  general  assignment  by any  Person for the  benefit of
creditors under state Law.


                                       3

         "BLACK LUNG DISCOUNT RATE" shall mean seven percent (7%) per annum.

         "CERCLA" shall mean the Federal Comprehensive  Environmental  Response,
Compensation  and Liability Act of 1980 (as amended by the Superfund  Amendments
and Reauthorization Act of 1986).

         "CFC" shall mean Canyon Fuel Company, LLC, a Delaware limited liability
company owned 65% by ARCO Uinta.

         "CFC  AGREEMENT"  shall mean the Second  Amended and  Restated  Limited
Liability  Company  Agreement of Canyon Fuel Company LLC, dated as of January 1,
1997, as in effect on the Closing Date.

         "CH20" shall mean CH-Twenty, Inc., a Delaware corporation.

         "CARBON  BASIN  RESERVES"  shall have the  meaning set forth in Section
3.2(c).

         "CASH CONTRIBUTION" shall have the meaning set forth in Section 2.2.

         "CATEGORY  4 (10-YEAR)  EQUIPMENT"  shall have the meaning set forth in
the Little Thunder Lease.

         "CLOSING" shall have the meaning set forth in Section 3.3.

         "CLOSING DATE" shall have the meaning set forth in Section 3.3.

         "CLOSING  DATE  BALANCE  SHEET"  shall mean the  unaudited,  pro forma,
combined, consolidated balance sheet of TBCC (including the LTL Property and the
state coal  leases to be owned by SL) as of the close of business on the Closing
Date, which shall be derived from the combined,  consolidated  unaudited balance
sheet of ACC as of the same date,  prepared as though the Proposed  Transactions
had not been consummated.  The Closing Date Balance Sheet shall be prepared on a
basis consistent with the Interim Date Balance Sheet.

         "CLOSING  DATE  MEMBERS'  EQUITY"  shall have the  meaning set forth in
Section 2.6(b).

         "CODE" shall mean the Internal Revenue Code of 1986, as amended.

         "COMBINED LOSSES" shall have the meaning set forth in Section 10.3(a).

         "COMPANIES" shall mean CFC, AUS, TBCC, SL and MCC LLC.

         "COMPANY" shall have the meaning set forth in the Preamble.


                                       4


         "COMPANY  AGREEMENT" shall mean that certain Limited  Liability Company
Agreement  of Arch  Western  Resources  LLC, to be dated as of the Closing  Date
between  Acquisition Corp. and Delta Housing  substantially in the form attached
hereto as Exhibit 3.4(c)(1).

         "COMPANY DEBT" shall have the meaning set forth in Section 3.4(e).

         "CONDITIONAL  AGREEMENT"  shall have the  meaning  set forth in Section
10.8(e).

         "CONTRIBUTED  ARCH  INTERESTS"  shall  have the  meaning  set  forth in
Section 2.1(a).

         "CONTRIBUTED  ARCO  INTERESTS"  shall  have the  meaning  set  forth in
Section 2.1(c).

         "CONTRIBUTED  LLCS" shall mean TBCC,  SL, AUS,  MCC LLC, CFC and AOW as
the context may require.

         "CONTRIBUTED  MEMBERSHIP  INTERESTS"  shall mean the  Contributed  Arch
Interests and the Contributed ARCO Interests.

         "CONTRIBUTING  MEMBERS" shall mean ARCO,  Delta Housing and Acquisition
Corp., each of which may be referred to individually as a "Contributing Member,"
as the context may require.

         "DELTA HOUSING" shall have the meaning set forth in the Preamble.

         "DESIGNATED  ARCO  REPRESENTATIVE"  shall  mean an  employee  of  Delta
Housing or an  Affiliate  designated  by Delta  Housing  from time to time.  The
initial  Designated  ARCO  Representative  will be designated at Closing.  Delta
Housing may change such designation by giving Acquisition Corp. notice.

         "DISAGREEMENT  NOTICE"  shall  have the  meaning  set forth in  Section
2.6(c).

         "DISCLOSURE  SCHEDULE" shall mean the ARCO  Disclosure  Schedule or the
Arch Disclosure Schedule, as the context requires.

         "EFFECTIVE DATE" shall have the meaning set forth in the Preamble.

         "EMPLOYEES" shall have the meaning set forth in Section 4.17(a).

         "ENVIRONMENTAL LAWS" shall mean Laws aimed at abatement of pollution;
protection  of  the  environment;  ensuring  public  safety  from  environmental
hazards;  management,  storage or control of  Hazardous  Materials;  releases or
threatened  releases of Hazardous  Materials  into the  environment,  including,
ambient air, surface water and  groundwater;  and all other Laws relating to the
manufacturing,  processing,  distribution,  use, treatment,  storage,  disposal,
handling or transportation of Hazardous  Materials,  including CERCLA, Clean Air
Act,  Clean Water Act,  Solid  Wastes  Disposal  Act (as amended by the Resource
Conservation and Recovery Act), Toxic 

                                       5


Substances  Control Act,  Emergency  Planning and  Community  Right to Know Act,
Surface  Mining  Control and  Reclamation  Act, Mine Safety and Health Act, Safe
Drinking Water Act and any regulations  issued under each of such statutes,  and
any state or local  counterparts,  and any other Laws to the extent  relating to
reclamation of lands affected by mining.

         "ENVIRONMENTAL  LIABILITIES"  shall mean any and all  claims,  actions,
causes  of  action,  damages,  losses,  liabilities,   obligations,   penalties,
judgments,  amounts paid in settlement,  assessments,  costs,  disbursements  or
expenses  (including  attorneys'  fees and  costs,  experts'  fees and costs and
consultants'  fees and costs) of any kind or nature  (including  those absolute,
accrued or contingent,  unknown or otherwise and including,  further,  liability
for study,  testing or  investigatory  costs,  cleanup  costs,  response  costs,
removal  costs,   remediation  costs,   containment  costs,  restoration  costs,
corrective  action costs or business losses) arising out of, based on, resulting
from or alleging (i) the presence,  release,  threatened  release,  discharge or
emission into the environment of any Hazardous Materials existing or arising on,
beneath or above any property, including claims with respect to other properties
based upon claims relating to migration or emanation (or threatened migration or
emanation) of Hazardous  Materials  from the property to such other  properties,
whether or not immediately  adjacent to the property,  (ii) the violation of any
Environmental  Laws  involving  any property,  including  claims with respect to
other  properties  based upon claims  relating to  migration  or  emanation  (or
threatened  migration or emanation) of Hazardous  Materials from the property to
such other properties,  whether or not immediately adjacent to the property, and
(iii) natural  resources  damages,  penalties or fines,  or property  damages or
personal injuries claimed by private (non-governmental) parties.

         "ERISA" shall have the meaning set forth in Section 4.17(a).

         "FINAL  JUDGMENT"  shall  mean  a  judgment  by a  court  of  competent
jurisdiction  or a binding award in arbitration  from which no further appeal or
review may be taken, a settlement or a confession of judgment.

         "FTC" shall have the meaning set forth in Section 7.4.

         "GAAP" shall mean generally accepted accounting principles in effect in
the United States, from time to time.

         "HAZARDOUS  MATERIALS"  shall mean any waste or other substance that is
listed,  defined,  designated or classified  as, or otherwise  determined to be,
hazardous,  radioactive  or  toxic  or a  pollutant  or a  contaminant  under or
pursuant to any Environmental Law, and specifically  including petroleum and all
derivatives thereof or synthetic substitutes therefor, polychlorinated biphenyls
and asbestos or asbestos-containing materials.

         "HSR ACT" shall mean the Hart-Scott-Rodino  Antitrust  Improvements Act
of 1976, as amended.

         "INDEMNIFIED  PARTY"  shall  have the  meaning  set  forth  in  Section
10.6(a).


         "INDEMNIFYING  PARTY"  shall  have the  meaning  set  forth in  Section
10.6(a).


                                       6


         "INDEPENDENT  ACCOUNTANTS"  shall have the meaning set forth in Section
2.6(d).

         "INTERIM DATE" shall mean December 31, 1997.

         "INTERIM  DATE  BALANCE  SHEET"  shall mean the  unaudited,  pro forma,
combined,  consolidated  balance sheet for TBCC  (including the LTL Property and
the  state  coal  leases  to be owned by SL)  which  shall be  derived  from and
consistent  with the combined,  consolidated  audited balance sheet of ACC as of
the close of business on the Interim Date.  The Interim Date Balance Sheet shall
be prepared on a basis  consistent  with the  Preliminary  Interim  Date Balance
Sheet and,  except for changes with respect to corporate  adjustments and income
tax  calculations  and the effect thereof on total member's equity in TBCC, will
be substantially identical to the Preliminary Interim Date Balance Sheet.

         "INTERIM  DATE  MEMBERS'  EQUITY"  shall have the  meaning set forth in
Section 2.6(b).

         "KNOWLEDGE"   shall  mean  the  actual  knowledge  of  the  individuals
identified on Exhibit 1.1, without any duty of inquiry.

         "LAWS" shall mean all existing Federal, state and local laws (statutory
or common), rules, ordinances,  regulations, grants, leases, orders, directives,
judgments,  decrees and other  governmental  restrictions of any kind or nature,
including  permits  and  other  similar   requirements,   whether   legislative,
municipal, administrative or judicial in nature.

         "LAXT" shall mean L. A. Export Terminal, a Delaware corporation.

         "LITTLE  THUNDER  LEASE"  shall mean that  certain  Master  Lease dated
August 8, 1997  between  LTLC and TBCC,  as amended by Amendment to Master Lease
dated January 27, 1998.

         "LOSSES" shall have the meaning set forth in Section 10.3(a).

         "LTLC"  shall  mean  Little  Thunder   Leasing   Company,   a  Delaware
corporation.

         "LTL PROPERTY" shall mean all of the property and equipment  subject to
the Little Thunder Lease, except for the Category 4 (10-Year) Equipment.

         "MATERIAL ADVERSE EFFECT" (i) as used in Sections 3.4(m), 7.17, 11.1(a)
and  12.1(b),  shall  mean a  breach  or  breaches  of the  representations  and
warranties  of ARCO and/or Delta  Housing  under this  Agreement and ARCO and/or
ARCO Uinta under the Purchase  Agreement that in the aggregate,  if the Proposed
Transactions were consummated,  would give rise to  indemnification  obligations
owed to Arch  Indemnitees  by ARCO and/or Delta Housing under this Agreement and
ARCO and/or  ARCO Uinta  under the  Purchase  Agreement  (without  regard to any
applicable  limits of  Section  10.3 of this  Agreement  or  Section  9.3 of the
Purchase  Agreement),  together  totaling  more than One Hundred and Ten Million
Dollars, and (ii) as used in Section 11.1(g),  shall mean (without  duplication)
the sum of (a)  aggregate  reductions in the actual value of the business of the
ARCO Parties, on a combined,  consolidated basis and taken as a whole, resulting


                                       7


from any events or occurrences  referred to in Section 11.1(g), and (b) a breach
or breaches of the  representations  and warranties of ARCO and/or Delta Housing
under this  Agreement  and ARCO and/or ARCO Uinta under the  Purchase  Agreement
that in the aggregate, if the Proposed Transactions were consummated, would give
rise to  indemnification  obligations  owed to Arch  Indemnitees  by ARCO and/or
Delta  Housing  under this  Agreement and ARCO and ARCO Uinta under the Purchase
Agreement  (without  regard to any  applicable  limits in  Section  10.3 of this
Agreement or Section 9.3 of the Purchase Agreement), together totaling more than
One Hundred and Ten Million Dollars.

         "MCC" shall mean Mountain Coal Company, a Delaware corporation.

         "MCC LLC" shall mean Mountain Coal Company L.L.C.,  a Delaware  limited
liability company.

         "OTHER  LIABILITIES"  shall  have the  meaning  set  forth  in  Section
7.16(b).

         "OTHER LOSSES" shall have the meaning set forth in Section 10.3(a).

         "OTHER PROPERTIES" shall have the meaning set forth in Section 7.15.

         "PBGC" shall have the meaning set forth in Section 4.17(e).

         "PARTICIPANTS" shall have the meaning set forth in Section 8.5.

         "PERFORMANCE BONDS" shall have the meaning set forth in Section 7.10.

         "PERSON" shall mean and include,  any  individual,  partnership,  joint
venture,  corporation,  limited liability company,  trust,  joint-stock company,
unincorporated entity or association, organization or other legal entity.

         "PLANS" shall have the meaning set forth in Section 4.17(a).

         "POST CLOSING  SURETY BOND" shall have the meaning set forth in Section
7.10.

         "PRE-CLOSING  TAX  PERIOD"  shall have the meaning set forth in Section
9.1(a).

         "PRELIMINARY  INTERIM  DATE  BALANCE  SHEET"  shall  mean the  document
attached as Exhibit 2.6.

         "PRESENT  VALUE  BENEFIT"  shall  mean the  present  value  (based on a
discount  rate equal to the  short-term  applicable  federal rate as  determined
under  Section  1274(d) of the Code at the time of  determination,  and assuming
that the Indemnified Party will be liable for income taxes at all relevant times
at the maximum marginal rates) of any income tax benefit.

         "PROPERTIES" shall have the meaning set forth in Section 7.14.


                                       8


         "PROPOSED  TRANSACTIONS"  shall have the  meaning  set forth in Section
3.3.

         "PURCHASE  AGREEMENT" shall mean the Purchase and Sale Agreement by and
among ARCO, ARCO Uinta,  Arch and Acquisition Corp. dated as of the date of this
Agreement.

         "PURCHASE PRICE" shall have the meaning set forth in Section 2.2 of the
Purchase Agreement.

         "REPORT" shall have the meaning set forth in Section 2.6(d).

         "SL" shall mean State Leases LLC, a Delaware limited liability company.

         "SECURITIES  ACT" shall mean the United States  Securities Act of 1933,
as amended.

         "SPECIAL  DISTRIBUTION"  shall  have the  meaning  set forth in Section
3.4(f).

         "STATE COAL LEASES" shall mean the ARCO state coal leases identified on
the ARCO Disclosure Schedule.

         "STATEMENT" shall have the meaning set forth in Section 2.6(b).

         "SUBSTITUTE  SURETY  BOND"  shall have the meaning set forth in Section
7.10.

         "SURETY BOND" shall have the meaning set forth in Section 7.10.

         "TBCC" shall mean Thunder Basin Coal Company L.L.C., a Delaware limited
liability company.

         "TAX" or "TAXES"  shall  mean any tax or taxes,  similar  charge,  fee,
impost,  levy or other  assessment  (including  income taxes,  severance  taxes,
excise taxes, sales taxes,  franchise taxes, real estate taxes,  Transfer Taxes,
transfer gain taxes, value added taxes, use taxes, ad valorem taxes, withholding
taxes, payroll taxes, or minimum taxes),  together with any related liabilities,
penalties,  fines,  additions to tax or interest imposed by the United States or
any state, county, local or foreign government,  agency or taxing authority,  or
any subdivision thereof.

         "TAX  RETURN"  or  "TAX  RETURNS"  shall  mean  all  returns,  reports,
estimates  and  information  statements  relating to, or required to be filed in
connection  with, any Taxes pursuant to the statutes,  rules and  regulations of
the United States or any state, county, local or foreign government subdivision,
agency or taxing authority.

         "TAX  SHARING  AGREEMENT"  shall mean the Tax Sharing  Agreement by and
among Arch,  Acquisition Corp., Delta Housing and the Company, to be dated as of
the Closing Date substantially in the form attached hereto as Exhibit 3.4(c)(2).


                                       9


         "THUNDER  CLOUD FEDERAL  LEASE TRACT" shall mean that proposed  federal
coal lease of the tract of land  located  in the State of  Wyoming  known as the
"Thunder Cloud Tract."

         "TRANSFER TAXES" shall have the meaning set forth in Section 2.5.

         "TRANSFEREES" shall have the meaning set forth in Section 8.1(a).

         [Confidential Treatment Requested]*

         [Confidential Treatment Requested]*

         "UNAUDITED  FINANCIAL  STATEMENTS"  shall have the meaning set forth in
Section 4.20.

         "VEBA" shall have the meaning set forth in Section 4.17(a).

         1.2   CROSS  REFERENCES, INTERPRETATION. References to "Articles" refer
to Articles of this  Agreement.  References to "Sections"  refer to Sections and
subsections  of this  Agreement.  Whenever the  singular  number is used in this
Agreement  and when  required by the context,  the same shall include the plural
and vice versa,  and the masculine  gender shall include the feminine and neuter
genders and vice versa.  Whenever the word "including" is used in this Agreement
it shall be read to mean "including  without  limitation."  The headings in this
Agreement  are inserted for  convenience  only and are not intended to describe,
interpret,  define or limit the scope, extent or intent of this Agreement or any
provision hereof.

                                    ARTICLE 2
                          CONTRIBUTIONS TO THE COMPANY

         2.1   CONTRIBUTION OF CONTRIBUTED MEMBERSHIP INTERESTS.

         (a)   On  the  terms  and  subject  to  the  conditions  set  forth  in
this Agreement,  Acquisition Corp. shall cause its membership  interests in AUS,
CFC, MCC LLC and AOW  (collectively,  the  "CONTRIBUTED  ARCH  INTERESTS") to be
contributed,  conveyed, transferred,  assigned and delivered to the Company, and
the Company shall accept and acquire the Contributed  Arch Interests in exchange
for 991/2% common membership interest of Acquisition Corp. in the Company.

         (b)   The  contribution, conveyance,  transfer  and  assignment  of the
Contributed Arch Interests  contemplated hereby shall be made by the delivery by
Acquisition  Corp. of a duly executed  assignment  transferring  the Contributed
Arch Interests to the Company.

         (c)   On the terms and  subject  to the  conditions  set  forth in this
Agreement,  (i) ARCO shall cause its  interest in TBCC,  and (ii) Delta  Housing
shall cause its interest in SL (collectively  the "CONTRIBUTED  ARCO INTERESTS")
to be contributed, conveyed, transferred, assigned and delivered to the Company,
and the Company  shall accept and acquire,  the  Contributed  ARCO  Interests in
exchange for 1/2% common and 1/2% preferred membership interests in the Company.


                                       10


         (d)  The  contribution,  conveyance,  transfer  and  assignment  of the
Contributed ARCO Interests  contemplated hereby shall be made by the delivery by
ARCO, with respect to TBCC, of a duly executed assignment  transferring the TBCC
membership interest,  and by the delivery by Delta Housing,  with respect to SL,
of a duly executed assignment  transferring the SL membership interest,  in each
case to the Company. The assignment of ARCO's membership interest in the Company
to Delta Housing  contemplated hereby shall be made by the delivery by ARCO of a
duly executed assignment  transferring the membership interest in the Company to
Delta Housing.

         2.2   CASH   CONTRIBUTION.   Acquisition  Corp. shall  also  contribute
$25,000,000 in cash to the Company (the "CASH CONTRIBUTION").

         2.3   MEMBERSHIP   INTERESTS.   In  consideration   of  the  respective
contributions  by  the  Contributing  Members  of  the  Contributed   Membership
Interests and the Cash  Contribution to the Company as described in Sections 2.1
and 2.2, and in reliance upon the  respective  representations,  warranties  and
covenants made herein by each of the Contributing Members, the Company agrees to
grant to the Contributing  Members all right,  title and interest of a member in
the Company  pursuant and subject to the terms of this Agreement and the Company
Agreement.  The initial membership interest of each of the Contributing  Members
in the  Company  after  giving  effect  to  all  the  transactions  contemplated
hereunder and under the Purchase  Agreement shall be as set forth in the Company
Agreement.

         2.4   FURTHER ASSURANCES.

         (a)   On and from time to time after the Closing Date, the Contributing
Members and their respective Affiliates will execute and deliver, or cause to be
executed  and  delivered,  such other  instruments  of  conveyance,  assignment,
transfer and delivery as the Company may reasonably  request in order to fulfill
and implement the terms of this Agreement, to vest in the Company the membership
interests in the Contributed LLCs, or to otherwise enable the Company to realize
the benefits intended to be afforded hereby.

         (b)   On and from time to time after the Closing Date, the Company will
execute and deliver, or cause the Contributed LLCs to execute and deliver,  such
other  instruments of assumption,  conveyance,  assignment,  transfer,  power of
attorney or  assurance as the  Contributing  Members may  reasonably  request in
order to enable the Contributing  Members to realize the benefits intended to be
afforded hereby.

         2.5   TRANSFER TAXES.  The Company shall be solely liable for and shall
pay all applicable sales, transfer, use, stamp,  conveyance,  value-added,  real
property  transfer,  recording,  stock transfer and other similar taxes, if any,
together  with all  recording or filing fees,  notarial  fees and other  similar
costs of Closing, that may be imposed upon, or payable,  collectible or incurred
in connection with the transfer of the Contributed  Membership  Interests to the
Company (the "TRANSFER  TAXES").  The Company shall  indemnify and hold harmless
ARCO, Delta Housing or their Affiliates with respect to all Transfer Taxes.


                                       11


         2.6   ADJUSTMENT TO SPECIAL DISTRIBUTION.

         (a)   ARCO shall deliver to Acquisition Corp. as soon as available, but
in no event  later  than 30 days  after the  Effective  Date,  the  consolidated
balance  sheet of ACC at  December  31,  1997,  and 1996,  and its  consolidated
statements  of income,  of equity  investment  and of cash flows for each of the
three years in the period ended  December 31,  1997,  together  with the related
notes  thereto  and the  respective  audit  opinion  thereon of the  independent
auditors of ACC (the "AUDITED FINANCIAL  STATEMENTS").  Within 30 days after the
Effective  Date,  ARCO shall prepare and deliver to Acquisition  Corp. a copy of
the Interim  Date Balance  Sheet.  Within 90 days after the Closing  Date,  ARCO
shall prepare and deliver to the Company the Closing Date Balance Sheet.

         (b)   The  Special  Distribution  shall be adjusted (the  "ADJUSTMENT")
upwards or downwards on a dollar-for-dollar  basis for the amount by which total
members'  equity as reflected on the Closing  Date Balance  Sheet (the  "CLOSING
DATE  MEMBERS'  EQUITY")  exceeds  or is less  than  total  members'  equity  as
reflected  on the  Interim  Date  Balance  Sheet  (the  "INTERIM  DATE  MEMBERS'
EQUITY").  For purposes of the preceding sentence,  the change in total members'
equity will include the net change in intercompany  accounts.  During the period
from the Interim Date through the Closing Date,  intercompany  accounts will, in
part, (i) increase by  contributions  of cash for operating costs and capital by
ARCO,  Delta  Housing  or any of their  Affiliates,  and (ii)  decrease  by cash
distributions to ARCO, Delta Housing or any of their Affiliates.  In determining
the Adjustment,  any change in deferred tax asset or deferred tax liability from
that reflected on the Interim Date Balance Sheet and the corresponding effect on
the Closing Date Members'  Equity,  except for  provisions  made in the ordinary
course related to income earned since the Interim Date, shall be ignored. If the
Closing Date  Members'  Equity  exceeds the Interim Date  Members'  Equity,  the
adjustment  to the Special  Distribution  shall be  effected  by a payment  from
Acquisition  Corp.  to Delta  Housing of an amount  equal to such  excess as set
forth  below.  If the Interim  Date  Members'  Equity  exceeds the Closing  Date
Members' Equity, the adjustment to the Special Distribution shall be effected by
a payment from Delta  Housing to  Acquisition  Corp.  of an amount equal to such
excess as set forth below. ARCO shall prepare and deliver to Acquisition  Corp.,
simultaneously  with the delivery of the Closing Date Balance Sheet, a statement
(the  "STATEMENT")  setting forth in reasonable  detail  ARCO's  calculation  of
Closing Date  Members'  Equity.  A payment  under this Section 2.6 shall for tax
purposes be treated as a  contribution  to the Company by the member  making the
payment and a  distribution  from the Company to the member  receiving it unless
otherwise required by law. Any payment received by either member is agreed to be
a reimbursement of capital expenditures under Section 1.707-4(d) of the Treasury
Regulations.  No  payment or receipt  under  this  Section  2.6 shall have a net
effect on the capital  accounts or  percentage  interests  of the members in the
Company.

         (c)  If Acquisition Corp. disagrees with the Closing Date Balance Sheet
or the Statement, it shall, within 30 days after the receipt of the Closing Date
Balance  Sheet and the  Statement,  deliver a notice to ARCO (the  "DISAGREEMENT
NOTICE"),  setting forth its  calculation of the Adjustment and  specifying,  in
reasonable  detail,  those items or amounts in the Closing  Date  Balance  Sheet
and/or the Statement as to which Acquisition Corp. disagrees and the reasons for
such  disagreement.  Acquisition  Corp.  shall be deemed to have agreed with all
items and amounts  contained in the Closing Date Balance Sheet and the Statement
other than those 

                                       12


specified in a timely Disagreement Notice. If Acquisition Corp. does not deliver
a Disagreement Notice to ARCO within such 30-day period, Acquisition Corp. shall
be deemed to have  accepted the Closing Date  Balance  Sheet and the  Statement,
whereupon the Closing Date Balance  Sheet and the  Statement  shall become final
and binding.

         (d)   If a Disagreement  Notice is timely delivered to ARCO pursuant to
this  Section  2.6,  the  parties  shall use their good  faith  efforts to reach
agreement on the disputed items or amounts in order to determine the Adjustment,
which  in no  event  shall  be more  favorable  to ARCO  than  reflected  in the
Statement nor more favorable to Acquisition Corp. than shown in the calculations
delivered by  Acquisition  Corp.  pursuant to the  Disagreement  Notice.  If the
parties do not resolve all disputed  items or amounts  within ten business  days
after delivery of the Disagreement Notice, this Agreement and the disputed items
and amounts will be submitted to an independent nationally recognized accounting
firm without any current material  financial  relationship to either Acquisition
Corp. or ARCO, or their respective  Affiliates (the "INDEPENDENT  ACCOUNTANTS"),
as mutually  selected by ARCO and Acquisition  Corp., or if ARCO and Acquisition
Corp.  cannot agree,  as recommended by the  independent  accountants  regularly
employed to audit  ARCO's and  Acquisition  Corp.'s  financial  statements,  for
determination  of the appropriate  Adjustment  pursuant to this Section 2.6. The
written report of the Independent  Accountants (the "REPORT") shall be delivered
to ARCO and Acquisition Corp. promptly, but in no event later than 30 days after
such disputed items are submitted to the Independent  Accountants,  and shall be
final, conclusive and binding upon the parties. The procedures for resolution of
disputes  concerning  the Closing Date Balance Sheet and the Statement set forth
in  Sections  2.6(c)  and  2.6(d)  shall be final  and  exclusive  of any  other
litigation,  proceeding,  contest, appeal or arbitration in relation thereto, so
that no party shall be entitled  to subject  any claim,  controversy  or dispute
with respect to the foregoing to  arbitration  or to any court or tribunal.  The
fees and expenses of the Independent  Accountants shall be borne equally by ARCO
and Acquisition Corp.

         (e)   Within  five  business days after the final determination  of the
Adjustment,  Acquisition  Corp.  shall pay ARCO or ARCO  shall  pay  Acquisition
Corp., as the case may be, a sum of money equal to the Adjustment, plus interest
at the Agreed  Rate from the Closing  Date to the date the payment is made.  Any
amount  payable  pursuant to this  Section  2.6(e)  will be made in  immediately
available funds to an account or accounts designated by the party receiving such
payment.

         (f)   From  the  Closing  Date  until  the  final determination  of the
Adjustment,  ARCO or Delta Housing, including their officers,  employees, agents
and representatives,  and the Independent Accountants,  shall have access to the
ARCO  Parties  and  their  respective  books,  records  and  employees  who  are
responsible  for  financial  matters in order to assist in preparing the Closing
Date  Balance  Sheet  and  the  Statement  and in  determining  the  Adjustment.
Acquisition  Corp. shall provide and shall cause the ARCO Parties to provide any
assistance requested by Delta Housing in connection with the foregoing.

         2.7   LITTLE THUNDER LEASE. Arch,  Acquisition  Corp. and  the  Company
agree not to take any action, or cause TBCC to take any action, to terminate the
Little  Thunder  Lease with  respect 



                                       13


to any Category (as defined in the Little  Thunder  Lease) of LTL Property prior
to one year following the Closing.

                                    ARTICLE 3
                                     CLOSING

         3.1   ARCO  PRE-CLOSING  ACTIONS.  Prior  to the  Closing,  pursuant to
instruments and documents reasonably satisfactory to Arch:

         (a)   ARCO shall have contributed all the issued and outstanding  stock
of MCC to ARCO Uinta and MCC shall have merged with and into MCC LLC.

         (b)   LTLC shall have transferred all of its assets to ARCO in exchange
for ARCO stock. LTLC shall be liquidated or merged into CH20.

         (c)   At  the  direction  of  ARCO,  LTLC  shall  transfer to  TBCC the
Category  4 (10-year) Equipment and ARCO's rights in such equipment,  subject to
the terms of the Little  Thunder  Lease.  The effect of such transfer will be to
terminate  the Little  Thunder  Lease with respect to such  Category 4 (10-year)
Equipment.

         (d)   ACT shall have merged  into  ARCO and the stock  of LAXT owned by
ACT shall have transferred to ARCO by operation of Law.

         (e)   ARCO shall have  formed  AUS and ARCO  shall have contributed the
headquarters  assets  identified on the ARCO Disclosure  Schedule and all ARCO's
shares of the issued and outstanding stock in LAXT to AUS.

         (f)   ARCO shall transfer its membership interest in AUS to ARCO Uinta.

         (g)   ARCO shall have assigned its  rights in the LTL Property (subject
to the Little Thunder Lease) to Delta Housing.

         (h)   ARCO  shall  have formed  SL and  ARCO shall have contributed the
State Coal  Leases and other real and  personal  property  relating  to the coal
business to SL.

         (i)   ARCO  shall  have  transferred  its  membership interest in SL to
Delta Housing.

         (j)   ARCO  and  ARCO  Uinta  shall  have  executed  and  delivered the
Purchase Agreement.

         3.2  ARCH  PRE-CLOSING  ACTIONS.  Prior  to or  concurrently  with  the
Closing, pursuant to instruments and documents reasonably satisfactory to ARCO:

         (a)  Arch and  Acquisition  Corp. shall have executed and delivered the
Purchase Agreement.


                                       14


         (b)  Arch shall have  caused Arch of Wyoming to be merged with and into
AOW.

         (c)  The Carbon  Basin  Reserves as  described  on the Arch  Disclosure
Schedule  ("CARBON  BASIN  Reserves")  shall  have  been  contributed  by Ark to
Acquisition Corp.

         (d)  All the issued and outstanding  common stock of Acquisition  Corp.
shall have been distributed by Ark to Arch.

         (e)  The  Carbon  Basin  Reserves   shall  have  been   contributed  by
Acquisition Corp. to AOW in exchange for the membership interests in AOW.

         3.3  CLOSING  DATE.  The  closing   ("CLOSING")  of  the   transactions
contemplated herein (the "PROPOSED  TRANSACTIONS"),  as well as the simultaneous
Closing of the transactions  contemplated in the Purchase Agreement,  shall take
place in New York, New York, at a mutually  agreeable site, at 10:00 A.M., local
time,  on the  later of (a) 45 days  after  the date  hereof,  or (b) the  third
business day after the  satisfaction  of all  conditions to Closing set forth in
Sections  11.1  and  11.2 or at such  other  place  or time as the  parties  may
mutually  agree.  The date upon which the Closing  occurs is referred to in this
Agreement as the "CLOSING DATE."

         3.4  CLOSING  ACTIONS.  At the  Closing  ARCO and Arch shall  cause the
following to occur:

         (a)  CASH   CONTRIBUTION.   Acquisition   Corp.  shall  make  the  Cash
Contribution;

         (b)  ASSIGNMENT  OF  MEMBERSHIP  INTEREST.  ARCO shall duly execute and
deliver assignments of its membership interest in the Company to Delta Housing;

         (c)  THE COMPANY AGREEMENT AND TAX SHARING AGREEMENT. Acquisition Corp.
and Delta Housing shall execute and deliver the Company Agreement  substantially
in the form of Exhibit 3.4 and Arch,  Acquisition  Corp.  Delta  Housing and the
Company shall execute and deliver the Tax Sharing Agreement;

         (d)  FINANCING  DOCUMENTS.  The  Company  shall,  and  shall  cause its
respective  Affiliates to, execute and deliver all agreements,  undertakings and
actions  required to be delivered by them in connection with the issuance of the
Company Debt;

         (e)  COMPANY DEBT. The Company shall incur indebtedness  of Six Hundred
Seventy-Five Million Dollars ($675,000,000) (the "COMPANY DEBT");

         (f)  SPECIAL DISTRIBUTION TO DELTA HOUSING.  Contemporaneously with the
Closing,  the Company and the other parties to the Company  Agreement shall take
all steps necessary to cause the Company to make a special distribution to Delta
Housing in the  amount of Seven  Hundred  Million  Dollars  ($700,000,000)  (the
"SPECIAL DISTRIBUTION");

         (g)  ASSIGNMENT OF INDEMNITY PAYMENTS. Arch and Acquisition Corp. shall
assign to the Company  their  respective  rights to any  indemnity  payment that
either Arch or  Acquisition  



                                       15


Corp. may be entitled to receive  pursuant to the Purchase  Agreement  except to
the extent that such payments are made (i) in order to make Arch or  Acquisition
Corp.  whole for out of pocket  costs or (ii) with  respect to assets  purchased
from ARCO Uinta pursuant to the Purchase Agreement that Acquisition Corp. is not
contributing to the Company;

         (h)  MEMBERSHIP   INTERESTS  AFTER  SPECIAL   DISTRIBUTION.   Upon  the
completion  of  the  Special   Distribution   and   consummation  of  the  other
transactions  contemplated hereby, the membership interests of Acquisition Corp.
and Delta Housing in the Company shall be as set forth in the Company Agreement;

         (i)  ARCO BOARD RESOLUTIONS. ARCO shall deliver a copy, certified as of
the Closing Date by ARCO's and Delta Housing's Secretary or Assistant Secretary,
of the  resolutions  duly  adopted by the  Boards of  Directors  of ARCO,  Delta
Housing, and LTLC authorizing the transactions contemplated by this Agreement;

         (j)  ARCO  CERTIFICATES OF GOOD STANDING. ARCO shall deliver short form
certificates of existence and/or good standing for ARCO,  Delta Housing,  SL and
TBCC in  their  respective  jurisdictions  of  incorporation  or  formation,  as
certified  as of a recent date by the  Secretary  of State or other  appropriate
authority of such jurisdictions;

         (k)  ARCO OPINION OF COUNSEL.  ARCO and Delta Housing shall deliver the
opinion of their counsel required by Section 11.1(d);

         (l)  ARCO INCUMBENCY CERTIFICATES.  ARCO shall deliver a certificate of
the Secretary or an Assistant Secretary of ARCO and Delta Housing, certifying as
of the Closing Date as to the  incumbency  and  signatures of the  officer(s) or
representatives  of ARCO and Delta Housing authorized to sign this Agreement and
the other documents to be delivered hereunder or pursuant hereto,  together with
evidence of the incumbency of such Secretary or Assistant Secretary;

         (m)  ARCO  AND  DELTA  HOUSING  OFFICER  CERTIFICATES. ARCO  and  Delta
Housing shall each deliver a certificate dated the Closing Date stating that the
representations  and  warranties  of ARCO and Delta  Housing  set forth  herein,
including those with respect to TBCC, remain true and correct in all respects on
and as of the  Closing  Date  as if  made on and as of  such  date  (except  for
representations  and warranties made as of a specified date, which shall be true
and  correct in all  respects  as of such  date),  except for any breach of such
representations  and warranties that would not  individually or in the aggregate
have a Material  Adverse  Effect,  and that all covenants  and  conditions to be
complied with and performed by ARCO and/or Delta Housing, as the case may be, on
or prior to the Closing  Date,  including  notifications  under Section 7.3 have
been substantially complied with or performed;

         (n)  ARCH BOARD RESOLUTIONS. Arch shall deliver a copy, certified as of
the Closing  Date by Arch's,  Acquisition  Corp.'s,  Ark's and Arch of Wyoming's
Secretary or Assistant Secretary,  of the resolutions duly adopted by the Boards
of Directors of Arch, Acquisition Corp., Ark and Arch of Wyoming authorizing the
transactions contemplated by this Agreement;


                                       16


         (o)  ARCH  CERTIFICATES OF GOOD STANDING.  Arch shall deliver a current
short form  certificate of good standing for Arch,  Acquisition  Corp.,  Ark and
Arch of Wyoming in their respective jurisdictions of incorporation, as certified
as of a recent date by the Secretary of State or other appropriate  authority of
such jurisdiction;

         (p)  ARCH OPINION OF COUNSEL. Arch and Acquisition  Corp. shall deliver
the opinion of their counsel required by Section 11.2(d);

         (q)  ARCH INCUMBENCY CERTIFICATES.  Arch shall deliver a certificate of
the Secretary or Assistant Secretary of Arch, Acquisition Corp., Ark and Arch of
Wyoming certifying as of the Closing Date as to the incumbency and signatures of
the officer(s) of Arch and Acquisition  Corp.  authorized to sign this Agreement
and the other documents to be delivered  hereunder or pursuant hereto,  together
with evidence of the incumbency of such Secretary or Assistant Secretary; and

         (r)  ARCH OFFICER CERTIFICATE.  Arch shall deliver a certificate  dated
the Closing  Date of an officer of Arch  stating  that the  representations  and
warranties  of Arch and  Acquisition  Corp.  set forth  herein,  remain true and
correct in all material respects on and as of the Closing Date as if made on and
as of  such  date  (except  for  representations  and  warranties  made  as of a
specified date,  which shall be true and correct in all material  respects as of
such  date)  and that all  covenants  and  conditions  to be  complied  with and
performed by Arch and/or  Acquisition Corp. on or prior to the Closing Date have
been substantially complied with and performed.

         3.5  SIMULTANEOUS TRANSACTIONS.  All of the transactions and deliveries
identified  in this  Article 3 shall be deemed  to occur  simultaneously  on the
Closing Date, and no one  transaction  shall be deemed  completed  until all are
completed.

                                    ARTICLE 4
            REPRESENTATIONS AND WARRANTIES OF ARCO AND DELTA HOUSING

         ARCO and Delta Housing represent and warrant, jointly and severally, to
the  Company  as of the  Effective  Date (or  such  other  date as is  specified
therein), as follows:

         4.1  ORGANIZATION  AND  GOOD  STANDING.  ARCO  and  Delta  Housing  are
corporations duly incorporated,  validly existing and in good standing under the
laws of their state of incorporation.

         4.2  AUTHORITY.  ARCO and Delta Housing have full  corporate  power and
authority  to  enter  into  this  Agreement  and  to  perform  their  respective
obligations hereunder. This Agreement constitutes a valid and binding obligation
of each of ARCO and Delta Housing, enforceable against ARCO and Delta Housing in
accordance with its terms, subject to applicable laws of bankruptcy, insolvency,
fraudulent  conveyance,  reorganization,  moratorium  and similar laws affecting
creditors' rights and remedies  generally,  and to general principles of equity,
regardless  of whether such  enforceability  is  considered  in a proceeding  in
equity or at law.

         4.3  NO  VIOLATIONS.  Except  as  set  forth  in  Section  4.3  of  the
Disclosure  Schedule,  the execution  and delivery of this  Agreement by each of
ARCO  and  Delta  Housing  do not,  and  the  



                                       17


consummation of the transactions  contemplated  hereby will not, (i) violate any
provisions  of the  certificate  of  incorporation  or  bylaws  of ARCO or Delta
Housing or of the  limited  liability  company  agreement  of TBCC or, as of the
Closing,  the  limited  liability  company  agreement  of SL, (ii) result in the
breach of, or  constitute  a default  under,  any  material  agreement  or other
material  instrument to which Delta  Housing,  TBCC or SL is a party or to which
any of their  respective  properties  or assets are  bound,  (iii)  violate  any
statute, rule, regulation,  ordinance,  code, order, judgment, writ, injunction,
decree or award applicable to ARCO, Delta Housing,  TBCC, SL or their respective
properties or assets,  or (iv) constitute an event that,  with notice,  lapse of
time or both, would result in any such violation, breach or default.

         4.4  APPROVALS, CONSENTS AND OTHER ACTIONS.  Except (i) with respect to
the filings  required under the HSR Act, (ii) as contemplated by this Agreement,
or (iii) as set forth in Section  4.4 of the  Disclosure  Schedule,  no consent,
approval,   license,   permit,  order  or  authorization  of,  or  registration,
declaration  or filing with,  any court,  administrative  agency,  commission or
other governmental authority or instrumentality,  or any third party is required
to be made or obtained by or with respect to ARCO or Delta Housing in connection
with the execution,  delivery and performance of this Agreement by ARCO or Delta
Housing.

         4.5  FORMATION AND GOOD STANDING OF TBCC  AND SL. TBCC is,  and,  as of
the Closing  Date,  SL shall be, a limited  liability  company  duly  organized,
validly  existing  and in good  standing  under  the  laws of  their  states  of
formation.

         4.6  TITLE OF THE MEMBERSHIP  INTERESTS. ARCO and Delta Housing hold or
will hold of record and own or will own beneficially, and will transfer or cause
to be  transferred  to the Company on the Closing  Date,  the  Contributed  ARCO
Interests,  and,  upon  delivery  to the  Company at the  Closing of  assignment
documents,  and  the  registration  of  the  transfer  of the  Contributed  ARCO
Interests  on the books of the ARCO  Parties  will  transfer  to the Company the
Contributed Interests free and clear of any security interests,  pledges,  liens
and  encumbrances,  except  as  set  forth  in  the  limited  liability  company
agreements of the ARCO Parties.

         4.7  CAPITALIZATION. Section 4.7 of  the Disclosure Schedule sets forth
a list of the ARCO Parties and their  respective  jurisdictions of formation and
their respective ownership of outstanding membership interests as of the Closing
Date.  As of the Closing  Date,  contributed  ARCO  Interests  have been validly
issued  in  accordance  with  Laws  of  the  applicable  jurisdictions  and  the
respective formation agreements and constitute all of the issued and outstanding
membership  interests  of TBCC  and  SL.  Except  as set  forth  in the  limited
liability  company  agreements of TBCC and SL and except as set forth in Section
4.7 as of the Closing Date, of the  Disclosure  Schedule,  no ARCO Party has any
outstanding   securities,   subscriptions,   options  or  other   agreements  or
commitments obligating it to issue additional membership interests, or any other
securities.

         4.8  REAL PROPERTY. Section 4.8 of the Disclosure  Schedule sets forth,
as of the Closing Date, a list of all material real property,  leaseholds, water
rights and other  material  interests in real property or water held by the ARCO
Parties.  Except as set forth in Section 4.8 of the Disclosure Schedule, each of
the ARCO  Parties  will hold,  as of the Closing  Date,  an interest in the real
property  described  in Section 4.8 of the  Disclosure  Schedule  sufficient  to
permit each of 

                                       18

the ARCO Parties to operate its business in the ordinary  course and  consistent
with past  practice,  according to the terms of the  instrument,  conveyance  or
document  creating  such  interest,  free and clear of all liens,  encumbrances,
equities, claims, covenants, conditions, reservations,  restrictions, easements,
rights of way and other  agreements,  except for (a) liens for Taxes not yet due
and payable,  or that may hereafter be paid without  penalty,  or that are being
contested  in good  faith  by  appropriate  proceedings  or that are  listed  or
described in the Disclosure Schedule,  (b) liens in favor of vendors,  carriers,
warehousemen,  repairmen, mechanics, workmen and materialmen and construction or
similar liens arising by operation of law or in the ordinary  course of business
in respect of  obligations  that are not yet due or that are being  contested in
good faith by appropriate  proceedings,  (c) liens to be released at or prior to
the Closing,  (d) rights  reserved to or vested in any  Federal,  state or local
governmental  body,  authority  or agency to control or  regulate  any such real
property  interests in any manner,  and all Laws, (e)  easements,  reservations,
rights-of-way,   restrictions,   covenants,   conditions   and   other   similar
encumbrances,  whether of record or apparent on the  premises  (including  road,
highway,  pipeline,  railroad and utility easements, and defects in the chain of
title) that do not materially and adversely  affect the present use of such real
property, and (f) other defects and irregularities in title or encumbrances that
are not  substantial or material in character,  amount or extent.  Except as set
forth in Section 4.8 of the Disclosure  Schedule,  each of the material  leases,
subleases,  easements,  licenses and agreements  described in Section 4.8 of the
Disclosure  Schedule is in full force and effect  according to the terms of each
respective  instrument,  and to ARCO's  Knowledge,  with  respect to TBCC,  each
holder  of such  leases,  subleases,  easements,  licenses  and  agreements  has
complied with all material  requirements in connection  therewith,  and there is
not under any such lease, sublease, easement, license or agreement, any existing
material breach or default (or event that,  with notice,  lapse of time or both,
would constitute a material breach or default) by TBCC or SL.

         4.9   BUILDINGS, STRUCTURES AND TANGIBLE PERSONAL PROPERTY. Section 4.9
of  the  Disclosure  Schedule  lists  all  material  buildings,  structures  and
improvements  and all material items of machinery,  equipment and other tangible
personal  property  owned or leased by ARCO,  the ARCO  Parties  or any of their
Affiliates as of February 28, 1998,  that will be owned or leased by ARCO or any
ARCO Party on the Closing  Date.  Since  February 28, 1998,  no such assets have
been acquired or disposed of except in the ordinary course of business.

         4.10  MATERIAL CONTRACTS. Section 4.10 of the Disclosure Schedule lists
all material contracts and agreements and all documents  evidencing rights of or
commitments by any of the ARCO Parties to which any ARCO Party is a party or its
property  or assets  are bound as of the  Closing  Date.  Except as set forth in
Section  4.10 of the  Disclosure  Schedule,  each such  contract,  agreement  or
document is in full force and effect  according to the terms of each  respective
instrument,  and each ARCO Party which is a party to such contracts,  agreements
and documents has complied with all  requirements in connection  therewith,  and
there is not  under  any such  contract,  agreement  or  document  any  existing
material breach or default (or event that,  with notice,  lapse of time or both,
would constitute a material breach or default) by an ARCO Party.

         4.11  INSURANCE POLICIES. Section 4.11 of the Disclosure Schedule lists
all policies of  insurance  issued by  third-party  insurers for the 1998 policy
period,  including amounts of coverage thereof,  that are maintained by ARCO for
the benefit of the ARCO Parties or by an ARCO Party for which such ARCO Party is
named as an insured  party,  in each case as of the 

                                       19


Closing Date.  Except as set forth in Section 4.11 of the  Disclosure  Schedule,
such policies are in full force and effect and all premiums due have been paid.

         4.12  TAXES.

         (a)  Except as set forth in Section 4.12(a) of the Disclosure Schedule,
with  respect to Tax  Returns  that  relate to taxable  periods  that end before
January  1,  1997,  TBCC has filed or caused  to be filed  with the  appropriate
local, state, Federal and foreign governmental entities all Tax Returns required
to be filed by the ARCO  Parties on or prior to the Closing  Date  (taking  into
account  all  extensions  of due  dates),  and has paid or  caused to be paid or
adequately provided for all Taxes shown thereon as owing.

         (b)  Except as set forth in Section 4.12(b) of the Disclosure Schedule,
with respect to Tax Returns that relate to taxable  periods that end on or after
January  1,  1997,  TBCC has filed or caused  to be filed  with the  appropriate
local, state, Federal and foreign governmental entities all Tax Returns required
to be filed by TBCC on or prior to the Closing  Date  (taking  into  account all
extensions  of due  dates),  and has  paid or  caused  to be paid or  adequately
provided  for all Taxes shown  thereon as owing.  For all taxable  periods  that
begin prior to the Closing Date for which a Tax Return is not due on or prior to
the  Closing  Date  (whether  or not such  taxable  period  ends on or after the
Closing Date),  the Closing Date Balance Sheet shall provide an adequate reserve
for Taxes to fully pay such Taxes up to and  including  the Closing  Date (as if
the Taxable Period ended on the Closing Date).

         4.13  LICENSES, PERMITS, AUTHORIZATIONS. Section 4.13 of the Disclosure
Schedule lists all of the material  licenses,  permits (including mining permits
and  the  amount  of  any  bond  or  other  surety  for  each  mining   permit),
certificates,  bonds,  consents,  rights and other such authorizations issued or
granted as of the Closing  Date to each of the ARCO  Parties by local,  state or
Federal  governmental  authorities  or agencies.  Except as set forth in Section
4.13 of the Disclosure Schedule,  each of the licenses,  permits,  certificates,
bonds,  consents,  rights and other authorizations listed in Section 4.13 of the
Disclosure  Schedule is in full force and effect according to the material terms
of each instrument, each holder of such licenses, permits, certificates,  bonds,
consents,  rights  and  other  authorizations  has  complied  with all  material
requirements in connection therewith,  and there is not under any such licenses,
permits,  certificates,  bonds,  consents,  rights and other  authorizations any
existing  material breach or default (or event that, with notice,  lapse of time
or both, would constitute a material breach or default) by the ARCO Parties.

         4.14  LITIGATION. Except as set forth in Section 4.14 of the Disclosure
Schedule,  (i) none of the ARCO  Parties  is a party  to any  lawsuit,  claim or
proceeding or, to ARCO's Knowledge, any investigation, and (ii) none of the ARCO
Parties  are in  default  under any  judgment,  order or  decree  of any  court,
administrative   agency  or  commission  or  other  governmental   authority  or
instrumentality applicable to them or any of their properties or assets.

         4.15  COMPLIANCE WITH LAWS.  Except as set forth in Section 4.15 of the
Disclosure  Schedule,  each of the ARCO Parties is in compliance in all material
respects with all applicable Laws.


                                       20


         4.16  LABOR  MATTERS.  Except  as set  forth  in  Section  4.16  of the
Disclosure  Schedule,  no ARCO  Party  is a party to any  collective  bargaining
agreement with any labor union or association, there are no formal negotiations,
demands or proposals  that are pending or have been  recently  conducted or made
with or by any labor  union or  association,  and there are no pending  strikes,
work stoppages or material labor disputes involving the ARCO Parties.

         4.17  EMPLOYEE BENEFIT PLANS.

         (a)  Section 4.17 of the Disclosure  Schedule  sets forth a list of all
"employee  benefit  plans" as defined in  Section 3 of the  Employee  Retirement
Income  Security Act of 1974,  as amended  ("ERISA"),  and any other  pension or
retirement,  savings,  profit  sharing,  deferred  compensation,   stock  option
(including  restricted or  performance  units),  severance,  vacation,  medical,
vision,   dental,  long  term  disability,   life  insurance,   group  accident,
occupational  death,  business travel, long term care,  educational  assistance,
floating holiday,  personal business,  gainshare,  bonus,  financial counseling,
welfare or sick  leave or other  employee  benefit  plan,  procedure,  policy or
practice of any nature as well as any  employment,  consulting,  engagement,  or
retention  agreement or agreements,  and any trust or funding mechanism for each
plan or arrangement  described above  (collectively,  the "PLANS")  covering any
employees of TBCC and employees of ARCO whose employment is related primarily to
one or more  businesses of the ARCO Parties  (collectively,  "EMPLOYEES").  With
respect to each Plan maintained by TBCC, ARCO has delivered to the Company true,
correct and  complete  copies of all  documents  and summary  plan  descriptions
creating or evidencing any such Plan,  and, to the extent  applicable,  the most
recent (i)  determination  letter and any outstanding  request for determination
letter for such Plan;  (ii) Form 5500 and  attached  Schedule B  (including  any
related  actuarial  valuation report) for such Plan; and (iii) ruling letter and
any  outstanding  request  for a ruling  letter with  respect to the  tax-exempt
status of any Voluntary Employees'  Beneficiary  Association ("VEBA") as defined
in Code  Section  501(c)(9).  

         (b)  Except as set forth in Section  4.17 of the  Disclosure  Schedule,
each Plan complies with and has been  administered,  operated and  maintained in
compliance with all applicable  material provisions of ERISA, the Code and other
applicable laws. Except as set forth in Section 4.17 of the Disclosure Schedule,
the ARCO Parties have not engaged in a prohibited transaction that would subject
it to a material tax imposed under Section 4975 of the Code.

         (c)  No ARCO Party is or has  within  the  preceding  five years been a
party to or  contributed  to any  "multi-employer  plan," as  defined in Section
4001(a)(3)  of  ERISA.  Except as set forth in  Section  4.17 of the  Disclosure
Schedule,  no  ARCO  Party  has  been a  party  to or  contributed  to any  such
multi-employer plan since September 26, 1980.

         (d)  Each Plan that is intended to qualify  under Code Sections  401(a)
and 501(a) is so  qualified  and has been  determined  by the  Internal  Revenue
Service to so qualify or has an outstanding  determination  letter request,  and
nothing has occurred to cause the loss of the Plan's  qualified status since the
issuance  of the most  recent  favorable  determination  letter  by the IRS with
respect to such Plan.


                                       21

         (e)  No  accumulated funding  deficiency,  except  for  annual  minimum
contributions  which are not yet due, within the meaning of ERISA Section 302 or
Code Section 412 has been incurred with respect to any Plan of the ARCO Parties.
The ARCO Parties do not have any  liability for (i) any lien imposed under ERISA
Section 302(f) or Code Section 412(n), (ii) any interest payments required under
ERISA Section 302(e) or Code Section 412(m),  or (iii) any excise tax imposed by
Code Section 4971. The Pension  Benefit  Guaranty  Corporation  ("PBGC") has not
instituted or threatened a proceeding to terminate any Plan pursuant to Subtitle
1 of Title IV of ERISA.  No Plan has been the subject of a reportable  event (as
defined in ERISA  Section  4043) as to which a notice  would be  required  to be
filed with the PBGC.

         (f)  With respect to each  Plan,  no action,  suit,  grievance,  claim,
arbitration or other manner of litigation with respect to the assets of the Plan
(other than  routine  claims for benefits  made in the  ordinary  course of Plan
administration  for which Plan  administrator  review  procedures  have not been
exhausted) is pending, or to ARCO's Knowledge, threatened or imminent against or
with respect to the Plan or any Plan  sponsor or fiduciary  (as defined in ERISA
Section 3(21)).

         (g)  Except  as  otherwise  provided  in  this  Agreement,   each  Plan
(including any Plan covering former  employees of TBCC) which is established and
maintained by TBCC may be amended or terminated by TBCC or Acquisition  Corp. on
or at any time after the Closing Date.

         (h)  No payment under any Plan made  within two years after the Closing
Date shall  constitute an "excess  parachute  payment" under Section 280G of the
Code.

         4.18  BANK ACCOUNTS. Section 4.18 of the Disclosure Schedule sets forth
the name of each bank, savings and loan or other financial  institution in which
TBCC or SL has any account or safe deposit box.

         4.19  BROKER LIABILITY.  With respect to any broker,  finder or similar
consultant,  retained  by, or acting on behalf of ARCO,  Delta  Housing or their
Affiliates,  in connection with this Agreement or the transactions  contemplated
hereby,  ARCO and Delta Housing shall be solely  responsible  and liable for any
brokerage,  finder's or similar  consultant's fee or other commission in respect
of such broker, finder or similar consultant.

         4.20  FINANCIAL  STATEMENTS.  The Audited  Financial  Statements  to be
delivered  in  accordance  with  Section  2.6(a)  shall  have been  prepared  in
accordance  with GAAP  consistently  applied during the periods  involved and in
accordance  with  Regulation S-X under the  Securities  Exchange Act of 1934, as
amended.  The  audited  balance  sheets  of ACC at  December  31,  1997 and 1996
(including  the notes thereto)  present fairly the financial  position of ACC at
such dates, and the consolidated  statement of income,  of equity investment and
of cash flows  (including  the notes thereto) for each of the three years in the
period ended December 31, 1997, fairly present the results of operations, equity
investment and cash flows of ACC for each of such years.  The unaudited  balance
sheets  (if  any) of ACC as of the  last  day of each  calendar  quarter  ending
subsequent to December 31, 1997 and prior to the Closing Date, and  consolidated
statements of income,  of equity  investment and of cash flows for the quarterly
periods then ended (the "UNAUDITED FINANCIAL  STATEMENTS") have been prepared in
accordance  with GAAP  consistently  applied during the periods  involved and in
accordance  with  Regulation S-X under the  Securities  

                                       22


Exchange Act of 1934, as amended. Each balance sheet (if any) included among the
Unaudited Financial Statements (including the notes thereto) fairly presents the
financial  position  of  ACC as of  the  date  thereof,  and  each  consolidated
statement of income,  of equity  investment and of cash flows included among the
Unaudited Financial Statements (including the notes thereto) fairly presents the
results of operations,  equity  investment and cash flows of ACC for each period
presented.  The Interim  Date Balance  Sheet and the Closing Date Balance  Sheet
will be derived  from the  combined,  consolidated  balance  sheets of ACC.  The
Interim Date Balance Sheet  (including  the related  notes) will fairly  present
TBCC's financial position as of its date.

         4.21  BLACK LUNG DISCLOSURE.  The present  actuarial value  (determined
using the Black Lung  Discount  Rate) of TBCC's  black lung  liability as of the
Interim  Date does not exceed  that which has been  reserved  for by TBCC on the
Interim Date Balance Sheet.

         4.22  CONDUCT OF  BUSINESS.  Except as set forth in Section 4.22 of the
Disclosure  Schedule,  since the Interim Date,  the ARCO Parties have  conducted
their  respective  businesses  only in, and have not engaged in any  transaction
other than in, the ordinary and usual course of such  businesses or as described
in the Purchase  Agreement and there has not been any change by the ARCO Parties
in  accounting  principles,  practices  or methods that is not required by GAAP.
Except as provided for herein and other than in the ordinary  course  consistent
with past  practice,  since the Interim Date there has not been (i) any increase
in the compensation payable or which could become payable by the ARCO Parties to
their respective  officers or employees or (ii) any amendment of any of the ARCO
Parties' Plans.

         4.23  ASSETS. Except (i) as set forth in Section 4.23 of the Disclosure
Schedule and (ii) for the LTL Property  that will be owned by Delta  Housing and
remain subject to the Little Thunder Lease, prior to the Closing Date, ARCO will
have  transferred  or caused to be  transferred to the ARCO Parties all tangible
and  intangible  assets  of  every  description  therefor  held  by  ARCO or any
Affiliate of ARCO under  intercompany  agreements and arrangements with ARCO and
its  Affiliates  or otherwise  and used  exclusively  by the ARCO Parties in the
conduct of the ARCO  Parties'  respective  businesses  on and since the  Interim
Date.

         4.24  CERCLA.  None  of  the  Properties  are  listed  on  the National
Priority  List  pursuant to CERCLA or on any similar list  pursuant to any state
Environmental Laws.

         4.25  DISCLAIMER OF CERTAIN REPRESENTATIONS  AND  WARRANTIES.  ARCH AND
ACQUISITION  CORP.  ACKNOWLEDGE  THAT,  EXCEPT  AS  EXPRESSLY  PROVIDED  IN THIS
AGREEMENT,  NONE OF ARCO,  DELTA HOUSING OR ANY AFFILIATE,  EMPLOYEE OR AGENT OF
ARCO OR DELTA HOUSING HAS MADE ANY REPRESENTATION, PROMISE, COVENANT OR WARRANTY
REGARDING  ANY  OF  THE  ARCO  PARTIES,  THEIR  PROPERTIES,   ASSETS,  BUSINESS,
OPERATIONS,  LIABILITIES OR  OBLIGATIONS,  OR OTHERWISE.  ARCO AND DELTA HOUSING
HEREBY  DISCLAIM ANY IMPLIED  WARRANTIES,  INCLUDING  ANY IMPLIED  WARRANTIES OF
MERCHANTABILITY  OR  FITNESS  FOR A  PARTICULAR  PURPOSE  WITH  RESPECT  TO  THE
TRANSACTIONS CONTEMPLATED HEREIN.


                                       23


         4.26  NO OTHER COMMITMENT TO SELL LLC INTERESTS. Neither ARCO nor Delta
Housing has sold or has committed to sell the  membership  interests of the ARCO
Parties to any other Person.

         4.27  ABSENCE  OF  UNDISCLOSED   LIABILITIES.   To  ARCO's  and  TBCC's
Knowledge,  none of the  ARCO  Parties  has any  material  liabilities,  whether
accrued or contingent,  other than (i)  liabilities  (or reserves  therefor) set
forth in the Preliminary  Interim Date Balance Sheet, (ii) liabilities set forth
in the ARCO Disclosure  Schedule,  and (iii) liabilities incurred since the date
of the Preliminary  Interim Date Balance Sheet in connection with this Agreement
or in the ordinary course of business, consistent with past practices.

                                    ARTICLE 5
          REPRESENTATIONS AND WARRANTIES OF ARCH AND ACQUISITION CORP.

         Arch  and  Acquisition  Corp.   represent  and  warrant,   jointly  and
severally,  to ARCO,  Delta Housing and the Company as of the Effective Date (or
such other date as is specified therein), as follows:

         5.1  ORGANIZATION  AND GOOD STANDING.  Arch and  Acquisition  Corp. are
corporations duly incorporated,  validly existing and in good standing under the
laws of the State of Delaware.

         5.2  AUTHORITY.  Arch  and  Acquisition Corp. have full corporate power
and  authority  to enter into this  Agreement  and to perform  their  respective
obligations hereunder. This Agreement constitutes a valid and binding obligation
of each of Acquisition Corp. and Arch, enforceable against Acquisition Corp. and
Arch in accordance  with its terms,  subject to applicable  laws of  bankruptcy,
insolvency, fraudulent conveyance,  reorganization,  moratorium and similar laws
affecting creditors' rights and remedies generally, and to general principles of
equity,  regardless of whether such enforceability is considered in a proceeding
in equity or at law.

         5.3  NO VIOLATIONS.  The  execution  and  delivery of this Agreement by
Arch and  Acquisition  Corp.  does not,  and the  consummation  of the  Proposed
Transactions  will not, (a) violate any of the provisions of the certificates of
incorporation  or bylaws of Arch or Acquisition  Corp.; (b) result in the breach
of, or  constitute a default  under,  any material  agreement or other  material
instrument  to which  Arch or  Acquisition  Corp.  is a party or by which any of
their respective properties or assets are bound; (c) violate any statute,  rule,
regulation,  ordinance, code, order, judgment, writ, injunction, decree or award
applicable to Arch,  Acquisition Corp. or any of their respective  properties or
assets;  or (d)  constitute an event that,  with notice,  lapse of time or both,
would result in any such violation, breach or default.

         5.4  APPROVALS, CONSENTS AND OTHER ACTIONS.  Except with respect to the
filings required under the HSR Act, no consent, approval, license, permit, order
or  authorization  of, or  registration,  declaration or filing with, any court,
administrative   agency,   commission   or  other   governmental   authority  or
instrumentality,  or any third  party is  required  to be made or obtained by or
with respect to Arch or  Acquisition  Corp.  in connection  with the  execution,
delivery and performance of this Agreement by Arch or Acquisition Corp.



                                       24


         5.5  FINANCIAL CAPABILITY.     Arch  and  Acquisition  Corp.  have  the
financial  capability to perform all of their  obligations under this Agreement,
and  Acquisition  Corp.  has  available  all funds  necessary to pay the Special
Distribution,  the Adjustment  (if payable by  Acquisition  Corp.) and any other
amounts contemplated by this Agreement.

         5.6  ARCH'S AND ACQUISITION CORP.'S INQUIRY. Arch and Acquisition Corp.
and their  representatives  have  reviewed  or  received  copies  of, or had the
opportunity  to  review,  including  in a data  room  maintained  by ARCO,  such
information  from ARCO and each of the ARCO Parties as they have requested,  and
have had the opportunity to make such inquiry of  representatives of ARCO, Delta
Housing  and  each of the  ARCO  Parties  as they  deem  appropriate.  Arch  and
Acquisition Corp.  acknowledge that there are no  representations or warranties,
expressed or implied, except as expressly set forth in this Agreement.

         5.7  ORGANIZATION,  QUALIFICATION  AND GOOD  STANDING OF AOW. As of the
Closing,  AOW shall be a limited  liability  company,  duly  organized,  validly
existing and in good standing under the laws of its state of formation.  AOW has
all requisite limited liability company power and authority to own and lease the
properties  it currently  owns and leases and to conduct its  activities as such
activities are currently  conducted.  AOW is duly authorized to conduct business
and is in  good  standing  under  the  laws  of  each  jurisdiction  where  such
qualification is required, except where the lack of such qualification would not
have a material adverse effect on the financial condition of AOW.

         5.8  TITLE OF THE MEMBERSHIP INTERESTS. Acquisition Corp. holds or will
hold of  record  and  owns  beneficially,  and  will  transfer  or  cause  to be
transferred to the Company on the Closing Date,  upon delivery to the Company at
the Closing of an assignment,  the Contributed Arch Interests, free and clear of
any security interests,  pledges,  liens and encumbrances except as set forth in
Section 5.8 of the Disclosure Schedule.

         5.9  CAPITALIZATION.  Section 5.9 of the Disclosure Schedule sets forth
the form and  jurisdiction  of formation for AOW. Except as set forth in Section
5.9 of the Disclosure  Schedule,  AOW does not have any outstanding  securities,
subscriptions, options or other agreements or commitments obligating it to issue
shares of its capital stock or membership interests.

         5.10 REAL PROPERTY.  Section 5.10 of the Disclosure Schedule sets forth
a list of all  material  real  property,  leaseholds,  water  rights  and  other
material interests in real property or water held by AOW. Except as set forth in
Section  5.10 of the  Disclosure  Schedule,  AOW holds an  interest  in the real
property  described  in Section 5.10 of the  Disclosure  Schedule as held by it,
according to the terms of the instrument,  conveyance or document  creating such
interest,  free  and  clear  or  all  liens,  encumbrances,   equities,  claims,
covenants, conditions, reservations,  restrictions, easements, rights of way and
other agreements known to Arch and Acquisition  Corp.,  except for (a) liens for
Taxes not yet due and payable,  or which may hereafter be paid without  penalty,
or that are being  contested in good faith by  appropriate  proceedings or which
are  listed  or  described  in the  Disclosure  Schedule,  (b) liens in favor of
vendors, carriers,  warehousemen,  repairmen, mechanics, workmen and materialmen
and construction or similar liens arising by operation of law or in the ordinary
course of  business in respect of  obligations  that are not yet due or that are


                                       25


being  contested  in good  faith by  appropriate  proceedings,  (c)  liens to be
released  at or prior to the  Closing,  (d) rights  reserved to or vested in any
Federal,  state or local  governmental  body,  authority or agency to control or
regulate  any such real  property  interests  in any manner,  and all Laws,  (e)
easements, reservations, rights-of-way,  restrictions, covenants, conditions and
other  similar  encumbrances,  whether of record or  apparent  on the  premises,
including road, highway,  pipeline,  railroad and utility easements, and defects
in the chain of title that do not  materially  and adversely  affect the present
use of such real property,  and (f) other defects and irregularities in title or
encumbrances that are not material in character, amount or extent. Except as set
forth in Section 5.10 of the Disclosure  Schedule,  each of the material leases,
subleases,  easements,  licenses and agreements described in Section 5.10 of the
Disclosure  Schedule is in full force and effect  according to the terms of each
respective  instrument,  and, to Arch and Acquisition  Corp.'s  knowledge,  each
holder of such lease,  sublease,  easement,  license or agreements  has complied
with all material requirements in connection  therewith,  and there is not under
any such lease, sublease,  easement, license or agreement, any existing material
breach or default  (or event that,  with  notice,  lapse of time or both,  would
constitute a material breach or default) by AOW.

         5.11  BUILDINGS, STRUCTURES AND  TANGIBLE  PERSONAL  PROPERTY.  Section
5.11 of the  Disclosure  Schedule lists all material  buildings,  structures and
improvements  and all material items of machinery,  equipment and other tangible
personal property owned or leased by AOW.

         5.12  MATERIAL CONTRACTS. Section 5.12 of the Disclosure Schedule lists
all material contracts and agreements and all documents  evidencing rights of or
commitments to which AOW is a party or its property or assets are bound.  Except
as set forth in Section 5.12 of the  Disclosure  Schedule,  each such  contract,
agreement or document is in full force and effect according to the terms of each
respective instrument,  and AOW has complied with all requirements in connection
therewith,  and there is not under any such contract,  agreement or document any
existing  material breach or default (or event that, with notice,  lapse of time
or both, would constitute a material breach or default) by AOW.

         5.13  INSURANCE POLICIES. Section 5.13 of the Disclosure Schedule lists
all material  policies of insurance issued by third-party  insurers for the 1998
policy period,  including  amounts of coverage  thereof,  that are maintained by
Arch for the  benefit  of AOW or by AOW for  which  AOW is  named as an  insured
party.  Except as set forth in Section  5.13 of the  Disclosure  Schedule,  such
policies are in full force and effect and all premiums due have been paid.

         5.14  TAXES.  Except as set  forth in  Section  5.14 of the  Disclosure
Schedule, AOW has filed or caused to be filed with the appropriate local, state,
Federal and foreign  governmental  entities all material Tax Returns required to
be filed by AOW on or  prior  to the  Closing  Date  (taking  into  account  all
extensions  of due  dates),  and have paid or  caused  to be paid or  adequately
provided for all Taxes shown thereon as owing.

         5.15  LICENSES, PERMITS, AUTHORIZATIONS. Section 5.15 of the Disclosure
Schedule lists all of the material  licenses,  permits (including mining permits
and  the  amount  of  any  bond  or  other  surety  for  each  mining   permit),
certificates,  bonds,  consents,  rights and other such authorizations issued or
granted to AOW by local, state or Federal governmental  authorities or agencies.
Except as set forth in  Section  5.15 of the  Disclosure  Schedule,  each of the
licenses,


                                       26


permits,  certificates,  bonds, consents, rights and other authorizations listed
in Section 5.15 of the Disclosure Schedule is in full force and effect according
to the material terms of each instrument, each holder of such licenses, permits,
certificates, bonds, consents, rights and other authorizations has complied with
all material  requirements in connection  therewith,  and there is not under any
such  licenses,  permits,  certificates,   bonds,  consents,  rights  and  other
authorizations  any  existing  material  breach or default (or event that,  with
notice, lapse of time or both, would constitute a material breach or default) by
AOW.

         5.16  LITIGATION. Except as set forth in Section 5.16 of the Disclosure
Schedule, (i) AOW is not a party to any lawsuit, claim, or other proceeding, or,
to Arch or Acquisition Corp.'s knowledge, any investigation, and (ii) AOW is not
in default  under any  judgment,  order or decree of any  court,  administrative
agency  or  commission  or  other  governmental   authority  or  instrumentality
applicable to it or any of its property or assets.

         5.17  COMPLIANCE WITH LAWS.  Except as set forth in Section 5.17 of the
Disclosure  Schedule,  AOW is in  compliance  in all material  respects with all
applicable Laws.

         5.18  LABOR  MATTERS.  Except  as set  forth  in  Section  5.18  of the
Disclosure Schedule,  AOW is not a party to any collective  bargaining agreement
with any labor union or association,  there are no formal negotiations,  demands
or proposals that are pending or have been recently conducted or made with or by
any labor union or  association,  and there are not pending  any  strikes,  work
stoppages or material labor disputes involving AOW.

         5.19  EMPLOYEE BENEFIT PLANS.

         (a)  Section 5.19 of the Disclosure  Schedule  sets forth a list of all
"employee benefit plans" as defined in Section 3 of ERISA, and any other pension
or retirement,  savings,  profit sharing,  deferred  compensation,  stock option
(including  restricted or  performance  units),  severance,  vacation,  medical,
vision,   dental,  long  term  disability,   life  insurance,   group  accident,
occupational  death,  business travel, long term care,  educational  assistance,
floating holiday,  personal business,  gain-share,  bonus, financial counseling,
welfare or sick  leave or other  employee  benefit  plan,  procedure,  policy or
practice of any nature (collectively, the "PLANS") covering employees of AOW.

         (b)  Except as set forth in Section  5.19 of the  Disclosure  Schedule,
with respect to each Plan that is an "employee  pension benefit plan" as defined
in Section 3(2) of ERISA and that is not a "multi  employer  plan" as defined in
Section 3(37) of ERISA,  AOW is in compliance with all applicable  provisions of
ERISA  and the  Code.  Except as set  forth in  Section  5.19 of the  Disclosure
Schedule,  AOW has not engaged in a prohibited transaction that would subject it
to a material tax imposed under Section 4975 of the Code.

         (c)  Within the preceding  five  years,  AOW has not been a party to or
contributed to any "multi  employer  plan," as defined in Section  4001(a)(3) or
ERISA.


                                       27


         5.20  BANK ACCOUNTS. Section 5.20 of the Disclosure Schedule sets forth
the name of each bank, savings and loan or other financial  institution in which
AOW has any account or safe deposit box, and the names of all Persons authorized
to draw thereon or have access thereto.

         5.21  FINANCIAL  STATEMENTS.  A balance  sheet (the "AOW  CLOSING  DATE
BALANCE  SHEET") will be prepared as of the Closing  Date for AOW in  accordance
with  AOW's  historic  accounting  principles  in  each  case  as  applied  on a
consistent  basis during the periods  indicated  (except as otherwise  stated in
this Section 5.21), and will fairly present the combined  financial  position of
AOW as of the dates thereof.

         5.22  BROKER LIABILITY.  With respect to any broker,  finder or similar
consultant,  retained by, or acting on behalf of Arch or Acquisition  Corp.,  in
connection with this Agreement or the transactions  contemplated hereby, Arch or
Acquisition  Corp.,  as the case may be, shall be solely  responsible and liable
for any brokerage,  finder's or similar  consultant's fee or other commission in
respect of such broker, finder or similar consultant.

         5.23  ASSETS.  Except as set forth in  Section  5.26 of the  Disclosure
Schedule, prior to the Closing Date, Acquisition Corp. has transferred or caused
to be transferred to AOW all tangible and intangible assets of every description
therefor held by Acquisition  Corp. or any Affiliate of Arch under  intercompany
agreements and  arrangements  with Arch and its Affiliates or otherwise and used
exclusively  by AOW in the conduct of AOW's  business on and since  December 31,
1997.

         5.24  QUALIFICATION,  COMPLIANCE  WITH  ACREAGE  LIMITATIONS.  Each  of
Acquisition Corp. and the Company is qualified under all applicable Laws to hold
the  interests  in Federal and state coal leases it will acquire at the Closing.
Immediately after the consummation of the Proposed Transactions neither Arch nor
Acquisition  Corp. will itself,  directly or indirectly,  or in combination with
any  Person,  own  holdings  of Federal  or state  coal  leases in excess of any
applicable limitations.

         5.25  CERCLA.  None of the  Carbon  Basin  Reserves  are  listed on the
National  Priority List pursuant to CERCLA or any similar list pursuant to state
Environmental Laws.

         5.26  DISCLAIMER OF CERTAIN  REPRESENTATIONS  AND WARRANTIES.  ARCO AND
DELTA HOUSING  ACKNOWLEDGE THAT, EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT,
NONE OF ARCH, ACQUISITION CORP. NOR ANY AFFILIATE,  EMPLOYEE OR AGENT OF ARCH OR
ACQUISITION  CORP. HAS MADE ANY  REPRESENTATION,  PROMISE,  COVENANT OR WARRANTY
REGARDING AOW, ITS  PROPERTIES,  ASSETS,  BUSINESS,  OPERATIONS,  LIABILITIES OR
OBLIGATIONS,  OR  OTHERWISE.  ARCH AND  ACQUISITION  CORP.  HEREBY  DISCLAIM ANY
IMPLIED  WARRANTIES,  INCLUDING  ANY IMPLIED  WARRANTIES OF  MERCHANTABILITY  OR
FITNESS FOR A PARTICULAR PURPOSE.

         5.27  BLACK LUNG DISCLOSURE.  Section 5.27 of the  Disclosure  Schedule
lists all pending claims against AOW for federal black lung liability.


                                       28


         5.28  ABSENCE OF  UNDISCLOSED  LIABILITIES.  To Arch's and  Acquisition
Corp.'s  knowledge,  AOW  has  no  material  liabilities,   whether  accrued  or
contingent, other than liabilities set forth in the Arch Disclosure Schedule and
liabilities  incurred since the Effective Date in connection with this Agreement
or in the ordinary course of business, consistent with past practices.


                                    ARTICLE 6
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         The Company  represents  and  warrants to each  Contributing  Member as
follows:

         6.1  DUE  ORGANIZATION; GOOD  STANDING  AND  POWER. The  Company  is  a
limited liability company duly formed and validly existing under the laws of the
State of  Delaware.  The Company has all power and  authority to enter into this
Agreement and to perform its  obligations  hereunder and  thereunder.  As of the
Closing,  the  Company  will be duly  authorized,  qualified  or  licensed to do
business as a foreign limited liability company, in each of the jurisdictions in
which its right,  title or  interest  in or to any asset,  or the conduct of its
business, requires such authorization,  qualification or licensing, except where
the  failure  to so  qualify  would not have a  material  adverse  effect on the
ability of the  Company  to  perform  its  obligations  hereunder  and under all
agreements delivered pursuant hereto.

         6.2  AUTHORIZATION AND VALIDITY OF AGREEMENT.  The execution,  delivery
and  performance  of this Agreement by the Company and the  consummation  by the
Company  of the  transactions  contemplated  hereby and  thereby  have been duly
authorized by all necessary company action on the part of the Company.  No other
Company  action is  necessary  for the  authorization,  execution,  delivery and
performance  by the  Company  of this  Agreement,  and the  consummation  by the
Company of the transactions  contemplated  hereby.  This Agreement has been duly
executed  and  delivered  by the Company and  constitutes  the legal,  valid and
binding  obligation of the Company,  enforceable  in accordance  with its terms,
subject to applicable  laws of bankruptcy,  insolvency,  fraudulent  conveyance,
reorganization,  moratorium  and similar laws  affecting  creditors'  rights and
remedies  generally and to general  principles  of equity  regardless of whether
such enforceability is considered in a proceeding in equity or at law.

         6.3  NO CONSENTS REQUIRED;  NO CONFLICT WITH  INSTRUMENTS  TO WHICH THE
COMPANY IS A PARTY. The execution, delivery and performance of this Agreement by
the Company and the consummation by it of the transactions  contemplated  hereby
(i) will not require any consent and (ii) will not violate  (with or without the
giving of notice or the lapse of time or both),  conflict with, or result in the
breach or  termination  of any provision of, or constitute a default  under,  or
result in the  acceleration of the performance of the obligations of the Company
under any  agreement  to which the Company is a party or by which the Company or
any of its assets or properties is bound.

         6.4  ACCREDITED  INVESTOR. The  Company  is  an  "accredited  investor"
within the meaning of Rule 501(a)(1), (2), (3) or (7) of the Securities Act.

                                       29


         6.5  INVESTMENT  INTENT.  The  Company  is  acquiring  the  Contributed
Membership  Interests for its own account for the purpose of investment  and not
with a view to, or for sale in connection with, any distribution  thereof in any
transaction  that would be in  violation  of the  securities  laws of the United
States or any state  thereof.  The  Company  acknowledges  that the  Contributed
Member  Interests have not been registered or qualified  under,  and are sold in
reliance upon an exemption from the registration requirements of, the Securities
Act and any  applicable  state  securities  or "Blue Sky"  laws,  and may not be
offered, sold, transferred,  pledged,  hypothecated or otherwise assigned unless
they are registered  under the  Securities Act and any applicable  securities or
"Blue  Sky"  laws  of any  state  or an  exemption  from  such  registration  is
available.

                                    ARTICLE 7
                     COVENANTS AND AGREEMENTS OF THE PARTIES

         7.1  ACCESS TO INFORMATION.

         (a)  Arch and Acquisition Corp. acknowledge that prior to the Effective
Date,  ARCO has caused each of the ARCO Parties to give Arch and its  authorized
representatives reasonable access to the employees,  offices,  properties, and a
data  room  containing  certain  books  and  records  of the ARCO  Parties,  has
permitted Arch and  Acquisition  Corp. to make  inspections of and tour the ARCO
Parties' mines, and has furnished Arch with certain financial and operating data
and  other  information  with  respect  to  the  business,  assets,  properties,
operations,  liabilities  and  obligations  of the  ARCO  Parties.  Prior to the
Closing  Date,  Acquisition  Corp.  shall have  reasonable  access during normal
business hours to the operations,  facilities,  employees and representatives of
ARCO  and  the  ARCO  Parties  as   reasonably   necessary  to  (i)  verify  the
representations and warranties given by ARCO and Delta Housing hereunder or ARCO
and ARCO Uinta under the  Purchase  Agreement,  and (ii) begin  planning  for an
orderly transition process with respect to the Proposed Transactions;  PROVIDED,
HOWEVER,  Acquisition  Corp. will not have access to any financial data or other
information  relating to TBCC's bid on the Thunder  Cloud  Federal Lease Tract .
Except as set forth in the  preceding  sentence  or  otherwise  provided in this
Agreement, from and after the Effective Date, neither Arch nor Acquisition Corp.
shall have the right to access the  employees,  offices,  properties,  books and
records of ARCO or the ARCO Parties, to inspect the ARCO Parties' mines or other
properties, or to inspect or have furnished financial or operating data or other
information  with  respect  to the  business,  assets,  properties,  operations,
liabilities or obligations of ARCO or the ARCO Parties.

         (b)  Prior to the  Closing,  Arch  shall  keep  (and  shall  cause  its
directors,  officers,  employees,  representatives,  advisors and  Affiliates to
keep) all information  relating to ARCO and the ARCO Parties (including any such
information received prior to the date hereof) confidential,  and shall use such
information  only,  on  the  terms  and  conditions  as  are  set  forth  in the
confidentiality  agreements between ARCO and Arch,  together with any supplement
or amendment  reasonably requested by ARCO from time to time. After the Closing,
each party  hereto  agrees to keep the terms and  conditions  of this  Agreement
confidential,  and to redact any  provisions  reasonably  requested by any other
party  (including  Section 10.2(c)) from copies of this Agreement filed with the
Securities and Exchange Commission, except for such matters that may be required
to be disclosed by law or applicable  stock  exchange  requirements  or that are


                                       30


generally  available in the public  domain other than as a result of a breach of
this Agreement by such party.

         (c)  After the Closing, Acquisition  Corp.  shall at its own expense or
at the expense of the ARCO Parties, cause the ARCO Parties to preserve and keep,
or transport to a storage site of its own selection  where it shall preserve and
keep, the books and records of each of the ARCO Parties  obtained by Acquisition
Corp.  or  retained  by  the  ARCO  Parties,  including  financial  or  business
transaction  records,  books of  original  entry,  tax  records  and  supporting
documents,  for a period of seven  years from the  Closing  Date or such  longer
period if required under applicable Laws. Within 60 days after the Closing, ARCO
shall provide  Acquisition  Corp. with a list or inventory of the document types
and inclusive dates of the records  transmitted to Acquisition Corp. or retained
by the ARCO  Parties.  Acquisition  Corp.  shall  make or shall  cause  the ARCO
Parties to make such acquired or retained records as are dated up to the Closing
Date and  included  in the  inventory  provided by ARCO,  including  the general
ledger and mining reports,  available to ARCO as may be reasonably  requested by
ARCO in connection with, among other things,  any of ARCO's financial  reporting
or Tax filing obligations,  for a period of seven years from the Closing Date or
such longer period if required under  applicable  Laws. For a period of 15 years
after the Closing Date,  Acquisition  Corp. shall notify ARCO in writing,  on an
annual basis,  of the document types and, if applicable,  inclusive dates of any
such retained records,  that it or the ARCO Parties intend to destroy during the
following  one-year period.  If ARCO desires access to such records for a period
of time longer than specified in Acquisition  Corp.'s annual notice,  ARCO shall
notify  Acquisition  Corp. in writing,  not more than 60 days  following  ARCO's
receipt of  Acquisition  Corp.'s  annual  notice,  of its desire to retain  such
records,  and  Acquisition  Corp.  shall  deliver,  or cause the ARCO Parties to
deliver,  such records to ARCO. If ARCO does not notify Acquisition Corp. of its
desire to retain  records within such 60-day  period,  Acquisition  Corp. or the
ARCO Parties may dispose of such records according to prudent records management
practices in the ordinary course of business.

         (d)  The parties hereby  acknowledge  that any in-house  counsel of the
ARCO Parties or ARCO who are Employees and who  participated in the preparation,
negotiation or consummation of this Agreement or the Proposed  Transactions were
providing legal representation for ARCO and, notwithstanding any other provision
of this  Agreement,  neither the ARCO Parties or ARCO nor such counsel  shall be
required to disclose under any circumstance any information or documents covered
by  the  attorney-client   privilege  or  the  work-product   doctrine  as  such
information or documents  were  developed in the course of such  representation.
All such information and documents shall remain the sole and exclusive  property
of ARCO.

         7.2  CONDUCT OF THE  BUSINESS PENDING THE CLOSING.  From the  Effective
Date  to  the  Closing  Date,   except  in  connection  with  the   transactions
contemplated  by this  Agreement  and the  Purchase  Agreement,  or as otherwise
consented  to in  writing  by  Acquisition  Corp.  (which  consent  shall not be
unreasonably  withheld,  conditioned  or delayed),  ARCO shall use  commercially
reasonable  efforts,  and  consistent  with its  obligations  under the  limited
liability  company  agreements  of the ARCO  Parties  to cause  each of the ARCO
Parties to (a) conduct its business in the ordinary  course and consistent  with
past  practices,  except that (i) none of the properties or assets listed in the
ARCO Disclosure Schedule valued at $250,000 or more may be transferred, disposed
of, encumbered or hypothecated,  (ii) no individual  capital  expenditure by 

                                       31


any ARCO Party in excess of $1 million or capital expenditures  aggregating (for
all ARCO Parties) in excess of $25 million shall be made or committed, and (iii)
no ARCO Party shall enter into any coal supply  agreement  with a term in excess
of one year or  materially  amend any coal  supply  agreement  disclosed  in the
Disclosure Schedule having a term in excess of one year (but TBCC shall have the
right,  but not the obligation,  to bid on the Thunder Cloud Federal Lease Tract
on such terms and  conditions,  including  the  amount of any bonus  bid,  as it
elects in its sole  discretion),  (b) keep in full force and effect its  limited
liability  company  existence,  (c)  comply in all  material  respects  with all
Material Contracts set forth in Section 4.10 of the Disclosure Schedule to which
each is a party, (d) use commercially reasonable efforts to retain its employees
and maintain its business  relationships  with customers and suppliers,  and (e)
maintain all facilities,  equipment and other tangible assets in accordance with
past maintenance practices of the ARCO Parties.

         7.3  NOTIFICATION. Between the Effective Date  and  the  Closing  Date,
ARCO and Arch will each, promptly upon becoming aware thereof,  notify the other
in writing of any fact or condition  that causes or  constitutes a breach of any
of the other party's  representations  and  warranties  made as of the Effective
Date or any  default  in the other  party's  performance  of its  covenants  and
agreements herein.

         7.4  ANTITRUST NOTIFICATION.  The appropriate  parties hereto shall, as
promptly as practicable,  but in no event later than ten business days after the
date of this Agreement,  file with the Federal Trade  Commission (the "FTC") and
the Antitrust  Division of the Department of Justice (the "ANTITRUST  DIVISION")
the  notification  and  report  form  required  for  the  proposed  transactions
contemplated  hereby  pursuant to the HSR Act. The  appropriate  parties  hereto
shall furnish to each other such necessary information and reasonable assistance
as may be requested in connection with the preparation of any filing required to
be made under the HSR Act. The  appropriate  parties shall use all  commercially
reasonable  efforts to respond  as  promptly  as  practicable  to all  inquiries
received from the FTC or the Antitrust  Division for  additional  information or
documentation  and to obtain as promptly as practicable  any clearance  required
under the HSR Act for the contribution of the assets hereunder.

         7.5  FEES AND EXPENSES.  Except as otherwise  specifically  provided in
this Agreement,  the parties shall bear their own fees and expenses  incurred in
connection with this Agreement  (including fees and expenses of their respective
investment  bankers)  and in  connection  with all  obligations  required  to be
performed by each of them under this Agreement.

         7.6  PUBLICITY. Except as otherwise required by law or applicable stock
exchange  requirements,  no party hereto shall issue any press release or public
statement  relating to or  concerning  this  Agreement or the matters  contained
herein,  without obtaining the prior approval of the other parties hereto of the
contents and the manner of presentation and publication thereof,  which approval
shall not be unreasonably withheld, conditioned or delayed.

         7.7  POST-CLOSING ASSISTANCE. From and after the Closing Date, upon the
request  of Arch or  Acquisition  Corp.,  on the one  hand,  or ARCO  and  Delta
Housing,  on the other,  the parties hereto shall do,  execute,  acknowledge and
deliver  all such  further  acts,  assurances,  deeds,

                                       32


assignments,  transfers,  conveyances and other instruments and papers as may be
reasonably required or appropriate to carry out the transactions contemplated by
this Agreement.

         7.8  GUARANTEES. ARCO and/or Delta Housing provided certain guarantees,
indemnities  and similar  obligations  with respect to the ARCO  Parties,  which
guarantees,  indemnities  and  obligations  are set forth in Section  7.8 of the
Disclosure Schedule. Arch and Acquisition Corp. agree to cooperate with ARCO and
use its best efforts to cause the release of each such guarantee,  indemnity and
obligation,  including the  substitution of Arch,  Acquisition  Corp.  and/or an
Affiliate  of  Arch  or  Acquisition  Corp.  as  the  guarantor,  indemnitor  or
responsible  party thereunder and the release of ARCO and Delta Housing on or as
soon as practicable after the Closing. Without limiting the foregoing,  Arch and
Acquisition  Corp.  hereby  undertake,  assume  and  agree to  perform,  pay and
discharge  all  such  guarantees,  indemnities  and  obligations,  and  Arch and
Acquisition  Corp.  shall  indemnify  and hold  harmless  each of ARCO and Delta
Housing,  including  any  officers,  directors or  Affiliates  of ARCO and Delta
Housing  with  respect  to all Losses  arising  out of or  relating  to any such
guarantee, indemnity or obligation.

         7.9  NAME CHANGES.  No later than 30 days  following  the Closing Date,
Acquisition   Corp.  shall  cause  the  Company  to  amend  the  certificate  of
incorporation  of each of the ARCO  Parties  to  remove  the word  "ARCO" or any
similarity  or reference  thereto.  The new  corporate  name of the ARCO Parties
adopted by  Acquisition  Corp.  shall not contain any word or words  confusingly
similar to "ARCO" or the "Atlantic  Richfield Company." No later than six months
following the Closing Date,  Arch shall remove the marks and names "ARCO," "ARCO
COAL" and "ATLANTIC  RICHFIELD" and the Spark Design and any other words,  names
or symbols  proprietary to ARCO,  from all tangible and  intangible  properties,
real and personal, acquired by Acquisition Corp. and the Company hereunder.

         7.10 SURETY BONDS.  Acquisition Corp. will use commercially  reasonable
efforts to submit  surety bonds  (collectively,  "SUBSTITUTE  SURETY  BONDS" and
individually,  a  "SUBSTITUTE  SURETY  BOND"),  effective as of the Closing,  in
substitution for ARCO's or Delta Housing's surety bonds and self bonds listed in
Section  4.13 of the  Disclosure  Schedule  (collectively,  "SURETY  BONDS"  and
individually,  a "SURETY  BOND").  If all the  Substitute  Surety  Bonds are not
effective 90 days after the Closing Date, Acquisition Corp. shall be required to
pay ARCO or Delta Housing,  in consideration of ARCO or Delta Housing keeping in
effect  those  Surety  Bonds  for  which a  Substitute  Surety  Bond is not then
effective  (collectively,  the "POST-CLOSING  SURETY BONDS" and individually,  a
"POST-CLOSING  SURETY BOND"),  an amount equal to one-half of one percent of the
face  value of the  Post-Closing  Surety  Bonds per  month (or pro rata  portion
thereof)  until such time as  Substitute  Surety Bonds are  effective,  it being
agreed that the aggregate face value of the  Post-Closing  Surety Bonds shall be
reduced  dollar-for-dollar  by the face value of Substitute Surety Bonds as such
Substitute  Surety Bonds become  effective after the Closing Date without regard
to or whether any of the  Post-Closing  Surety Bonds are released.  In the event
Substitute  Surety Bonds in substitution for all the  Post-Closing  Surety Bonds
are not effective within 180 days after the Closing Date, in lieu of Acquisition
Corp.'s payment obligation under the preceding sentence, Acquisition Corp. shall
obtain, for the benefit of ARCO performance bonds or other assurances, from such
surety  providers and with such terms and  conditions  reasonably  acceptable to
ARCO and Delta  Housing (the  "PERFORMANCE  BONDS") in an  

                                       33


aggregate  face value  equal to the  aggregate  face  value of the  Post-Closing
Surety  Bonds on and after such 180th day, it being  agreed  that the  aggregate
face value of the Performance  Bonds shall be reduced  dollar-for-dollar  by the
face value of Substitute Surety Bonds as such Substitute Surety Bonds thereafter
become effective without respect to whether any of the Post-Closing Surety Bonds
secured by the Performance  Bonds are released.  Without limiting the foregoing,
Arch and Acquisition Corp. shall indemnify and hold harmless ARCO, Delta Housing
and their Affiliates with respect to all Losses arising under the Surety Bonds.

         7.11  BLACK  LUNG  LIABILITY.  Arch and Acquisition Corp. have reviewed
any reserves and accruals of the ARCO  Parties,  including  those which are with
respect to potential  liability  under the Black Lung  Benefits Act of 1972,  as
amended,  the Black Lung  Benefits  Reform Act of 1977,  as  amended,  and other
applicable  Federal and state black lung acts or laws  designed to provide  such
benefits to employees. Arch acknowledges that, except with respect to any breach
of the  representation  and warranty  made by ARCO in Section 4.21 in respect of
black  lung  liabilities,  any Loss in  respect of black lung shall not form the
basis for any assertion of a breach of a representation or warranty contained in
this Agreement.

         7.12  LITIGATION  SUPPORT.  From and after the Closing  Date,  Arch and
Acquisition Corp shall indemnify and hold harmless ARCO, Delta Housing and their
Affiliates  with respect to all Losses  arising out of or relating to any matter
set forth in Section 4.14 of the ARCO Disclosure Schedule.  Without limiting the
foregoing,  if and for so long as ARCO is  defending or  contesting  any action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in
connection  with (i) any transaction  contemplated  under this Agreement or (ii)
any fact, situation,  circumstance, status, condition, activity, practice, plan,
occurrence,  event,  incident,  action, failure to act, or transaction involving
the ARCO Parties, Arch and Acquisition Corp. shall cooperate and shall cause the
ARCO  Parties to  cooperate  (on and after the Closing  Date) with ARCO or Delta
Housing and its counsel and agents in such  defense or contest,  make  available
its and their personnel,  and provide such testimony and access to its and their
books and  records as shall be  necessary  in  connection  with such  defense or
contest all at Acquisition Corp.'s cost.

         7.13  INSURANCE. Arch has reviewed the insurance  policies set forth in
Section 4.11 of the  Disclosure  Schedule.  ARCO agrees that all such  insurance
policies  shall remain in full force and effect until the Closing.  All coverage
and benefits under such insurance  policies and any other insurance  policies of
ARCO or its  Affiliates,  subject  to the  terms  thereof,  shall  cease  at the
Closing.  On and after the Closing Date,  Arch shall be solely  responsible  for
obtaining and maintaining any and all insurance coverage and protection relating
to the respective  business,  assets,  properties,  operations,  liabilities and
obligations of the ARCO Parties.

         7.14  ARCH'S AND ACQUISITION  CORP.'S  ENVIRONMENTAL  RESPONSIBILITIES.
Arch and Acquisition Corp.  hereby  acknowledge and agree that all Environmental
Liabilities  asserted against the ARCO Parties related to any property listed in
Section 7.14 of the Disclosure  Schedule (the "PROPERTIES") shall be retained by
the ARCO Parties on and  following  the Closing Date and that all  Environmental
Liabilities  asserted  against  ARCO,  Delta  Housing or their  Affiliates  with
respect or related to the  Properties  shall be assumed by Arch and  Acquisition
Corp. From and after the Closing Date, Arch and Acquisition Corp. shall perform,
pay and discharge,  or cause the ARCO Parties to perform,  pay and discharge all
retained and assumed  

                                       34


Environmental  Liabilities,  and shall  indemnify and hold harmless ARCO,  Delta
Housing and their Affiliates with respect to such Environmental Liabilities.

         7.15  ARCO'S AND DELTA HOUSING'S ENVIRONMENTAL  RESPONSIBILITIES.  ARCO
and  Delta  Housing  hereby   acknowledge  and  agree  that  all   Environmental
Liabilities  resulting from the ownership or operation of properties  other than
the  Properties  (the "OTHER  PROPERTIES")  by the ARCO  Parties or any of their
predecessors or Affiliates  (unless caused by Acquisition  Corp., Arch, the ARCO
Parties or any of their  respective  Affiliates  on or after the Closing  Date),
shall be assumed by ARCO and Delta  Housing.  From and after the  Closing  Date,
ARCO and Delta Housing shall perform,  pay and discharge any such  Environmental
Liabilities  assumed pursuant to this Section 7.15, and shall indemnify and hold
harmless each Arch Indemnitee with respect to such Environmental Liabilities.

         7.16  OTHER LIABILITIES.

         (a)  Except as  otherwise  expressly  provided  in this  Agreement  and
without   limiting  ARCO's  or  Delta   Housing's   liability  for  breaches  of
representations  and warranties  and defaults of covenants and agreements  under
this  Agreement  and the  Purchase  Agreement  in addition to the  Environmental
Liabilities,  Arch and Acquisition Corp. hereby  acknowledge and agree that, all
Other  Liabilities  shall be retained by the ARCO Parties on and  following  the
Closing Date. Except with respect to Other Liabilities retained by Delta Housing
or  required  to be  indemnified  by ARCO and  Delta  Housing,  in each  case as
expressly  provided  under this  Agreement and the Purchase  Agreement  from and
after the Closing Date,  Acquisition  Corp.  shall perform,  pay or discharge or
cause the ARCO Parties to perform, pay or discharge such Other Liabilities,  and
shall  indemnify  and hold  harmless  each of ARCO  and  Delta  Housing  and any
officer,  director,  employee,  agent or Affiliate of ARCO or Delta Housing with
respect to such Other Liabilities.

         (b)  "OTHER LIABILITIES" shall mean any and all claims, actions, causes
of action, damages,  losses,  liabilities,  obligations,  penalties,  judgments,
amounts  paid in  settlement,  assessments,  costs,  disbursements  or  expenses
(including  attorneys' fees and costs,  experts' fees and costs and consultants'
fees and costs) of any kind or nature,  whether  existing on the Closing Date or
arising thereafter (including those absolute,  accrued,  contingent,  unknown or
otherwise),  that are asserted  against an ARCO Party or ARCO,  Delta Housing or
any of their  Affiliates  arising out of, based on or relating to the  business,
assets, properties, operations, liabilities or obligations of any and all of the
ARCO Parties, other than Environmental Liabilities.

         7.17  DISCLOSURE SCHEDULES. The parties hereto shall have ten (10) days
after the Effective Date to revise the Disclosure  Schedules delivered hereunder
by written notice to the other party;  provided,  however, that no such revision
shall materially alter the nature or effect of the specific item so modified, or
alone or in the aggregate have a Material Adverse Effect. The revised Disclosure
Schedules shall become the Disclosure Schedules to the Agreement as if initially
attached hereto.

         7.18  COMMERCIALLY REASONABLE EFFORTS. Each of Arch, Acquisition Corp.,
ARCO and Delta  Housing  will use  commercially  reasonable  efforts to take all
actions and do all things  necessary in order to consummate  and make  effective
the transactions contemplated by this 


                                       35


Agreement  (including  the  satisfaction,  but not the  waiver,  of the  closing
conditions set forth in Sections 11.1 and 11.2).

                                    ARTICLE 8
                         EMPLOYEES AND EMPLOYEE BENEFITS

         8.1  RETENTION OF EMPLOYEES AND CONTINUATION OF BENEFITS.

         (a)  Section 8.1(a) of the Disclosure Schedule sets forth a list of the
Employees who will be retained in employment by TBCC ("TRANSFEREES"), which list
shall be updated and supplemented by ARCO and agreed to by Acquisition  Corp. on
and as of the Closing Date.  Acquisition  Corp. shall take such action as may be
necessary to provide that as of the Closing Date, the  Transferees  shall remain
employed by the ARCO Parties or shall be employed by  Acquisition  Corp. and the
Transferees  shall,  except as otherwise  provided,  participate  in Acquisition
Corp.'s employee benefit plans offered to similarly situated employees.

         (b)  Without limiting  the  foregoing,  for purposes of this Article 8,
Arch shall ensure that on and following the Closing Date, the Transferees  shall
receive  credit with  respect to any benefit  plan,  arrangement  or other right
whether  contemplated  in Section 4.17 of the Disclosure  Schedule or otherwise,
for any  period of  employment  with  ARCO or the ARCO  Parties  (including  any
applicable predecessors or Affiliates) prior to the Closing Date for eligibility
and vesting  purposes  under each employee  benefit plan,  arrangement  or other
right; provided, however, that in no event shall any Transferees be given credit
for any such purpose for any period of employment  that was not counted for such
purpose  under  any  applicable  plan,  arrangement  or Plan of ARCO or the ARCO
Parties prior to the Closing Date.

         8.2  RETENTION OF RETIREMENT PLANS FOR ARCO PARTIES. Section 8.2 of the
Disclosure  Schedule sets forth a list of any retirement  plan  established  and
maintained by the ARCO Parties or ARCO (collectively,  the "RETIREMENT  PLANS").
Acquisition  Corp.  shall  take  such  action as may be  necessary  to cause any
applicable  ARCO Party to continue to  administer  and maintain  its  respective
Retirement  Plan until  December 31, 1998.  On and  following  the Closing Date,
Acquisition  Corp.  shall be responsible  for retaining the  sponsorship and all
assets, accounts, liabilities and obligations of the Retirement Plans applicable
to Transferees or former employees of the applicable ARCO Party, and Acquisition
Corp. shall release,  indemnify and hold harmless ARCO, Delta Housing and any of
their  Affiliates  with respect to all Losses  arising out of or relating to the
Retirement Plans. Acquisition Corp. agrees that if, after December 31, 1998, the
defined benefit  Retirement Plan is merged into the Arch's  Retirement Plan, the
opening  balance  credits  in  the  Arch's   Retirement  Plan  with  respect  to
Transferees  shall be no less than the  assets  of the  merged  Retirement  Plan
allocable  to  the  Transferees,  and  Transferees  shall  be  entitled  to  the
transition  credits,  though not longer than  December 31, 2012,  based on their
years of  Retirement  Plan benefit  accrual  service,  as provided by the Arch's
Retirement Plan as of the Closing Date.

         8.3  ARCO'S PENSION PLAN. As of the Closing Date, any  Transferees  who
are  participants  in the  Atlantic  Richfield  Retirement  Plan II  (the  "ARCO
RETIREMENT PLAN") shall no longer participate in such plan. Arch shall take such
action  as  may  be  necessary  to  provide  that  


                                       36


all such  Transferees  shall  participate in Arch's cash balance defined benefit
retirement plan ("ARCH'S RETIREMENT PLAN"). Arch understands and agrees that the
accrued  benefits of any  Transferees  under the ARCO  Retirement Plan shall not
increase  following  the Closing Date and that any surplus  under such plan with
respect to such  Transferees  shall be retained by ARCO.  Arch agrees to provide
open balance credits in Arch's Retirement Plan with respect to Transferees based
on the  Transferee's  monthly accrued benefit under the ARCO Retirement Plan and
the conversion  factor under Arch's Retirement Plan, as in effect on the Closing
Date.  Such  Transferee's  open balance  credits shall be reduced by the present
value of the  Transferee's  accrued benefit under the ARCO Retirement Plan. Arch
also agrees to provide  Transferees with transition  credits,  though not longer
than  December 31, 2012,  based on their years of ARCO  Retirement  Plan benefit
accrual service,  similar to the credits provided under Arch's  Retirement Plan,
as in effect on the Closing Date.

         8.4  THRIFT PLAN.  As of the  Closing  Date,  any  Transferees  who are
participants  in the Atlantic  Richfield  Capital  Accumulation  Plan II and the
Atlantic Richfield Savings Plan II (collectively, "ARCO ACCUMULATION AND SAVINGS
PLANS") shall no longer  participate in such plans.  Arch shall take such action
as may be necessary to provide that all such  Transferees  shall  participate in
Arch's  defined  contribution  retirement  plan(s)  (collectively,  the  "ARCH'S
SAVINGS  PLAN").  Arch shall allow  Transferees to make direct  rollovers  under
Section  401(a)(31)  of  the  Code  or  elective  transfers  under  Treas.  Reg.
1.411(d)-4,  Q&A-3 of their  account  balances  from the ARCO  Accumulation  and
Savings Plans to Arch's Savings Plan.  Arch and ARCO  understand and acknowledge
that Transferees who are participants in the ARCO Accumulation and Savings Plans
may at their election choose to leave their  contributions  in either or both of
the ARCO Accumulation and Savings Plans.

         8.5  OTHER  EMPLOYEE  BENEFITS.  Except  as  specifically  set forth in
Sections 8.3 and 8.4, as of the Closing  Date (i)  Employees of the ARCO Parties
(and their respective  beneficiaries and dependents) shall no longer participate
in any employee benefit plan or arrangement maintained by ARCO and (ii) Arch and
the Company shall assume or retain (as applicable)  all liabilities  relating to
Transferees  or former  employees  of the ARCO  Parties  (and  their  respective
beneficiaries  and dependents).  Without limiting the provisions of Section 8.1,
Arch shall continue to provide until December 31, 1998 under plans comparable to
plans applicable to Transferees  prior to the Closing,  the following  benefits:
(i) the group health  coverage  currently  provided to the  Transferees,  former
employees and their  dependents,  or any sub-group  thereof  (collectively,  the
"PARTICIPANTS"),  or comparable  group health coverage which shall (A) waive any
pre-existing  condition limitations on benefits for the Participants,  (B) waive
any eligibility  waiting periods for the  Participants,  and (C) give effect, in
determining or applying any deductible and maximum out-of-pocket limitations, to
claims incurred,  amounts paid by or on behalf of and amounts  reimbursed to the
Participants  under  ARCO's or an ARCO  Party's  group  health  plan  during the
calendar  year in effect as of the Closing  Date,  and (ii)  benefits  under the
employee  benefit plans  described in Section 4.17 of the  Disclosure  Schedule.
Without  limiting  the  foregoing,  Arch  agrees  to  provide  coverage  to  the
Transferees as required by the Consolidated Omnibus Budget Reconciliation Act of
1985.

         8.6  FLEXIBLE SPENDING  ACCOUNTS.  ARCO and Acquisition  Corp. agree to
cooperate  with each  other in all  reasonable  respects  to  effect an  orderly
transition for Employees from the 


                                       37


flexible spending account plans in which such Employees currently participate to
Arch's comparable plans as appropriate and to the extent permitted by applicable
law.

         8.7  COOPERATION.  ARCO and Acquisition  Corp.  agree to cooperate with
each other in all  reasonable  respects  with respect to  administrative  issues
arising  out of this  Agreement  that  relate to the Plans of ARCO,  Acquisition
Corp. or their respective Affiliates.

         8.8  BLACK LUNG MATTERS.  After the Closing,  and subject to Arch's and
Acquisition  Corp.'s right to indemnity for ARCO's and/or Delta Housing's breach
of  its   representation  and  warranty  in  Section  4.21  of  this  Agreement,
Acquisition  Corp. shall pay or cause the ARCO Parties to pay all liabilities of
ARCO or Delta  Housing  under the Federal Mine Safety and Health Act of 1977, as
amended,  and  applicable  Federal and state laws for claims for  disability  or
death due to "black lung" or pneumoconiosis, whenever created.

         8.9  TRANSFEREE TERMINATION BY ARCH.

         (a)  In  the  event  the employment of any Transferee is terminated for
any or no reason  following the Closing Date,  ARCO shall have no liability with
respect to any severance or other  post-employment  benefits  applicable to such
termination,  and Arch shall indemnify and hold harmless ARCO,  Delta Housing or
their  Affiliates  for all  losses,  claims,  damages,  liabilities,  costs  and
expenses  (including  any  attorney  fees)  arising  out of or  relating  to any
termination of employment or any severance or other post-employment benefit with
respect to the  Transferees  following  the Closing Date.  Without  limiting the
foregoing,  Arch agrees to defend and  indemnify  ARCO,  Delta  Housing or their
Affiliates  for any losses,  claims,  damages,  liabilities,  costs and expenses
(including  any  attorney  fees)  arising  out of or  relating  to any claim for
severance benefits for whatever reason or basis, including,  without limitation,
a change of a Transferee's  terms and conditions of employment with Arch such as
a change in compensation or employee benefit plans.

         (b)  Without limiting the generality of the foregoing, in the event the
employment of any Transferee is terminated for any or no reason,  other than for
cause in accordance  with Arch's  applicable  disciplinary  procedures,  if any,
within one year following the Closing Date,  Arch shall provide such  Transferee
severance benefits,  including,  without limitation, the payment of an allowance
and the  continuation of medical and dental coverage and the R-60, in accordance
with the  provisions of the Atlantic  Richfield  Special  Termination  Allowance
Plan, as amended, and the Atlantic Richfield  Termination  Allowance Plan Policy
Provisions  copies  of which are  attached  hereto as  Exhibit  8.9(b),  and any
individual severance  arrangement as set forth in Section 4.17 of the Disclosure
Schedule applicable to the Transferees prior to the Closing Date.

         (c)  Notwithstanding anything else in this Agreement, Acquisition Corp.
shall not be required to provide  severance  benefits for any of the individuals
set forth in Section 8.9(c) of the Disclosure Schedule.


                                       38


                                    ARTICLE 9
                                      TAXES

         9.1  ARCO TAX MATTERS.

         (a)  ARCO will prepare and file or cause to be  prepared  and filed all
Tax Returns for the ARCO Parties  required to be filed prior to the Closing Date
with the  appropriate  United  States,  state,  local and  foreign  governmental
entities  for any taxable  period of the ARCO Parties that ends on or before the
Closing Date (the  "PRE-CLOSING TAX PERIOD").  ARCO will make all payments shown
thereon as owing with respect to any such Tax Return.  ARCO will prepare and, if
required  to do so by  applicable  law,  deliver to the  Company for signing and
filing any state  income Tax  Returns of the ARCO  Parties  with  respect to any
Pre-Closing  Tax Period  (including  any short  period) that have not been filed
prior to the Closing Date.  The Company will make all payments  shown thereon as
owing with respect to any such Tax Returns.

         (b)  Except as otherwise provided in Section 9.1(a) or (c), the Company
will  prepare and file or cause to be prepared and filed all Tax Returns for the
ARCO Parties that are required to be filed with the  appropriate  United States,
state, local and foreign governmental  entities for all periods as to which such
Tax Returns are due after the Closing Date.  The Company will pay or cause to be
paid all taxes required to be paid with respect to such Tax Returns.

         (c)  With  respect  to  any taxable period that would otherwise include
but  not  end  on the  Closing  Date,  to the  extent  permissible  pursuant  to
applicable  law, ARCO will,  and the Company will cause the ARCO Parties to, (i)
take all steps as are or may be  reasonably  necessary,  including the filing of
elections or returns with applicable taxing authorities, to cause such period to
end on the  Closing  Date;  or (ii) if clause  (i) is  inapplicable,  report the
operations  of the ARCO Parties only for the portion of such period ending on or
immediately before the Closing Date in a combined,  consolidated, or unitary Tax
Return filed by ARCO,  notwithstanding  that such taxable period does not end on
the  Closing  Date.  If clause  (ii)  applies  to a  taxable  period of the ARCO
Parties,  the portion of such  taxable  period  included in such return filed by
ARCO will be treated as a Pre-Closing Tax Period described in Section 9.1(a) and
Arch will not be  responsible  for filing such return for such year  pursuant to
Section 9.1(b).

         (d)  In order to assist ARCO in the preparation of all Tax Returns that
ARCO is required to prepare pursuant to Section 9.1(a), the Company will prepare
or cause the ARCO  Parties  to  prepare  and  deliver  within 60 days of receipt
ARCO's standard Federal and state tax return data gathering packages relating to
the ARCO  Parties.  In addition to  providing  such  packages,  the Company will
promptly provide or cause to be provided to ARCO such other  information as ARCO
may reasonably  request  (including  access to books,  records and personnel) in
order for the operations of the ARCO Parties to be properly reported in such Tax
Returns, for the preparation for any Tax audit or for the prosecution or defense
of any claim, suit or proceeding relating to Taxes.

         (e)  To  the  extent refunds of Taxes  are not recorded  on the Closing
Date Balance Sheet, the Company will pay or cause to be paid to ARCO all refunds
or credits of Taxes  (including  any interest  thereon)  received by the Company
after the Closing  Date and  attributable  to Taxes paid by ARCO with respect to
any  Pre-Closing  Tax Period.  Such  payment will be 


                                       39


made to ARCO within 30 days after  receipt of any such refund from or  allowance
of such credit by the relevant taxing authority.

         (f)  ARCO will indemnify and hold the Company harmless from and against
any and all liability for any taxable period as a result of Treasury  Regulation
Section  1.1502-6 (or any comparable  provision of state or local law) for taxes
of any corporation or other entity, other than the ARCO Parties, which is or has
been affiliated with ARCO.

         9.2  ARCH TAX MATTERS.

         (a)  Arch will  prepare and file or cause to be prepared  and filed all
Federal  and state  income Tax  Returns  for AOW  required  to be filed with the
appropriate United States,  state, local and foreign  governmental  entities for
any taxable  period of such member that ends on or before the Closing  Date (the
"ARCH  PRE-CLOSING TAX PERIOD").  Arch will prepare and, if required to do so by
applicable  law,  deliver to the Company for signing and filing any state income
Tax Returns of AOW with respect to any Arch  Pre-Closing  Tax Period  (including
any short period) that have not been filed prior to the Closing Date.  Arch will
make all payments shown thereon as owing with respect to any such Tax Returns.

         (b)  Except as otherwise provided in Section  9.2(a),  the Company will
prepare and file or cause to be prepared  and filed all Tax Returns for AOW that
are required to be filed with the appropriate  United States,  state,  local and
foreign  governmental  entities for all periods as to which such Tax Returns are
due after the Closing  Date.  The Company will pay or cause to be paid all taxes
required to be paid with respect to such Tax Returns.

         (c)  With respect to any  taxable  period  that would otherwise include
but  not  end  on the  Closing  Date,  to the  extent  permissible  pursuant  to
applicable law, Arch will, and the Company will cause AOW to, (i) take all steps
as are or may be  reasonably  necessary,  including  the filing of  elections or
returns with applicable taxing  authorities,  to cause such period to end on the
Closing Date; or (ii) if clause (i) is  inapplicable,  report the  operations of
AOW only for the  portion of such  period  ending on or  immediately  before the
Closing Date in a combined,  consolidated,  or unitary Tax Return filed by Arch,
notwithstanding  that such taxable  period does not end on the Closing  Date. If
clause (ii)  applies to a taxable  period of AOW,  the  portion of such  taxable
period  included  in such  return  filed  by Arch  will  be  treated  as an Arch
Pre-Closing  Tax Period  described in Section 9.2(a) and the Company will not be
responsible for filing such return for such year pursuant to Section 9.2(b).

         (d)  In order to assist Arch in the preparation of all Tax Returns that
Arch is required to prepare pursuant to Section 9.2(a), the Company will prepare
or cause AOW to prepare and deliver  within 60 days of receipt  Arch's  standard
Federal  and state tax  return  data  gathering  packages  relating  to AOW.  In
addition to providing such packages,  the Company will promptly provide or cause
to be provided to Arch such other  information  as Arch may  reasonably  request
(including  access to books,  records and personnel) in order for the operations
of AOW to be properly reported in such Tax Returns,  for the preparation for any
Tax audit or for the  prosecution  or defense of any claim,  suit or  proceeding
relating to Taxes.


                                       40



         (e)  The Company  will pay or cause to be paid to Arch all  refunds  or
credits of income taxes (including any interest thereon) received by the Company
after  the  Closing  Date and  attributable  to income  taxes  paid by Arch with
respect to any Arch  Pre-Closing  Tax Period.  Such payment will be made to Arch
within 30 days after receipt of any such refund from or allowance of such credit
by the relevant taxing authority.

         (f)  Arch will indemnify and hold the Company harmless from and against
any and all liability for any taxable period as a result of Treasury  Regulation
Section  1.1502-6 (or any comparable  provision of state or local law) for taxes
of any  corporation  or  other  entity,  other  than  AOW,  which is or has been
affiliated with Arch.

                                   ARTICLE 10
                                 INDEMNIFICATION

         10.1  ARCH'S AND ACQUISITION  CORP.'S  INDEMNIFICATION.  Subject to the
limitations  set forth in this Article 10, Arch and Acquisition  Corp.,  jointly
and severally, shall indemnify and hold harmless each of ARCO, Delta Housing and
their respective officers,  directors,  employees, agents and Affiliates,  other
than the ARCO Parties  (collectively,  the "ARCO  INDEMNITEES") from and against
any and all Losses to which they or any of them may become subject, including as
a result of claims by third parties, to the extent caused by:

         (a)  any breach or default in performance by Arch, Acquisition Corp. or
the Company of any  covenant,  obligation  or  agreement  of  Acquisition  Corp.
contained in this Agreement,  including those obligations of Arch or Acquisition
Corp.  set forth in Articles 3, 7, 8 and 9 hereof,  specifically  including  any
covenant,  obligation  or agreement of Arch or  Acquisition  Corp. in respect of
Environmental Liabilities related to the Properties as provided in Section 7.14,
and in respect of the Other Liabilities as provided in Section 7.16(a);

         (b)  any breach of any  representation  or  warranty  made by Arch, any
Arch Parties or the Company in this Agreement, or in any certificate, instrument
or other  document  delivered  by or on behalf of Arch or any Arch  Party at the
Closing;

and as otherwise expressly provided for in this Agreement,  including in respect
of Transfer Taxes as provided in Section 2.5.

         10.2  ARCO'S  AND  DELTA  HOUSING'S  INDEMNIFICATION.  Subject  to  the
limitations  set forth in this Article 10, ARCO and Delta  Housing,  jointly and
severally,  shall indemnify and hold harmless Arch,  Acquisition Corp. and their
respective  officers,  directors,  employees,  agents and Affiliates,  including
after the Closing the ARCO  Parties and their  officers,  directors,  employees,
agents and Affiliates,  (collectively,  the "ARCH INDEMNITEES") from and against
any and all Losses to which they or any of them may become subject, including as
a result of claims by third parties, to the extent caused by;

         (a)  any breach or default in performance  by ARCO or Delta  Housing of
any covenant, obligation or agreement of ARCO or Delta Housing contained in this
Agreement,  including  those  obligations of ARCO and Delta Housing set forth in
Articles 3, 7, 8 and 9 hereof, 


                                       41


specifically  including any  covenant,  obligation or agreement of ARCO or Delta
Housing in respect of  Environmental  Liabilities  related to the  ownership  or
operation of the Other Properties, as provided in Section 7.15 and in respect of
certain Tax liabilities under Section 9.1(f);

         (b)  any breach of any representation or warranty made by ARCO or Delta
Housing in this  Agreement or in any  certificate,  instrument or other document
delivered by or on behalf of ARCO or Delta Housing at the Closing;

         (c)  [Confidential Treatment Requested]*

                                       42



         10.3  MONETARY LIMITATION.

         (a)  As used in this Agreement, "LOSSES" shall mean any losses, claims,
damages, liabilities, out-of-pocket costs and expenses (including judgment costs
of settlement and reasonable attorneys', consultants' and experts' fees). "OTHER
LOSSES"  shall mean any Losses as defined in the Purchase  Agreement.  "COMBINED
Losses" shall mean the aggregate of all Losses of Arch Indemnitees and all Other
Losses of Arch  Indemnitees that ARCO, ARCO Uinta or Delta Housing are obligated
to  indemnify  against  pursuant to this  Agreement  or pursuant to the Purchase
Agreement.  Notwithstanding the foregoing, the dollar amount of any Losses shall
be  determined  after taking into account the  limitations  set forth in Section
10.6(d).

         (b)  ARCO, ARCO Uinta and Delta  Housing  shall have no  obligation  to
indemnify any Arch  Indemnitee  pursuant to Section  10.2(a) or Section  10.2(b)
(other than for any breach of the  representations,  warranties or covenants set
forth in Sections  4.6,  4.12(b),  4.26 and 7.15)  unless and until the Combined
Losses  incurred  or  sustained  by all Arch  Indemnitees  exceeds  $25  million
(provided  that no individual  Loss or Other Loss of less than $500,000 shall be
counted  against  such $25  million),  and then  only  for the  excess  over $25
million.  In addition,  the  liability of ARCO,  ARCO Uinta and Delta Housing to
indemnify the Arch  Indemnitees  for Combined  Losses other than Losses  arising
under Sections 4.6, 4.26,  7.15,  7.21 and 10.2(c) shall in no event exceed $500
million in the aggregate.

         10.4  NATURE AND SURVIVAL; TIME LIMITS.

         (a)  All representations and warranties set forth in  Articles 4, 5 and
6 shall  survive the Closing and continue in effect until the first  anniversary
of the  Closing  Date,  at which time any and all  liability  arising  out of or
relating to such  representations  and warranties shall terminate  provided that
ARCO's and Delta Housing's  representations  and warranties set forth in Section
4.6 as to title of the Contributed ARCO Interests to which  Acquisition  Corp.'s
indemnification obligations apply shall survive the Closing for three years. Any
claim against any party hereto for indemnification pursuant to this Agreement as
a result of any breach of  representation or warranty made by such party must be
made  promptly,  and in all events  within the period of time during  which such
representation  or  warranty  survives  the  Closing  pursuant  to this  Section
10.4(a), if any.

         (b)  Except for the representations and warranties described in Section
10.4(a),  all covenants,  obligations and agreements of the parties set forth in
this  Agreement,  including  those  obligations set forth in Articles 7, 8 and 9
hereof, shall survive indefinitely.

         10.5  LIMITATION ON REMEDIES; MITIGATION.  The indemnification provided
in this Agreement,  subject to any applicable  limitations  thereto set forth in
this Agreement,  shall be the sole and exclusive remedy available to a party for
any breach,  default or  violation of this  Agreement  by the other  party.  The
Indemnified Party shall use all reasonable efforts to mitigate any Losses.


                                       43



         10.6  GENERAL PROVISIONS.  In the case of any claim for indemnification
brought pursuant to this Agreement:

         (a)  The party entitled to indemnification  (the  "INDEMNIFIED  PARTY")
shall notify the party obligated to provide  indemnification  (the "INDEMNIFYING
PARTY")  promptly upon (i) receipt of notice of the commencement of the claim by
a third party for which  indemnification  is sought  pursuant to this Agreement;
(ii) becoming  aware of a claim for  indemnification  not involving a claim by a
third  party,  and (iii) the  occurrence  of any  material  event or change with
respect to any ongoing claim in writing and in reasonable detail, and within any
applicable time limits specified in this Agreement.

         (b)  In case any such claim is brought against any  Indemnified  Party,
and it  notifies  the  Indemnifying  Party of the  commencement  thereof,  or in
respect of any  ongoing  action,  the  Indemnifying  Party will be  entitled  to
participate  therein  and,  to the  extent it may wish,  jointly  with any other
Indemnifying Party similarly notified, to assume the defense thereof. Subsequent
to such assumption of defense, the Indemnifying Party shall not be liable to the
Indemnified Party for any legal or other expenses  subsequently  incurred by the
Indemnified  Party in connection with the defense  thereof;  PROVIDED,  HOWEVER,
that the Indemnified Party shall thereafter have the right to participate in the
defense of such claim and to be represented,  solely at its expense, by advisory
counsel selected by it. In all cases in which the Indemnifying Party assumes the
defense of such claim,  the Indemnifying  Party shall control such defense,  and
any settlement of such claim shall require the consent of the Indemnified Party,
which  consent  may  not  be  unreasonably  withheld,  conditioned  or  delayed.
Notwithstanding  anything to the contrary  contained in this Section  10.6,  the
Indemnified  Party shall have the right to employ  separate  counsel at its sole
cost and expense if there shall be available one or more defenses or one or more
counterclaims  available to the  Indemnified  Party which  conflicts with one or
more  defenses  or  one  or  more  claims  or  counterclaims  available  to  the
Indemnifying Party. Whether or not the Indemnifying Party shall have assumed the
defense  of  a  claim  for  which  the  Indemnified  Party  is  entitled  to  be
indemnified,  the  Indemnified  Party shall not admit any liability with respect
to, or settle,  compromise  or  discharge,  such claim without the prior written
consent of the  Indemnifying  Party,  which  consent  shall not be  unreasonably
withheld, conditioned or delayed.

         (c)  The Indemnified  Party will,  at the  expense of the  Indemnifying
Party,  cooperate and consult with the Indemnifying  Party in the defense of any
such action and shall furnish any  documents and endeavor to make  available any
witnesses under its control.

         (d)  Any indemnification  payment  shall be (i)  limited  to the Losses
actually incurred (after giving effect to the Present Value Benefit, realized or
realizable by the  Indemnified  Party in  connection  with or as a result of the
incurrence of the Loss for which the indemnity  payment is to be made) and shall
not  include  punitive  damages,  indirect  damages,  or  consequential  damages
(including  lost  profits)  incurred  by  the  Indemnified  Party,  (ii)  net of
insurance  proceeds  received  by the  Indemnified  Party  (and  the  amount  of
indemnification payable under this Agreement shall not include the amount of any
insurance proceeds actually recovered by the Indemnified Party with respect to a
Loss)  and (iii) in the case of Arch  Indemnitees  net of any  reserves  of TBCC
reflected on the Interim Date Balance Sheet  applicable  thereto.  The foregoing
limitations shall

                                       44


apply  before  application  of the  monetary  limitations  specified  in Section
10.3(b).  If  the  amount  to be  netted  hereunder  from  any  payment  by  the
Indemnifying  Party is determined after the Indemnifying  Party has already paid
any amount required to be paid pursuant to this Agreement, the Indemnified Party
shall repay to the Indemnifying Party,  promptly after such  determination,  any
amount that the  Indemnifying  Party would not have had to pay  pursuant to this
Agreement had such determination been made at the time of such payment.

         10.7  TAX TREATMENT. Any  indemnity  payment  made  under  this Article
shall be treated  for tax  purposes  as a  contribution  to the  Company  (and a
related  increase in tax basis) by the member who makes,  or is affiliated  with
the party who makes,  such payment unless otherwise  required by law. No payment
under  this  Article  10 shall  have a net  effect on the  capital  accounts  or
percentage interests of the members in the Company.

         10.8  COOPERATION AND COMMUNICATION.

         (a)  The  parties  to  this  Agreement (i) acknowledge  that  they  are
subject  to a  covenant  of good  faith and fair  dealing  with  respect to this
Agreement and (ii) agree to use commercially  reasonable  efforts to communicate
with and  cooperate  with each other with respect to any dealings  they may have
with other parties which could  reasonably be expected to affect the obligations
of the parties under this Agreement.

         (b) [Confidential Treatment Requested]*                               

         (c) [Confidential Treatment Requested]*

                                       45




         (d)  [Confidential Treatment Requested]*

         (e)  Acquisition  Corp.  and  ARCO  shall  execute  an  Assignment  and
Assumption  Agreement  (the  "ASSIGNMENT  AND  ASSUMPTION  AGREEMENT") in a form
acceptable to ARCO and Arch, whereby ARCO will assign, and TBCC will assume, all
rights and obligations of ARCO pursuant to the Conditional  Agreement identified
in   the  Disclosure   Schedule   (the  "CONDITIONAL  AGREEMENT"). [Confidential
Treatment Requested]*

         10.9  EFFECTING THE  INDEMNITY.  Any indemnity  payment to be made by a
party  hereto  shall be made to the  Company,  except  as set  forth in the next
sentence,  notwithstanding  any other provision of the Agreement.  Any indemnity
payment  which is intended to make  another  party whole for out of pocket costs
incurred  by that  party  shall  be  made to the  member  that  incurred,  or is
affiliated with the person that incurred, those costs.

                                   ARTICLE 11
                              CONDITIONS TO CLOSING

         11.1  CONDITIONS PRECEDENT TO OBLIGATIONS OF ARCH AND ACQUISITION CORP.
The obligations of Arch and Acquisition  Corp.  under this Agreement are subject
to the  satisfaction  (or waiver by Arch),  prior to or on the Closing  Date, of
each of the following conditions:

         (a)  Any breach or breaches of the representations  and  warranties  of
ARCO or Delta Housing  contained in this  Agreement or of ARCO and ARCO Uinta in
the Purchase  Agreement at and as of the Closing  Date,  after giving  effect to
such representations and warranties as though made on and as of the Closing Date
(except for  representations  and warranties  made as of a specific date,  which
shall be given  effect as of such date),  that alone or in the  aggregate do not
have a Material Adverse Effect.

         (b)  ARCO and Delta  Housing shall have  performed  or  complied in all
material respects with all obligations and covenants  required by this Agreement
to be performed  or complied  with by ARCO or Delta  Housing  prior to or at the
Closing, including notifications under Section 7.3.

         (c)  The waiting  period  under the HSR Act shall have  expired or been
terminated,  and neither the Antitrust Division nor the FTC shall have indicated
its  objection  to, or its intent to challenge as violative of any Federal laws,
any of the transactions contemplated by this Agreement.

         (d)  Arch shall have received an opinion,  dated the Closing  Date,  of
counsel  employed by ARCO, in form and substance  reasonably  acceptable to Arch
and Acquisition Corp.


                                       46


         (e)  There shall not be in effect any injunction or order issued by any
court or  administrative  agency of  competent  jurisdiction  preventing  in any
material  respect the  consummation  of the  transactions  contemplated  by this
Agreement on the Closing Date.

         (f)  Arch shall have received  such  resignations  of the  officers and
directors  of the ARCO  Parties as shall have been  requested by Arch in writing
not less than 30 days prior to the Closing  Date,  subject to the  provisions of
Article 8.

         (g)  Since the Effective  Date,  there have been no  adverse  events or
occurrences  other than  adverse  events or  occurrences  as a result of general
economic conditions or other conditions affecting the industry in which the ARCO
Parties  operate  (including  fluctuations  in coal  prices and  legislative  or
regulatory conditions) that together with the total amount of claims of the Arch
Indemnitees for ARCO's or Delta Housing's  breaches of their  representation  or
warranties  contained in this  Agreement or in the Purchase  Agreement as of the
Closing Date, have a Material Adverse Effect.

         (h)  The transactions  contemplated in the Purchase  Agreement shall be
consummated concurrently with the Closing.

         If the Closing occurs,  nothing in this Section 11.1 shall be construed
to limit Arch's or Acquisition Corp.'s  indemnification  rights or the amount of
ARCO's  or Delta  Housing's  indemnification  obligations,  and it is  expressly
agreed that unless waived in writing by Arch or Acquisition Corp. at or prior to
the Closing,  any remedy  available to Arch or  Acquisition  Corp. for ARCO's or
Delta  Housing's  breach of its  representations  and  warranties or substantial
failure to perform or comply with any obligation or covenant,  including  ARCO's
or Delta Housing's  indemnification  obligations after the Closing in respect of
such  breaches and  failures  occurring  on or prior to Closing,  shall  survive
Closing and be unaffected thereby.

         11.2  CONDITIONS  PRECEDENT  TO  OBLIGATIONS OF ARCO AND DELTA HOUSING.
The  obligations  of ARCO and Delta Housing under this  Agreement are subject to
the  satisfaction  (or  waiver  by ARCO and Delta  Housing),  prior to or on the
Closing Date, of each of the following conditions:

         (a)  The representations  and warranties of Arch or  Acquisition  Corp.
contained in this Agreement  shall be true and correct in all material  respects
at and as of the Closing Date,  with the same effect as though made on and as of
the  Closing  Date  (except  for  representations  and  warranties  made as of a
specific  date,  which shall be true and correct in all material  respects as of
such date).

         (b)  Arch and Acquisition Corp. shall have performed or complied in all
material respects with all obligations and covenants  required by this Agreement
to be performed or complied with by Arch and  Acquisition  Corp.  prior to or at
the Closing.

         (c)  The waiting  period  under the HSR Act shall have  expired or been
terminated,  and neither the Antitrust Division nor the FTC shall have indicated
its  objection  to, or its intent to 



                                       47


challenge as violative of any Federal laws, any of the transactions contemplated
by this Agreement.

         (d)  ARCO shall have received an opinion,  dated the Closing  Date,  of
Jeffry N. Quinn,  counsel for Arch and Acquisition  Corp., in form and substance
reasonably acceptable to ARCO and Delta Housing.

         (e)  There shall not be in effect any injunction or order issued by any
court  or  administrative  agency  of  competent  jurisdiction   preventing  the
consummation of the  transactions  contemplated by this Agreement on the Closing
Date.

         (f)  The transactions  contemplated in the Purchase  Agreement shall be
consummated concurrently with the Closing.

         (g)  Any consents  necessary  to transfer  operating  permits for mines
owned by either of the ARCO  Parties  shall have been  obtained  unless Arch and
Acquisition  Corp. shall have agreed to indemnify ARCO and the ARCO Parties from
any Losses arising out of the failure to obtain such consents.  

         If the Closing occurs,  nothing in this Section 11.2 shall be construed
to limit ARCO or Delta Housing's indemnification rights or the amount of Arch or
Acquisition Corp.'s indemnification obligations, and it is expressly agreed that
unless  waived in writing by ARCO or Delta  Housing at or prior to the  Closing,
any  remedy  available  to ARCO or  Delta  Housing  in  writing  for  Arch's  or
Acquisition   Corp.'s  breach  of  their   representations   and  warranties  or
substantial  failure to  perform  or comply  with any  obligation  or  covenant,
including Arch's and Acquisition Corp.'s  indemnification  obligations after the
Closing  in respect  of such  breaches  and  failures  occurring  on or prior to
Closing, shall survive Closing and be unaffected hereby.

                                   ARTICLE 12
                            TERMINATION OF AGREEMENT

         12.1  TERMINATION  BEFORE CLOSING.  This Agreement may be terminated at
any time before Closing:

         (a)  by  the  mutual  consent of ARCO, Delta Housing, Acquisition Corp.
and Arch in writing;

         (b)  by Arch (i) if there have  been  breaches by ARCO or Delta Housing
of any  representations  or warranties of ARCO and/or Delta Housing contained in
this Agreement or by ARCO and/or ARCO Uinta in the Purchase Agreement that alone
or in the aggregate  have a Material  Adverse  Effect,  and if the breaches have
continued for a period of 30 days following Arch's  notification to ARCO of such
breaches,  or (ii) if events  have  occurred  which have made it  impossible  to
satisfy the  conditions  precedent to the  obligations  of Arch and  Acquisition
Corp. set forth in Section 11.1;



                                       48


         (c)  by ARCO  (i) if  there  have  been  material  breaches  by Arch or
Acquisition  Corp.  of  any   representations   or  warranties  of  Arch  and/or
Acquisition Corp. contained in this Agreement or in the Purchase Agreement,  and
if the  breaches  have  continued  for a  period  of 30  days  following  ARCO's
notification  to Arch of such  breaches,  or (ii) if events have occurred  which
have made it impossible to satisfy the conditions  precedent to the  obligations
of ARCO and Delta Housing set forth in Section 10.2;

         (d)  by Arch if Closing has not  occurred  on or prior to 75 days after
the  Effective  Date other than  primarily as a result of Arch's or  Acquisition
Corp.'s breach or default of this Agreement; or

         (e)  by ARCO if the  Closing has not  occurred  on or  prior to 75 days
after the  Effective  Date  other  than  primarily  as a result of ARCO or Delta
Housing's breach or default of this Agreement.

         12.2  EFFECT OF TERMINATION. If  this Agreement is  terminated pursuant
to Section 12.1,  all further  obligations  of the parties under this  Agreement
will  terminate and there shall be no liability on the part of any party to this
Agreement, except for material willful breaches of and intentional misstatements
in or  pursuant  to this  Agreement  prior  to the  time  of  such  termination;
provided, however, that the obligations in Sections 7.1(b), 7.5, 7.6, 12.2, 13.3
and 13.10 shall survive the termination of this Agreement.

                                   ARTICLE 13
                                  MISCELLANEOUS

         13.1  ENTIRE  AGREEMENT.  This  Agreement, including  the  Exhibits and
Disclosure  Schedule,  the Company  Agreement,  Purchase  Agreement  and the Tax
Sharing  Agreement,  set forth the entire  agreement  and  understanding  of the
parties in respect of the  transactions  contemplated  herein and supersedes any
previous agreements and understandings between the parties with respect thereto.

         13.2  CONSTRUCTION.   This  Agreement  is  the  result  of  arms-length
negotiations  between,  and has been prepared and reviewed by, each party hereto
and its respective  counsel.  Accordingly,  this Agreement shall be deemed to be
the product of each party hereto.

         13.3  GOVERNING LAW.  The validity of this  Agreement, the construction
of its terms and the  interpretation  of the rights  and  duties of the  parties
hereto  shall be  governed  by the  substantive  laws of the  State of  Delaware
without regard to the principles of conflict of laws of the State of Delaware or
any other jurisdiction  (except those that cannot be waived) that would call for
the application of the substantive law of any jurisdiction  other than the State
of Delaware.

         13.4  NOTICES.  All  notices,  requests  and  demands  to or  upon  the
respective parties hereto to be effective shall be in writing, by facsimile,  by
overnight courier or by registered or certified mail, postage prepaid and return
receipt requested, and shall be deemed to have been duly given or made upon: (i)
delivery by hand,  (ii) one business day after being sent by overnight  courier,
(iii) four  business  days after  being  deposited  in the United  States  mail,
postage  prepaid,


                                       49


or (iv) in the case of transmission by facsimile,  when  confirmation of receipt
is obtained.  Such communications shall be addressed and directed to the parties
listed below as follows:

  If to ARCO or Delta Housing:       Atlantic Richfield Company
                                     515 South Flower Street
                                     Los Angeles, California 90071
                                     Facsimile: (213) 486-0170 - Treasurer
                                     Facsimile: (213) 486-1544 - General Counsel
                                     Attention: Treasurer
                                     Attention: General Counsel

  If to Arch or Acquisition Corp.:   Arch Coal, Inc.
                                     CityPlace One, Suite 300
                                     St. Louis, Missouri 63141
                                     Facsimile: 314-994-2734
                                     Attention:  Jeffry N. Quinn

  If to the Company:                 Arch Western Resources LLC
                                     CityPlace One, Suite 300
                                     St. Louis, Missouri 63141
                                     Facsimile: 314-994-2734
                                     Attention:  Jeffry N. Quinn

         13.5  WAIVER. Waivers of or consents to departures  from the provisions
hereof may be given; PROVIDED, however, that the same shall be in writing and be
signed by the parties hereto.  No such waiver or consent shall be construed as a
waiver of or  consent to any other  departure  from any such  provisions  or any
other provisions hereof.

         13.6  BINDING EFFECT; ASSIGNMENT.  This Agreement shall be binding upon
and inure to the  benefit of the  parties and their  respective  successors  and
permitted  assigns.  No  assignment  of  this  Agreement  or of  any  rights  or
obligations  hereunder  may be  made,  in whole or in  part,  by any  party  (by
operation of law or otherwise)  without the prior  written  consent of the other
parties hereto, and any purported assignment without consent shall be void.

         13.7  AMENDMENT.  This  Agreement  may  not  be  amended,  modified  or
supplemented  unless  the same shall be in  writing  and  signed by the  parties
hereto.

         13.8  COUNTERPARTS.  This  Agreement  may  be executed in counterparts,
each of which shall be an original,  but all of which together shall  constitute
one and the same document.

         13.9  NO   THIRD   PARTY  BENEFICIARIES.  The   terms,  agreements  and
provisions of the parties set forth in this  Agreement are not intended for, nor
shall  they be for the  benefit  of or  enforceable  by,  any Person not a party
hereto, including each of the ARCO Parties.

         13.10  JURISDICTION; SERVICE OF PROCESS


                                       50


         (a)  Each party to this Agreement hereby irrevocably  submits itself to
the  non-exclusive  jurisdiction of the Supreme Court for the State of New York,
sitting in the Borough of Manhattan, or the United States District Court for the
Southern District of New York, (i) for the purposes of any suit, action or other
proceeding  brought by any other party, or its respective  successors or assigns
arising out of the  transactions  contemplated by this Agreement or the Purchase
Agreement,  (ii) to  enforce  a  resolution,  settlement,  order or  award  made
pursuant  thereto,  or any obligation for the payment of money contained herein.
To the extent  permitted by applicable Law, each party to this Agreement  hereby
waives, and agrees not to assert, by way of motion, as a defense,  or otherwise,
in any such suit, action or proceeding,  any claim that (a) it is not personally
subject to the jurisdiction of the above-named  courts,  (b) the suit, action or
proceeding  is  brought  in an  inconvenient  forum,  (c) the venue of the suit,
action or proceeding is improper, or (d) a resolution,  settlement or order made
pursuant  thereto,  or such an obligation  for the payment of money,  may not be
enforced in or by such court.  Nothing contained herein shall be deemed to waive
the right of a party to seek  removal of a matter  from  state  court to Federal
court if such removal is otherwise permissible.

         (b)  Each party to this Agreement hereby consents to service of process
on it at the office for  service  of process  set forth  below as its office for
service of process and  additionally  irrevocably  designates  and  appoints the
person named in Exhibit 13.10(b) as its "Agent" and  attorney-in-fact to receive
service of process in any action,  suit or proceeding with respect to any matter
as to which it submits to  jurisdiction as set forth above, it being agreed that
service  upon  Agent  shall  constitute  valid  service  upon  the  party or its
successors or assigns.  Each party agrees that (x) the sole  responsibilities of
the Agent shall be (i) to receive such process,  (ii) to send a copy of any such
process so  received  to such  party,  by  registered  airmail,  return  receipt
requested,  at the  address  for it set forth in  Section  13.4,  or at the last
address  filed  in  writing  by it with the  Agent,  and  (iii)  to give  prompt
telecopied  notice of receipt  thereof to it at such address (y) the Agent shall
have no responsibility  for the receipt or nonreceipt by the respective party of
such process,  nor for any performance or nonperformance by the respective party
or its respective  successors or assigns, and (z) failure of the Agent to send a
copy of any such process or otherwise to give notice  thereof to the  respective
party  shall not affect the  validity  of such  service or any  judgment  in any
action,  suit or  proceeding  based  thereon.  If service  of process  cannot be
effected in the foregoing manner, each party further irrevocably consents to the
service of process in any action,  suit or  proceeding  by the mailing of copies
thereof by registered or certified  airmail,  postage  prepaid,  return  receipt
requested, to it at its address set forth in Section 13.4 hereof. The foregoing,
however,  shall not limit the right of the party to serve  process  in any other
manner permitted by Law. Any judgment against a party in any suit for which such
party has no further right of appeal shall be conclusive, and may be enforced in
other  jurisdictions by suit on the judgment,  a certified or true copy of which
shall be conclusive  evidence of the fact and of the amount of any  indebtedness
or  liability  of such party  therein  described;  PROVIDED,  HOWEVER,  that the
plaintiff may at its option bring suit, or institute other judicial proceedings,
against  such party or any of its  assets in the courts of any  country or place
where such party or such assets may be found.  Each party further  covenants and
agrees that for three years following the Closing Date, it shall maintain a duly
appointed  agent for the service of summonses  and other legal  processes in New
York.


                                       51


         For purposes of this Section  13.10,  the Agent and offices for service
of process for each of the parties shall be as set forth in Exhibit  13.10(b) or
such other person or offices as shall be  designated  in writing by any party to
the other parties.

         13.11  DISCLAIMER FOR  COMMUNICATIONS.  Except as and to the extent set
forth in this Agreement,  ARCO,  Delta Housing and their  respective  Affiliates
make no  representations,  promise,  covenant  or  warranty  regarding  the ARCO
Parties,  their assets,  business,  operations,  liabilities or obligations,  or
otherwise, and disclaim all liability and responsibility for any representation,
warranty, disclosure or statement made or communicated (orally or in writing) to
Arch,  Acquisition  Corp.  or their  respective  Affiliates  or to any  officer,
stockholder,  director,  employee,  agent, consultant or representative of Arch,
Acquisition  Corp. or their  respective  Affiliates,  including any  information
provided by any investment banking firm or other agent of ARCO or Delta Housing,
or any  opinion,  statement  or advice  which may have  been  provided  to Arch,
Acquisition  Corp. or their respective  Affiliates by any officer,  stockholder,
director,  employee,  agent, consultant or representative of ARCO, Delta Housing
or the ARCO Parties.




                                       52





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

                                 ARCH COAL, INC.

                                 /s/ David B. Peugh
                                 ---------------------------------------------- 
                                 By:     David B.Peugh
                                 Title:  Vice President



                                 ARCH WESTERN ACQUISITION CORPORATION

                                 /s/ Jeffry N. Quinn
                                 ---------------------------------------------- 
                                 By:     Jeffry N. Quinn
                                 Title:  President



                                 ATLANTIC RICHFIELD COMPANY

                                 /s/ Terry G. Dallas
                                 ---------------------------------------------- 
                                 By:     Terry G. Dallas
                                 Title:  Senior Vice President and Treasurer



                                 DELTA HOUSING INC.

                                 /s/ Charles P. Cooley
                                 ----------------------------------------------
                                 By:     Charles P. Cooley
                                 Title:  Treasurer



                                 ARCH WESTERN RESOURCES LLC

                                 /s/ Jeffry N. Quinn
                                 ----------------------------------------------
                                 By:     Jeffry N. Quinn
                                 Title:  President





                                       53



                                                                     EXHIBIT 2.3




                       LIMITED LIABILITY COMPANY AGREEMENT

                                       OF

                           ARCH WESTERN RESOURCES LLC,

                      A DELAWARE LIMITED LIABILITY COMPANY

                            dated as of June 1, 1998

                                     between

                      ARCH WESTERN ACQUISITION CORPORATION

                                       and

                               DELTA HOUSING INC.






                                TABLE OF CONTENTS
                                                                            Page

SECTION 1  GENERAL PROVISIONS.............................................. 2
      1.1   Maintenance.................................................... 2
      1.2   Name........................................................... 2
      1.3   Purpose........................................................ 2
      1.4   Principal Executive Office..................................... 3
      1.5   Term........................................................... 3
      1.6   Filings; Agent for Service of Process.......................... 3
      1.7   Title to Property.............................................. 4
      1.8   Payments of Individual Obligations............................. 4
      1.9   Independent Activities......................................... 4
      1.10  Definitions.................................................... 4
      1.11  Additional Definitions........................................ 16
      1.12  Terms Generally............................................... 17

SECTION 2  MEMBERS' CAPITAL CONTRIBUTIONS................................. 17
      2.1   Members' Original Capital Contributions....................... 17
      2.2   Capital Accounts.............................................. 18
      2.3   Additional Capital Contributions; Preemptive Right............ 18
      2.4   Company Funds................................................. 19
      2.5   Other Borrowings; Member Loans................................ 19
      2.6   Other Matters................................................. 20

SECTION 3  ALLOCATIONS.................................................... 20
      3.1   Profits....................................................... 20
      3.2   Losses........................................................ 21
      3.3   Certain Allocations........................................... 21
      3.4   Curative Allocations.......................................... 23
      3.5   Other Allocation Rules........................................ 23
      3.6   Tax Allocations:  Code Section 704(c)......................... 24

SECTION 4  DISTRIBUTIONS.................................................. 24
      4.1   Initial Distribution.......................................... 24
      4.2   Available Cash................................................ 24
      4.3   Tax Distributions............................................. 25
      4.4   Amounts Withheld.............................................. 25

SECTION 5  MANAGEMENT..................................................... 25
      5.1   Authority of the Managing Member.............................. 25
      5.2   Officers...................................................... 26
      5.3   Liability of Members.......................................... 27
      5.4   Indemnification............................................... 28
      5.5   Interested Party Transactions................................. 29

SECTION 6  ACCOUNTING, BOOKS AND RECORDS.................................. 29
      6.1   Accounting, Books and Records................................. 29
      6.2   Reports....................................................... 30
 
                                        i



      6.3   Tax Returns and Information................................... 31

SECTION 7  DISPOSITIONS OF INTERESTS...................................... 32
      7.1   Restriction on Dispositions................................... 32
      7.2   Permitted Transfers........................................... 33
      7.3   Conditions to Permitted Transfers............................. 33
      7.4   Put and Call Rights........................................... 35
      7.5   Net Equity.................................................... 36
      7.6   Gross Appraised Value......................................... 37
      7.7   Extension of Time............................................. 38
      7.8   Tagalong Rights............................................... 38
      7.9   Prohibited Dispositions....................................... 39
      7.10  Representations Regarding Acquisitions of Interests........... 39
      7.11  Distributions and Allocations in Respect of Transferred 
            Interests..................................................... 39

SECTION 8   DISSOLUTION AND WINDING UP.................................... 40
      8.1   Liquidating Events............................................ 40
      8.2   Winding Up.................................................... 40
      8.3   Deemed Distribution and Recontribution........................ 42
      8.4   Rights of Members............................................. 42
      8.5   Notice of Dissolution......................................... 43
      8.6   Deemed Sale and Allocation.................................... 43

SECTION 9   DISPUTE RESOLUTION............................................ 43
      9.1   Dispute Resolution; Arbitration............................... 43
      9.2   Jurisdiction; Service of Process.............................. 44

SECTION 10  MISCELLANEOUS................................................. 45
     10.1   Notices....................................................... 45
     10.2   Binding Effect................................................ 46
     10.3   Construction.................................................. 46
     10.4   Time.......................................................... 46
     10.5   Table of Contents; Headings................................... 46
     10.6   Severability.................................................. 46
     10.7   Confidentiality............................................... 46
     10.8   Further Action................................................ 48
     10.9   Governing Law................................................. 48
     10.10  Waiver of Action for Partition................................ 48
     10.11  Counterpart Execution......................................... 49
     10.12  Specific Performance.......................................... 49
     10.13  Entire Agreement.............................................. 49
     10.14  Limitation on Rights of Others................................ 49
     10.15  Waivers; Remedies............................................. 49
     10.16  Amendment..................................................... 49

                                       ii




SCHEDULES

2.1   Gross  Asset  Values of  Capital  Contributions;  Address  for Notice of
      Members
9.2   Agent for Service of Process

                                      iii




                       LIMITED LIABILITY COMPANY AGREEMENT
                                       OF
                           ARCH WESTERN RESOURCES LLC,
                      A DELAWARE LIMITED LIABILITY COMPANY


      This LIMITED  LIABILITY  COMPANY  AGREEMENT of ARCH WESTERN  RESOURCES LLC
(the "Company") is entered into as of the 1st day of June,  1998, by and between
Arch Western  Acquisition  Corporation,  a Delaware  corporation ("Arch Member")
directly  or  indirectly  owned  by Arch  Coal,  Inc.,  a  Delaware  corporation
("Arch"),  and Delta  Housing  Inc.,  a  Delaware  corporation  ("ARCO  Member")
directly  or  indirectly  owned  by  Atlantic   Richfield  Company,  a  Delaware
corporation ("ARCO").

      WHEREAS,  on March 17, 1998 (the "Formation Date"), Arch Member caused the
Company to be formed as a Delaware limited liability company; and

     WHEREAS, on the date hereof, Arch Member has acquired for cash, among other
things (i) a 65% membership  interest in Canyon Fuel Company, a Delaware limited
liability  company  ("Canyon  Fuel"),  (ii) all of the  membership  interests in
Mountain Coal Company L.L.C., a Delaware limited liability company ("MCC"),  and
(iii) all of the  membership  interests  in ARCO Uinta  Sub, a Delaware  limited
liability company ("AUS"), in each case from ARCO Uinta Coal Company, a Delaware
corporation ("ARCO Uinta"), pursuant to that certain Purchase and Sale Agreement
dated as of March 22, 1998 between Arch,  Arch Member,  ARCO and ARCO Uinta (the
"Purchase  and Sale  Agreement"),  and  contributed  such assets,  together with
membership  interests  owned by Arch  Member in Arch of Wyoming  LLC, a Delaware
limited  liability  company  ("Arch  Wyoming"),  to the Company in exchange  for
membership interests in the Company; and

      WHEREAS,  on the date hereof ARCO has (i)  contributed  certain  assets to
Thunder  Basin  Coal  Company  L.L.C.,  a  Delaware  limited  liability  company
("TBCC"),  and has  contributed  all of the membership  interests in TBCC to the
Company  in  exchange  for  interests  in the  Company,  (ii)  contributed  such
membership interests in the Company to ARCO Member, and (iii) contributed all of
the stock  owned by it of L.A.  Export  Terminal  Inc.,  a Delaware  corporation
("LAXT"), and certain other assets, to AUS in exchange for interests in AUS, and
ARCO Member has  contributed  its  membership  interests  in State Leases LLC, a
Delaware limited  liability  company  ("SLLLC"),  to the Company in exchange for
membership interests in the Company; and

      WHEREAS, certain of the foregoing transactions have been effected pursuant
to a Limited Liability Contribution  Agreement,  dated as of March 22, 1998 (the
"Contribution  Agreement"),  among Arch, Arch Member,  ARCO, ARCO Member and the
Company,  providing for, among other things,  additional  capitalization  of the
Company  and the  admission  of each of Arch  Member,  ARCO and ARCO  Member  as
members or continuing members of the Company (each, a "Member");



      NOW,  THEREFORE,  in  consideration of the mutual covenants and agreements
herein contained and for other good and valuable  consideration  the receipt and
sufficiency  of which are  hereby  acknowledged,  the  Members  hereby  agree as
follows:


                                    SECTION 1

                               GENERAL PROVISIONS

     1.1   MAINTENANCE

      The Members  hereby agree to maintain  the Company as a limited  liability
company  under  and  pursuant  to the  Act (as  hereinafter  defined)  and  this
Agreement. Except as provided in this Agreement, the rights, duties, liabilities
and obligations of the Members and the administration,  dissolution,  winding up
and termination of the Company shall be governed by the Act.

      1.2   NAME

      The  name of the  Company  shall  be Arch  Western  Resources  LLC and all
business of the Company shall be conducted in such name or, in the discretion of
the Managing  Member,  under any other names (but excluding a name that includes
the name ARCO, Atlantic Richfield or any derivation thereof,  unless ARCO Member
has consented thereto).

      1.3   PURPOSE

            (1) Subject to, and upon the terms and conditions of this Agreement,
the  purposes  and  business  of the Company  shall be to manage and  maintain a
business  engaged in the  production  trading,  marketing  and sale of coal,  to
acquire,  hold, own,  operate,  manage,  finance,  encumber,  sell, or otherwise
dispose  of and  otherwise  use the  Property,  and to  enter  into  any  lawful
transaction and engage in any lawful  activities in furtherance of the foregoing
purposes and as may be  necessary,  incidental  or  convenient  to carry out the
business and purposes of the Company,  including the issuance and performance of
the Company Debt and any Successor Debt.

            (2) The Company shall have all the powers now or hereafter conferred
by the laws of the State of Delaware on limited liability companies formed under
the Act and,  subject to the terms of this Agreement,  may do any and all lawful
acts or things that are necessary, appropriate, incidental or convenient for the
furtherance and accomplishment of the purposes of the Company.  Without limiting
the generality of the foregoing, the Company may enter into, deliver and perform
all contracts,  agreements and other  undertakings  and engage in all activities
and  transactions  as may be necessary or  appropriate to carry out its purposes
and conduct its business.

            (3)  Contemporaneously  with  the  execution  and  delivery  of this
Agreement, the transactions  contemplated by the Purchase and Sale Agreement and
the Contribution Agreement shall have been consummated, pursuant to which, among
other things, Arch Member 


                                      - 2 -


has  contributed to the Company the Arch Sub  Membership  Interests and the Cash
Contribution,  and ARCO  Member  has  contributed  to the  Company  the ARCO Sub
Membership  Interests  and  certain  other  assets and rights as provided in the
Contribution Agreement.

            (4)   Simultaneously   with  the  execution  and  delivery  of  this
Agreement,  the Company has issued the Company Debt and ARCO Member has executed
and delivered the ARCO Member Guarantee.

      1.4   PRINCIPAL EXECUTIVE OFFICE

      The  principal  executive  office of the Company  shall be located in such
place as determined by the Managing  Member,  and the Managing Member may change
the  location  of the  principal  executive  office of the  Company to any other
place,  within or without the State of Delaware,  upon ten Business  Days' prior
notice to each of the Members,  PROVIDED that such  principal  executive  office
shall be located in the United States. The initial principal executive office of
the Company shall be located at Suite 300,  CityPlace  One, St. Louis,  Missouri
63141.  The Managing Member may establish and maintain such  additional  offices
and places of business of the Company,  within or without the State of Delaware,
as it deems appropriate.

      1.5   TERM

      The term of the Company commenced on the Formation Date and shall continue
until  the  winding  up and  liquidation  of the  Company  and its  business  is
completed following a Liquidating Event, as provided in Section 8.

      1.6   FILINGS; AGENT FOR SERVICE OF PROCESS

            (1) The Managing  Member  shall take any and all actions  reasonably
necessary  to  perfect  and  maintain  the  status of the  Company  as a limited
liability  company under the laws of Delaware.  The Managing  Member shall cause
amendments to the Certificate of Formation of the Company (the "Certificate") to
be filed whenever required by the Act. The Members shall be provided with copies
of each document filed or recorded as  contemplated by this Section 1.6 promptly
following the filing or recording thereof.

            (2) The  Managing  Member  shall  cause to be filed an  original  or
amended  Certificate  and  shall  take  any  and  all  other  actions  as may be
reasonably  necessary  to perfect  and  maintain  the status of the Company as a
limited  liability company or similar type of entity under the laws of any other
states or jurisdictions in which the Company engages in business.

            (3) The registered agent for service of process on the Company shall
be CT  Corporation  or any  successor as  appointed  by the  Managing  Member in
accordance  with the Act. The registered  office and statutory agent in Delaware
shall be as set  forth in the  Certificate  until  such  time as the  registered
office or statutory agent is changed in accordance with the Act.


                                       - 3 -



      1.7   TITLE TO PROPERTY

      No Member  shall have any  ownership  interest in its  individual  name or
right in any Property owned,  directly or indirectly,  by the Company,  and each
Member's Interest shall be personal property for all purposes. The Company shall
hold all of its  Property  in the name of the  Company or its nominee and not in
the name of any Member. Members' Interests shall not be "securities" governed by
Article 8 of the Uniform  Commercial Code of any  jurisdiction,  and the Members
will neither  cause,  suffer nor permit any action that would produce a contrary
result.

      1.8   PAYMENTS OF INDIVIDUAL OBLIGATIONS

      The Company's  credit and Property shall be used solely for the benefit of
the Company,  and no Property of the Company shall be  transferred or encumbered
for, or in payment of, any individual obligation of any Member.

      1.9   INDEPENDENT ACTIVITIES

      Each  Member and any of its  Affiliates  shall be  required to devote only
such time to the affairs of the Company as such  Member  determines  in its sole
discretion  may be  necessary  to manage and  operate  the Company to the extent
contemplated by this Agreement, and nothing in this Agreement shall preclude any
Member from  engaging in the coal  business  or any other  business  for its own
account,  whether in the  geographic  area of any of the Property or  otherwise;
PROVIDED  that ARCO  Member  and its  Affiliates  shall  not  engage in the coal
business  in the State of Wyoming or the State of  Colorado  for two years after
the date of this Agreement.

      1.10   DEFINITIONS

      Capitalized  words and phrases used in this  Agreement  have the following
meanings:

            "Act" means the Delaware Limited  Liability Company Act, as the same
may be amended from time to time.

            "Acceptable Debt Rating" means with respect to any Person, that such
Person's unsecured noncredit-enhanced  Indebtedness has a rating of at least Ba3
from Moody's  Investors  Service or at least BB- from  Standard & Poors  Ratings
Group (a division of McGrall Hill, Inc.).

            "Accountants"  means,  as of  any  time,  such  firm  of  nationally
recognized  independent  certified public accountants that, as of such time, has
been appointed by the Managing Member as the accountants for the Company.

            "Additional  Capital  Contributions"  means,  with  respect  to each
Member,  the Capital  Contributions made by such Member pursuant to Section 2.3,
reduced by the amount of any  liabilities  of such Member assumed by the Company
in  connection  with such  Capital  


                                      - 4 -


Contributions or which are secured by any Property contributed by such Member as
a part of such Capital Contributions.

            "Additional  Contribution  Agreement" means a contribution agreement
providing for the contribution of Property or cash to the Company,  the terms of
which have been approved by the Managing Member.

            "Adjusted  Capital  Account  Deficit"  means,  with  respect  to any
Member, the deficit balance,  if any, in such Member's Capital Account as of the
end of the  relevant  Allocation  Year,  after  giving  effect to the  following
adjustments: (i) credit to such Capital Account any amounts which such Member is
obligated to restore pursuant to any provision of this Agreement or is deemed to
be obligated to restore  pursuant to the  penultimate  sentences of  Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5); and (ii) debit to such Capital Account
the items described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5)
and  1.704-1(b)(2)(ii)(d)(6)  of the  Regulations.  The foregoing  definition of
Adjusted  Capital  Account  Deficit is intended to comply with the provisions of
Section  1.704-1(b)(2)(ii)(d)  of  the  Regulations  and  shall  be  interpreted
consistently therewith.

            "Affiliate" means, with respect to any Person, any other Person that
directly  and/or  indirectly  through one or more  intermediaries  controls,  is
controlled by, or is under common control with such Person. For purposes of this
definition,  the term "controls" (including its correlative meanings "controlled
by" and  "under  common  control  with")  shall mean the  possession,  direct or
indirect,  of the power to direct or cause the direction of the  management  and
policies of a Person,  whether  through the ownership of voting  securities,  by
contract or otherwise.  Notwithstanding the foregoing,  (i) neither the Company,
nor any Person controlled by the Company,  shall be deemed to be an Affiliate of
any Member or of any Affiliate of any Member and (ii) no Member or any Affiliate
thereof  shall be deemed to be an Affiliate of any other Member or any Affiliate
thereof solely by virtue of its Interest in the Company. As used with respect to
ARCO,   "Affiliate"  shall  not  include  ARCO  Chemical  Company,   a  Delaware
corporation,  or Vastar Resources,  Inc., a Delaware  corporation.  As used with
respect  to Arch,  "Affiliate"  shall  not  include  Ashland  Inc.,  a  Kentucky
corporation.

            "Agreement"  means  this  Limited   Liability   Company   Agreement,
including all Schedules hereto, as amended from time to time.

            "Allocation  Year" means (i) the period  commencing on the Formation
Date and ending on December  31,  1998,  (ii) any  subsequent  twelve (12) month
period  commencing  on January 1 and ending on December 31, or (iii) any portion
of the period  described in clause (i) or (ii) for which the Company is required
to allocate Profits,  Losses,  and other items of Company income,  gain, loss or
deduction pursuant to this Agreement.

            "Arch  Intercompany  Loan"  means each loan or  advance  made by the
Company to Arch or an  Affiliate  of Arch,  which shall be evidenced by a demand
promissory note of Arch or such Affiliate,  shall bear interest  payable no less
frequently  than  quarterly  from the date made 

                                      - 5 -


until paid in full at a rate per annum to be determined  by the Managing  Member
that is no less  favorable  to the Company than if such loan or advance had been
made to ARCH or such Affiliate by an unaffiliated financial institution.

            "Arch Sub Membership Interests" means the membership interests owned
by Arch Member in Canyon Fuel, MCC, AUS and Arch Wyoming.

            "ARCO Assets" shall mean the ARCO Sub Membership  Interests (and the
assets, rights and properties of each of the entities whose membership interests
are included therein) and all other assets and rights contributed to the Company
by ARCO or any Affiliate of ARCO pursuant to the Contribution Agreement.

            "ARCO Member  Guarantee"  means the Collection  Guaranty  Agreement,
dated as of even date herewith,  executed and delivered by ARCO Member, pursuant
to which ARCO Member has guaranteed the Company's  obligations under the Company
Debt and Successor Debt.**

            "ARCO Sub  Membership  Interests"  shall mean the entire  membership
interest in TBCC,  and  certain  other  assets and  interests  described  in the
Contribution Agreement.

            "Available  Cash" means as of any date the cash of the Company as of
such date less such portion thereof as the Managing Member determines to reserve
for Company expenses,  debt payments,  sinking fund provisions applicable to the
Company  Debt,  Successor  Debt or other  Indebtedness  of the Company,  capital
improvements, replacements, and contingencies.

            "Base Credit Level" means, with respect to the Interest Ratio or the
Indebtedness  Ratio, as the case may be, for each calendar year specified in the
table below, the applicable ratio set opposite such year:


                     YEAR            INTEREST RATIO       INDEBTEDNESS RATIO

                     1998                2.5 : 1               4.5 : 1

                     1999                2.5 : 1               4.5 : 1

             2000 and thereafter         3.0 : 1               3.5 : 1


            "Base Credit Level Compliance"  means, as to any Person on any date,
that such  Person (a) had, as of the last day of the fiscal  quarter  ended next
preceding  such date,  an  Interest

- --------
      **    ARCO Member  Guarantee  shall  provide that ARCO Member shall not be
            required to extend such guarantee  beyond the fifteenth  anniversary
            of the Closing Date.


                                      - 6 -


Ratio not less than the Base Credit  Level  Interest  Ratio  applicable  on such
date,  and an  Indebtedness  Ratio  not  greater  than  the  Base  Credit  Level
Indebtedness  Ratio  applicable  on such  date,  or (b) has,  on such  date,  an
Acceptable Debt Rating.

            "Business  Day"  means a day of the  year  on  which  banks  are not
required  or  authorized  to close  in the  State of  Missouri  or the  State of
California.

            "Capital  Account"  means,  with respect to any Member,  the Capital
Account maintained for such Member in accordance with the following provisions:

                  (i) To each Member's  Capital  Account there shall be credited
      such Member's respective Capital Contribution,  such Member's distributive
      share of  Profits  and any items in the nature of income or gain which are
      allocated  pursuant to Section 3.3 or Section  3.4,  and the amount of any
      Company  liabilities  which are  assumed by such  Member or secured by any
      Property distributed to such Member as permitted by this Agreement.

                  (ii) To each Member's  Capital  Account there shall be debited
      the amount of cash and the Gross Asset Value of any  Property  distributed
      or deemed to be  distributed  to such Member  pursuant to any provision of
      this Agreement,  such Member's  distributive share of Losses and any items
      in the  nature of  expenses  or losses  which are  allocated  pursuant  to
      Section  3.3 or Section  3.4,  and the amount of any  liabilities  of such
      Member  assumed  by the  Company  or which  are  secured  by any  property
      contributed by such Member to the Company.

                  (iii)  In  the  event  all  or a  portion  of an  Interest  is
      transferred in accordance with the terms of this Agreement, the transferee
      shall  succeed to the Capital  Account of the  transferor to the extent it
      relates to the transferred Interest.

                  (iv) In  determining  the amount of any liability for purposes
      of  subparagraphs  (i) and (ii) of this  definition of "Capital  Account,"
      there  shall be taken  into  account  Code  Section  752(c)  and any other
      applicable provisions of the Code and Regulations.

The foregoing  provisions and the other provisions of this Agreement relating to
the  maintenance  of  Capital  Accounts  are  intended  to comply  with  Section
1.704-1(b) of the Regulations,  and shall be interpreted and applied in a manner
consistent with such Regulations.

            "Capital Contribution" means, with respect to any Member, the amount
of money and the initial  Gross Asset Value of any  Property  (other than money)
contributed  to the Company with respect to the Interests in the Company held or
purchased by such Member, including Additional Capital Contributions.

            "Capitalized  Lease  Obligation"  means, with respect to any Person,
the  obligation of such Person to pay rent or other amounts under a lease of (or
other  agreement  conveying the 

                                       -7-


right to use) real or personal  property that is required to be  classified  and
accounted  for as a capital  lease  obligation on a balance sheet of such Person
under GAAP and, for purposes of this Agreement, the amount of such obligation at
any date will be the  capitalized  amount  thereof at such date,  determined  in
accordance with GAAP.

            "Cash  Contribution"  shall mean the  contribution by Arch Member to
the Company of cash in the amount of  $25,000,000  to reimburse  ARCO Member for
certain  expenditures  as  permitted  under  Section  707  of the  Code),  which
contribution forms part of Arch Member's Original Capital Contribution.

            "Code" means the Internal  Revenue Code of 1986,  as the same may be
amended from time to time.

            "Common  Percentage  Interest" means initially 99.5% for Arch Member
and 0.5% for ARCO Member,  or such other  percentage  determined by dividing the
positive balance in the respective  Member's Capital Account (less any Preferred
Amount  included  therein) by the  aggregate  of the  positive  capital  account
balances of all Members Capital Accounts.

            "Company"  has  the  meaning  specified  in the  preamble  of this
Agreement.

            "Company Debt" means that certain indebtedness of the Company in the
aggregate  original  principal  amount of  $675,000,000  incurred by the Company
concurrently with the execution and delivery of this Agreement.

            "Consolidated  EBITDA" means, for any Person whose Base Credit Level
Compliance is being determined for any Test Period,  the Consolidated Net Income
of such Person and its  Subsidiaries  for such Test  Period,  increased  (to the
extent deducted in determining  such  Consolidated Net Income) by the sum of (i)
all taxes of such Person and its Subsidiaries  paid or accrued according to GAAP
for such Test Period; (ii) Consolidated  Interest Expense of such Person and its
Subsidiaries  for such  Test  Period;  and  (iii)  depreciation,  depletion  and
amortization  and similar  non-cash cost recovery  expenses  (including,  to the
extent not otherwise  included,  that percentage of the depreciation,  depletion
and amortization and such expenses attributable to any Subsidiary of such Person
that  is not  wholly  owned  equal  to the  percentage  of the  equity  in  such
Subsidiary  owned by such Person) of such Person and its  Subsidiaries  for such
Test  Period   determined   in   accordance   with  GAAP;   PROVIDED,   HOWEVER,
notwithstanding  the foregoing,  the Consolidated EBITDA of the Company for each
fiscal  quarter of the fiscal year ended at December  31, 1997 and for the first
two fiscal  quarters  of the fiscal  year ended at  December  31,  1998 shall be
deemed to be $46,000,000.

            "Consolidated  Indebtedness" means, for any Person whose Base Credit
Level Compliance is being  determined for any Test Period,  Indebtedness of such
Person and its  Subsidiaries  determined on a  consolidated  basis in accordance
with GAAP as of the last day of such Test Period.


                                      - 8 -


            "Consolidated  Interest Expense" means (without  duplication),  with
respect to any Person whose Base Credit Level Compliance is being determined for
any Test Period,  the aggregate amount of interest expense of such Person during
such  Test  Period  in  respect  of all  Indebtedness  of  such  Person  and its
Subsidiaries,  including  (i)  the  interest  portion  of any  deferred  payment
obligation  and (ii) the  portion  of any  rental  obligation  in respect of any
Capitalized Lease Obligation  allocable to interest expense, all determined on a
consolidated basis in accordance with GAAP; PROVIDED, HOWEVER, that for purposes
of  calculating  the  Consolidated  Interest  Expense  of the  Company  and  its
Subsidiaries  for any Test Period,  Consolidated  Interest Expense for such Test
Period shall be reduced by the sum of an amount  equal to the  interest  paid in
cash to the Company during such Test Period and, without duplication, the amount
of accrued  interest  recorded  by the  Company in respect of Arch  Intercompany
Loans if the obligor thereon is in Base Credit Level Compliance.

            "Consolidated  Net Income"  means,  with respect to any Person whose
Base Credit Level  Compliance  is being  determined,  for any Test  Period,  the
consolidated  net income (or loss) of such Person and its  Subsidiaries for such
Test Period,  as determined in  accordance  with GAAP but without  regard to any
lease  payments to ARCO Member under the Little  Thunder  Lease,  PROVIDED  that
there shall be excluded (on an after-tax basis):

            (i) the income (or loss) of any other  Person  accrued  prior to the
      date it becomes a Subsidiary or is merged into or  consolidated  with such
      Person,  or a Subsidiary  of such Person,  and the income (or loss) of any
      other Person,  substantially all of the assets of which have been acquired
      in any manner, realized by such Person prior to the date of acquisition;

            (ii)  the  income  (or  loss)  of any  other  Person  (other  than a
      Subsidiary) in which such Person, or any Subsidiary of such Person, has an
      ownership  interest,  except to the extent  that any such  income has been
      actually received by such Person, or such Subsidiary,  in the form of cash
      dividends or similar cash distributions;

            (iii) any restoration to income of any contingency  reserve,  except
      to the  extent  that  provision  for such  reserve  was made out of income
      accrued during such Test Period;

            (iv) any aggregate gain (or any aggregate net loss) during such Test
      Period arising from the sale, conversion, exchange or other disposition of
      property (other than in the ordinary course of business);

            (v) any gains (or losses)  resulting from any writeup,  writedown or
      writeoff of any property;

            (vi) any gain from the  collection of the proceeds of life insurance
      policies; and

            (vii)  any  income  or  gain  (or  loss)  during  such  Test  Period
      determined  in  accordance  with  GAAP  resulting  from (A) any  change in
      accounting  principles,  (B) any 

                                      - 9 -


      prior Test  Period  adjustments  resulting  from any change in  accounting
      principles,  (C) any other  extraordinary  items, or (D) any  discontinued
      operations or the disposition thereof.

            "Controlled Affiliate" of any Person means the Parent of such Person
and each Subsidiary of such Parent.

            "Credit Ratios" means, as to any Person,  the Interest Ratio and the
Indebtedness Ratio of such Person.

            "Damages" has the meaning specified in the Tax Sharing Agreement.

            "Depreciation"  means,  for each Allocation Year, an amount equal to
the depreciation, amortization, cost depletion, or other cost recovery deduction
allowable  for federal  income tax  purposes  with  respect to an asset for such
Allocation  Year,  except that if the Gross Asset Value of an asset differs from
its  adjusted  basis for federal  income tax  purposes at the  beginning of such
Allocation Year,  Depreciation  shall be an amount which bears the same ratio to
such  beginning  Gross  Asset  Value as the  federal  income  tax  depreciation,
amortization,   cost  depletion  or  other  cost  recovery  deduction  for  such
Allocation Year bears to such beginning adjusted tax basis;  PROVIDED,  HOWEVER,
that if the  adjusted  basis for federal  income tax purposes of an asset at the
beginning  of such  Allocation  Year is zero,  subject  to  Section  3.6 of this
Agreement,  Depreciation  shall be determined  with  reference to such beginning
Gross Asset Value using the method selected by the Managing Member and agreed to
by ARCO Member.

            "Dispose"  (including  its  correlative  meanings,   "Disposed  of",
"Disposition" and "Disposed"),  with respect to any Interest, means to Transfer,
pledge,  hypothecate or otherwise dispose of such Interest, in whole or in part,
voluntarily or  involuntarily,  except by operation of law in connection  with a
merger,  consolidation  or other business  combination of the Company and except
that such term shall not include any pledge or hypothecation  of, or granting of
a security  interest in, an Interest that is approved by the Managing  Member in
connection with any financing obtained on behalf of the Company.

            "Final  Determination"  means with  respect to any issue or item (i)
the execution of a final and irrevocable  closing  agreement or other settlement
agreement with the Internal Revenue Service, (ii) the expiration of the time for
filing a claim for  refund  or, if a refund  claim has been  timely  filed,  the
expiration  of the time for  instigating  suit in respect of such refund  claim,
(iii) the  expiration of the time for filing a petition with the Tax Court if no
such  petition has been filed and no suit has been  instigated in respect of the
subject matter of such petition,  or (iv) a final,  unappealable decision of any
court of competent jurisdiction.

            "Fiscal Year" means (i) the period  commencing on the Formation Date
and ending on December 31, 1998,  (ii) any  subsequent  twelve (12) month period
commencing  on  January  1 and  ending  on  December  31,  or (iii)  the  period
commencing  on the  immediately  preceding  January 1 and  ending on the date on
which all Property is distributed to the Members pursuant to Section 8.2.

                                     - 10 -



            "GAAP" means generally accepted  accounting  principles in effect in
the United States of America from time to time.

            "Gross Asset Value"  means,  with respect to any asset,  the asset's
adjusted basis for federal income tax purposes, except as follows:

                  (i) The initial Gross Asset Value of any asset  contributed by
      a Member to the Company shall be the gross fair market value of such asset
      as set  forth  on  Schedule  2.1  in the  case  of  the  Original  Capital
      Contributions,  and otherwise as set forth in the Additional  Contribution
      Agreement;

                  (ii) The Gross  Asset  Values of all Company  assets  shall be
      adjusted  to equal their gross fair market  values  (taking  Code  Section
      7701(g) into account) as of the following times: (A) the acquisition of an
      Interest by any new Member in exchange for more than a de minimis  Capital
      Contribution; (B) the distribution by the Company to a Member of more than
      a de minimis amount of Property as consideration for an Interest;  and (C)
      the  liquidation of the Company within the meaning of Regulations  Section
      1.704-1(b)(2)(ii)(g);

                  (iii) The Gross Asset Value of any Company  asset  distributed
      to any Member  shall be adjusted  to equal the gross fair market  value of
      such asset on the date of distribution;

                  (iv)  The  Gross  Asset  Values  of  Company  assets  shall be
      increased (or decreased) to reflect any  adjustments to the adjusted basis
      of such assets pursuant to Code Section 734(b) or Code Section 743(b), but
      only to the  extent  that such  adjustments  are  taken  into  account  in
      determining Capital Accounts pursuant to Section  1.704-1(b)(2)(iv)(m)  of
      the  Regulations,  subparagraph  (v) of the  definition  of "Profits"  and
      "Losses" and Section 3.3(i),  PROVIDED,  HOWEVER,  that Gross Asset Values
      shall not be adjusted pursuant to this subparagaph (iv) to the extent that
      an adjustment pursuant to subparagraph (ii) is required in connection with
      a transaction  that would  otherwise  result in an adjustment  pursuant to
      this subparagraph (iv); and

                  (v) If Gross Asset Value is required to be determined  for the
      purpose of Section 7, Gross Asset Value shall be  determined in the manner
      set forth in such Section.

If the Gross Asset Value of an asset has been determined or adjusted pursuant to
subparagraph  (i),  (ii),  (iii) or (iv)  hereof,  such Gross  Asset Value shall
thereafter  be adjusted by the  Depreciation  taken into account with respect to
such asset for purposes of computing Profits and Losses.

            "Hypothetical  Income  Tax  Amount"  means for any  Fiscal  Year the
product of (i) the sum of 4% and the daily  weighted  average  highest  marginal
federal income tax rate 



                                     - 11 -


applicable  to domestic  corporations  in effect for such Fiscal Year  expressed
together  as a  percentage  and (ii) the excess,  if any, of (A) the  cumulative
amount of net taxable income,  gain, loss and deduction  reported by the Company
on its Internal  Revenue  Service Forms 1065 over its life  determined as of the
end of such  Fiscal  Year,  over (B) the  larger  of zero (0) or the  cumulative
amount of net taxable income,  gain, loss and deduction  reported by the Company
on its Internal  Revenue  Service Forms 1065 over its life  determined as of the
beginning of such Fiscal Year.

            "Indebtedness"  means  (without  duplication),  with  respect to any
Person,  (i) any liability of such Person (A) for borrowed  money,  or under any
reimbursement  obligation relating to a letter of credit, bankers' acceptance or
note  purchase  facility,  (B) evidenced by a bond,  note,  debenture or similar
instrument,  (C) for the balance  deferred and unpaid of the purchase  price for
any Property or any obligation upon which interest  charges are customarily paid
(except for trade payables  arising in the ordinary course of business),  or (D)
for any Capitalized Lease Obligation;  (ii) any obligation  (excluding landowner
royalty  obligations)  of any Person secured by (or for which the holder of such
obligation has an existing right,  contingent or otherwise,  to be secured by) a
consensual  lien on property  owned or acquired,  whether or not any  obligation
secured  thereby has been assumed,  by such Person;  and (iii) all guarantees of
such Person of the  indebtedness  of any other Person of the type referred to in
clause (i), except for guarantee obligations of Arch, not exceeding $25,000,000,
of the  reimbursement  obligations  of its  Affiliates in respect of a letter of
credit supporting the outstanding bonds issued by Dominion Terminal Associates.

            "Indebtedness  Ratio" means, with respect to any Test Period for any
Person  whose Base Credit Level  Compliance  is being  determined,  the ratio of
Consolidated  Indebtedness of such Person,  on the last day of such Test Period,
to  Consolidated  EBITDA  for such  Test  Period;  PROVIDED,  HOWEVER,  that for
purposes  of  calculating  the  Indebtedness  Ratio of the  Company for any Test
Period (i) Indebtedness of the Company on the last day of such Test Period shall
be  reduced by (a) the  outstanding  principal  amount of all Arch  Intercompany
Loans if but only if, on the last day of such Test  Period  the  obligor on such
Arch Intercompany  Loans (or the guarantor of payment thereof) is in Base Credit
Level Compliance and (b) the cash balance of the Company and its Subsidiaries on
the last day of such Test Period,  and (ii)  Consolidated  EBITDA of the Company
shall be increased by the amount of accrued interest  recorded by the Company in
respect of Arch  Intercompany  Loans if the  obligor  thereon is in Base  Credit
Level Compliance.

            "Interest"  means,  as to any Member,  all of the  interests of such
Member in the Company,  including  any  interest  represented  by the  Preferred
Capital  Amount and any and all  benefits  to which the holder of an interest in
the Company may be  entitled  as provided in this  Agreement  and under the Act,
together  with all  obligations  of such  Member  to  comply  with the terms and
provisions of this Agreement.

            "Interest  Ratio"  means,  with  respect to any Test  Period for any
Person  whose Base Credit Level  Compliance  is being  determined,  the ratio of
Consolidated  EBITDA  of such  

                                     - 12 -


Person, for such Test Period to Consolidated Interest Expense of such Person for
such Test Period.


            "Involuntary  Bankruptcy" means, with respect to any Person, without
the consent or acquiescence of such Person,  the entering of an order for relief
or  approving  a petition  for relief or  reorganization  or any other  petition
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution  or other  similar  relief  under any present or future  bankruptcy,
insolvency  or similar  statute,  law or  regulation,  or the filing of any such
petition  against such Person which  petition  shall not be dismissed  within 60
days, or, without the consent or acquiescence of such Person, the entering of an
order appointing a trustee, custodian,  receiver or liquidator of such Person or
of all or any substantial  part of the property of such Person which order shall
not be dismissed within 60 days.

            "Little  Thunder  Lease" means the Master Lease dated August 8, 1997
between LTLC as lessor and TBCC as lessee,  as amended  pursuant to an Amendment
to Master Lease dated January 27, 1998.

            "LTLC"  means   Little   Thunder    Leasing   Company,   a  Delaware
corporation.

            "Major Actions" has the meaning specified in Section 5.1(c).

            "Managing Member" means Arch Member.

            "Nonrecourse  Deductions"   has  the  meaning  set forth in  Section
1.704-2(b)(1) of the Regulations.

            "Nonrecourse  Liability"  has the  meaning  set   forth in   Section
1.704-2(b)(3) of the Regulations.

            "Parent"  means (i) with respect to Arch Member (and its  Controlled
Affiliates),  Arch,  and (ii) with  respect to ARCO Member  (and its  Controlled
Affiliates),  ARCO. With respect to any other Person  hereafter  admitted to the
Company as a Member,  the Parent with respect to such Member shall be the Person
identified as such in an Additional  Contribution  Agreement or in a Schedule to
be attached to this  Agreement in connection  with the admission of such Member.
In the event of a Permitted Transaction, the new Parent of the applicable Member
immediately  following such Permitted  Transaction  will be the ultimate  parent
entity  (as  determined  in  accordance  with  the  Hart-Scott-Rodino  Antitrust
Improvements  Act of 1976 and the rules and regulations  promulgated  thereunder
(the "HSR Act")) of such Member (or such Member if it is its own ultimate parent
entity);  PROVIDED  that if such  ultimate  parent entity is not a Publicly Held
Person then the next highest  corporate  entity in the ownership chain from such
ultimate  parent entity through the Member which is a Publicly Held Person shall
be deemed to be the new Parent. If there is no intermediate Publicly Held Person
or if the  ultimate  parent  entity is an  individual,  the Parent  shall be the
highest  entity in the ownership  chain from the ultimate  parent entity through
the Member which is not an individual.


                                     - 13 -


            "Partner  Nonrecourse  Debt" has the  meaning set forth in Section
1.704-2(b)(4) of the Regulations.

            "Partner  Nonrecourse  Debt  Minimum  Gain"  means an  amount,  with
respect to each Partner  Nonrecourse Debt, equal to the Partnership Minimum Gain
that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse
Liability,   determined  in  accordance  with  Section   1.704-2(i)(3)   of  the
Regulations.

            "Partner  Nonrecourse  Deductions"  has the   meaning  set  forth in
Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations.

            "Partnership  Minimum  Gain" has the meaning set forth in Sections
1.704-2(b)(2) and 1.704-2(d) of the Regulations.

            "Permitted Transaction" with respect to a Member means a transaction
or series of  related  transactions  in which the Parent or any  Affiliate  of a
Member  Transfers  its  interest in any  Affiliate  that owns an Interest in the
Company to a Controlled Affiliate.

            "Person" means any  individual,  partnership,  corporation,  limited
liability company, trust, or other entity.

            "Preferred  Capital  Amount"  means that  portion  of ARCO  Member's
Original Capital Contribution equal to $2,399,000, for which capital ARCO Member
is entitled to a preferential  distribution  in accordance  with this Agreement.
This  Preferred  Capital  Amount will be reduced by any payments with respect to
the Preferred Capital Amount in excess of accrued Preferred Return.

            "Preferred Return" means an amount equal to 4% per annum, compounded
annually, calculated on the Preferred Capital Amount balance.

            "Profits" and "Losses" means,  for each  Allocation  Year, an amount
equal  to the  Company's  taxable  income  or loss  for  such  Allocation  Year,
determined in accordance  with Code Section 703(a) (for this purpose,  all items
of income, gain, loss, or deduction required to be stated separately pursuant to
Code Section  703(a)(1)  shall be included in taxable income or loss),  with the
following adjustments (without duplication):

                  (i) Any  income of the  Company  that is exempt  from  federal
      income tax and not  otherwise  taken into account in computing  Profits or
      Losses  pursuant to this  definition  of "Profits"  and "Losses"  shall be
      added to such taxable income or loss;

                  (ii) Any expenditures of the Company described in Code Section
      705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant
      to Regulations Section 1.704-1(b)(2)(iv)(i),  and not otherwise taken into
      account in  computing  Profits or Losses  pursuant to this  definition  of
      "Profits" and "Losses,"  shall be subtracted  from such taxable  income or
      loss;



                                     - 14 -



                  (iii) Gain or loss resulting from any  disposition of Property
      with respect to which gain or loss is  recognized  for federal  income tax
      purposes  shall be computed by  reference  to the Gross Asset Value of the
      Property disposed of,  notwithstanding that the adjusted tax basis of such
      Property differs from its Gross Asset Value;

                  (iv) In lieu of the depreciation, amortization, and other cost
      recovery deductions taken into account in computing such taxable income or
      loss,  there shall be taken into account  Depreciation for such Allocation
      Year, computed in accordance with the definition of Depreciation;

                  (v) To the extent an  adjustment  to the adjusted tax basis of
      any Company asset  pursuant to Code Section  734(b) or Code Section 743 is
      required  pursuant to Regulations  Section  1.704-1(b)(2)(iv)(m)(4)  to be
      taken  into  account  in  determining  Capital  Accounts  as a result of a
      distribution other than in liquidation of a Member's Interest,  the amount
      of such adjustment  shall be treated as an item of gain (if the adjustment
      increases the basis of the asset) or loss (if the adjustment decreases the
      basis of the asset) from the  disposition  of the asset and shall be taken
      into account for purposes of computing Profits or Losses; and

                  (vi) Notwithstanding any other provision of this definition of
      "Profits"  or Losses," any items which are  allocated  pursuant to Section
      3.3 or Section 3.4 shall not be taken into account in computing Profits or
      Losses.

The amounts of the items of income,  gain,  loss or  deduction  available  to be
allocated pursuant to Sections 3.3 and 3.4 shall be determined by applying rules
analogous to those set forth in this definition of "Profits" and "Losses."

            "Publicly Held" means, with respect to any Person,  that such Person
has a class of equity securities  registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended.

            "Property" means all real and personal  property owned,  contributed
to or acquired by the Company and any  improvements  thereto,  and shall include
both tangible and intangible property.

            "Regulations" means the Income Tax Regulations,  including Temporary
Regulations, promulgated under the Code.

            "Subsidiary"  of any Person  means a  corporation,  company or other
entity (i) more than 50% of whose  outstanding  shares or equity securities are,
as of  the  time  of  such  determination,  owned  or  controlled,  directly  or
indirectly through one or more  Subsidiaries,  by such Person, and the shares or
securities  so owned  entitle such person  and/or its  Subsidiaries  to elect at
least a majority  of the  members of the board of  directors  or other  managing
authority of such corporation,  company or other entity notwithstanding the vote
of the holders of the 



                                     - 15 -


remaining shares or equity securities so entitled to vote or (ii) which does not
have  outstanding  shares or  securities,  as may be the case in a  partnership,
joint  venture  or  unincorporated  association,  but  more  than  50% of  whose
ownership  interest  is,  as  of  the  time  of  such  determination,  owned  or
controlled, directly and/or indirectly through one or more Subsidiaries, by such
Person, or in which the ownership  interest so owned entitles such Person and/or
Subsidiaries  to make the  decisions  for  such  corporation,  company  or other
entity.

            "Successor  Debt"  means  indebtedness  incurred  by the  Company to
refinance or repay the Company Debt or other Successor Debt; PROVIDED,  however,
that the  indebtedness  incurred  to  refinance  or repay  any  Company  Debt or
Successor Debt shall not exceed the aggregate  principal  amount of such Company
Debt or Successor  Debt  outstanding  immediately  prior to such  refinancing or
repayment.

            "Tax Sharing  Agreement"  means that certain  agreement of even date
herewith by and among Arch, Arch Member and ARCO Member.

            "Test Period" means,  in respect of any proposed  Major Action,  the
period of the most recent four  consecutive  fiscal quarters of the Person whose
Base Credit Level Compliance is being determined for which financial  statements
of such Person are  available on the date on which such Major Action is proposed
to be taken.

            "Transfer" (including its correlative meaning, "Transferred") means,
as a noun, any sale,  exchange,  assignment or transfer and, as a verb, to sell,
exchange, assign or transfer.

      1.11   ADDITIONAL DEFINITIONS

      DEFINED TERM                                    DEFINED IN

      "Arch"                                          Preamble
      "Arch Member"                                   Preamble
      "Arch Member Original Capital Contribution"     Section 2.1
      "Arch Wyoming"                                  Preamble
      "ARCO"                                          Preamble
      "ARCO Member"                                   Preamble
      "ARCO Member Original Capital Contribution"     Section 2.1
      "ARCO Uinta"                                    Preamble
      "Agents"                                        Section 10.7
      "AUS"                                           Preamble
      "Call Notice"                                   Section 7.4(b)
      "Canyon Fuel"                                   Preamble
      "Certificate"                                   Section 1.6
      "Confidential Information"                      Section 10.7
      "Contribution Agreement"                        Preamble

                                     - 16 -



      "Exchange Act"                                  Section 6.2
      "First Appraiser"                               Section 7.6
      "Formation Date"                                Preamble
      "Gross Appraised Value"                         Section 7.6
      "Issuance Items"                                Section 3.3(h)
      "LAXT"                                          Preamble
      "Liquidating Events"                            Section 8.1
      "MCC"                                           Preamble
      "Member"                                        Preamble
      "Member Loan"                                   Section 2.5
      "Net Equity"                                    Section 7.5
      "Net Equity Notice"                             Section 7.5
      "Original Capital Contributions"                Section 2.1
      "Permitted Transfer"                            Section 7.2
      "Purchase and Sale Agreement"                   Preamble
      "Put Notice"                                    Section 7.4(a)
      "Receiving Party"                               Section 10.7
      "Regulatory Allocations"                        Section 3.4
      "Restricted Party"                              Section 10.7
      "Second Appraiser"                              Section 7.6
      "Senior Credit Agreement"                       Section 2.5
      "SLLLC"                                         Preamble
      "Tagalong Notice"                               Section 7.8
      "Tagalong Offer"                                Section 7.8
      "Tagalong Period"                               Section 7.8
      "Tagalong Purchaser"                            Section 7.8
      "Tagalong Transaction"                          Section 7.8
      "Tax Matters Partner"                           Section 6.3
      "TBCC"                                          Preamble
      "Third Appraiser"                               Section 7.6
      "Transferring Member"                           Section 7.8


      1.12   TERMS GENERALLY

      The  definitions in Sections 1.10 and 1.11 and elsewhere in this Agreement
shall apply equally to both the singular and plural forms of the terms  defined.
Whenever the context may require,  any pronoun shall  include the  corresponding
masculine,  feminine  and neuter  forms.  The words  "include",  "includes"  and
"including"  shall be deemed to be followed by the phrase "without  limitation."
The words  "herein",  "hereof" and "hereunder" and words of similar import refer
to this Agreement  (including the Schedules) in its entirety and not to any part
hereof unless the context shall  otherwise  require.  All  references  herein to
Sections and Schedules shall be deemed  references to Sections of, and Schedules
to,  this  Agreement  unless the context  shall  otherwise  require.  Unless the
context  shall  otherwise  require,  any  references  to any  agreement or other
instrument or statute or regulation are to it as amended and  supplemented  from
time to time (and, in the case of a statute or regulation,  to any corresponding
provisions  of  successor  statutes 



                                       - 17 -


or regulations).  Any reference in this Agreement to a "day" or number of "days"
(without the explicit  qualification  of  "Business")  shall be interpreted as a
reference to a calendar day or number of calendar  days. If any action or notice
is to be taken or given on or by a particular  calendar  day, and such  calendar
day is not a Business Day,  then such action or notice shall be deferred  until,
or may be taken or given on, the next Business Day.

                                    SECTION 2

                         MEMBERS' CAPITAL CONTRIBUTIONS

      2.1   MEMBERS' ORIGINAL CAPITAL CONTRIBUTIONS

      The  transfer  to the  Company by Arch  Member of the Arch Sub  Membership
Interests   and  the  Cash   Contribution   ("Arch   Member   Original   Capital
Contribution")  and the  transfer  to the Company by ARCO and ARCO Member of the
ARCO Sub  Membership  Interests in accordance  with the  Contribution  Agreement
("ARCO Member  Original  Capital  Contribution")  shall  constitute the Members'
Original Capital  Contributions.  Such Original Capital Contributions shall have
the respective Gross Asset Values set forth in Schedule 2.1 of this Agreement.

      2.2   CAPITAL ACCOUNTS

            (1) A single  Capital  Account shall be  maintained  for each Member
(regardless  of the time or manner in which such  interests  were  acquired)  in
accordance with the capital  accounting rules of Section 704(b) of the Code, and
the regulations thereunder (including particularly Section  1.704-1(b)(2)(iv) of
the Regulations).

            (2) If the Gross Asset Value of any  Company  Property is  adjusted,
the  Capital  Accounts  of the  Members  shall  first be adjusted to reflect the
manner in which the unrealized income, gain, loss and deduction inherent in such
Property  (that has not been  reflected  in the  Capital  Account  or  Preferred
Capital Amount  previously) would be allocated among the Members if there were a
taxable disposition of such Property for such Gross Asset Value.

            (3) The Tax Matters  Partner shall direct the  Accountants  to make
all necessary  adjustments in each Member's  Capital  Account as required by the
capital  accounting  rules of  Section  704(b)  of the Code and the  Regulations
thereunder.

      2.3   ADDITIONAL CAPITAL CONTRIBUTIONS; PREEMPTIVE RIGHT

      Arch Member may  contribute to the Company from time to time cash or other
property, PROVIDED that:


            (4) any Capital  Contribution   made  pursuant  to this  Section 2.3
shall be  subject  to the terms and  provisions  of an  Additional  Contribution
Agreement;

                                     - 18 -



            (5) in the event of any  Additional  Capital   Contribution  by Arch
Member or any other  Person,  ARCO Member  shall have the  preemptive  right and
option  to  subscribe  for  and  contribute,  in  cash  or  property  (including
conversion of all or part of its Preferred Capital Amount for value based on the
principal  amount thereof and any accrued but unpaid Preferred  Return),  all or
such portion of the contemplated  Additional Capital Contribution as ARCO Member
desires and as is necessary to maintain ARCO Member's Common Percentage Interest
in the Company; and

            (c) to the extent ARCO  Member  shall not agree with the Gross Asset
Values  proposed  by the  Managing  Member  in  connection  with any  Additional
Contribution  Agreement involving non-cash  contributions,  ARCO Member shall be
entitled  by  notice to invoke  the  appraisal  procedures  in  Section  7.6 for
determination of such Gross Asset Values.

      2.4   COMPANY FUNDS

      The funds of the Company  shall be utilized for the  Company's  benefit as
the Managing  Member shall  determine,  including  being  deposited in such bank
accounts, utilized in Company operations,  contributed or loaned to Subsidiaries
of the Company,  or,  subject to Section 5.1(c) and any  limitations  imposed in
Senior Credit Agreements,  invested in such investments or loaned,  from time to
time, to the Managing Member on a demand basis,  which loans shall bear interest
at a rate equal to the interest rate  applicable to borrowings by Arch under its
primary bank credit facility.

      2.5   OTHER BORROWINGS; MEMBER LOANS

            (1) In order  to satisfy the Company's  financial needs, the Company
may, if so approved by the Managing Member and subject to Section 5.1(c), borrow
from (i) banks,  lending  institutions or other unrelated third parties, and may
pledge  Company  Property or the  production  of income  therefrom to secure and
provide for the repayment of such loans and (ii) any Member or an Affiliate of a
Member.  Loans made by a Member or an  Affiliate  of a Member (a "Member  Loan")
shall be evidenced by a promissory note of the Company and,  subject to the last
two sentences of Section 2.5(b),  shall bear interest payable quarterly from the
date  made  until  paid in full at a rate  per  annum  to be  determined  by the
Managing  Member that is no less  favorable  to the Company than if the loan had
been made by an independent third party.


            (2) Unless  otherwise  determined by the Managing Member, all Member
Loans shall be unsecured and the promissory  notes  evidencing the same shall be
nonnegotiable   and,   except  as   otherwise   provided   in  Section   2.5(c),
nontransferable.  Repayment of the principal  amount of and accrued  interest on
all Member Loans shall be  subordinated to the repayment of the principal of and
accrued  interest  on the  Company  Debt,  the  Successor  Debt  and  any  other
indebtedness  for  borrowed  money of the Company to third party  lenders to the
extent required by the applicable  provisions of the  instruments  creating such
indebtedness to third party lenders  


                                     - 19 -


("Senior Credit Agreements"). All amounts required to be paid in accordance with
the terms of the Member Loans and all amounts  permitted  to be prepaid  thereon
shall be applied to the notes held by the Members in  accordance  with the order
of payment contemplated by Section 8.2(b)(ii) and (iii). Subject to the terms of
applicable Senior Credit Agreements, Member Loans shall be repaid to the Members
at such times as the  Company  has  sufficient  funds to permit  such  repayment
without  jeopardizing the Company's  ability to meet its other  obligations on a
timely basis.  Nothing  contained in this  Agreement or in any  promissory  note
issued by the Company  hereunder  shall require the Company or any Member to pay
interest or any amount as a penalty at a rate  exceeding  the maximum  amount of
interest  permitted to be  collected  from time to time under  applicable  usury
laws. If the amount of interest or of such penalty payable by the Company or any
Member on any date would  exceed the  maximum  permissible  amount,  it shall be
automatically  reduced to such amount, and interest or the amount of the penalty
for any subsequent  period, to the extent less than that permitted by applicable
usury laws, shall, to that extent, be increased by the amount of such reduction.

            (3) An  election  by a Member to  purchase  all or any  portion  of
another  Member's  Interest  pursuant  to  Section 7 shall  also  constitute  an
election to purchase an equivalent  portion of any outstanding Member Loans held
by such  selling  Member,  and each  purchasing  Member  shall be  obligated  to
purchase a  percentage  of such  Member  Loans  equal to the  percentage  of the
selling Member's  Interest such purchasing Member is obligated to purchase for a
price equal to the outstanding principal and accrued and unpaid interest on such
Member  Loans  through the date of the closing of such  purchase (or such lesser
amount as shall be specified by the selling  Member as the price for such Member
Loans).

      2.6   OTHER MATTERS

            (1) No  Member  shall  have  the  right to  demand  or,  except  as
otherwise  provided in Sections 4.2 and 8.2, receive a return of all or any part
of its Capital Account or its Capital Contributions or withdraw from the Company
without the consent of all  Members.  Subject to Section 8, under  circumstances
requiring  a  return  of all or any  part  of its  Capital  Account  or  Capital
Contributions,  no Member  shall have the right to receive  Property  other than
cash.

            (2) No Member shall have any  obligation  to restore any portion of
any deficit balance in such Member's Capital  Account,  whether upon liquidation
of its interest in the Company, liquidation of the Company or otherwise.

            (3) No other  Member  shall  have any  personal  liability  for the
repayment of any Capital Contributions of any Member.

            (4) No Member shall be entitled to receive  interest on its Capital
Contributions or Capital Account.


                                     - 20 -



                                    SECTION 3

                                   ALLOCATIONS

      3.1   PROFITS

      After giving effect to the  allocations set forth in Sections 3.3 and 3.4,
Profits for any  Allocation  Year shall be allocated in the following  order and
priority:  (a)  first,  to ARCO  Member  in an  amount  sufficient  to cover the
aggregate amounts  distributed  pursuant to this Section 3.1 for the current and
all prior  periods to equal the total  amount of  Preferred  Return paid to ARCO
Member  during the current  and all prior  periods,  (b)  second,  to Members in
proportion  to, and to the extent of, an amount equal to the excess,  if any, of
(i) the  cumulative  losses  allocated  to each such Member  pursuant to Section
3.2(b)  for all  prior  Allocation  Years,  over  (ii)  the  cumulative  profits
allocated  to  such  Member  pursuant  to this  Section  3.1(b)  for  all  prior
Allocation  Years, and (c) thereafter,  among the Members in proportion to their
respective Common Percentage Interests.

      3.2   LOSSES

      After giving effect to the  allocations set forth in Sections 3.3 and 3.4,
Losses for any Allocation  Year shall be allocated  among the Members (a) first,
in  proportion  to their  Common  Percentage  Interests  to the  extent of their
respective  positive capital  accounts,  (b) second,  to Members having positive
capital  account  balances  in  proportion  to  such  positive  capital  account
balances,  and  (c)  thereafter,   in  proportion  to  their  respective  Common
Percentage Interests.

      3.3   CERTAIN ALLOCATIONS

      The following allocations shall be made in the following order:

            (1)  MINIMUM  GAIN  CHARGEBACK.  Except  as  otherwise  provided  in
Section  1.704-2(f) of the Regulations,  notwithstanding  any other provision of
this  Section 3, if there is a net decrease in  Partnership  Minimum Gain during
any Allocation  Year, each Member shall be allocated items of Company income and
gain for such Allocation Year (and, if necessary,  subsequent  Allocation Years)
in an amount equal to such  Member's  share of the net  decrease in  Partnership
Minimum  Gain,   determined  in  accordance  with  Section   1.704-2(g)  of  the
Regulations.  Allocations  pursuant to the  previous  sentence  shall be made in
proportion  to the  respective  amounts  required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in accordance
with Sections  1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations.  This Section
3.3(a) is intended to comply with the minimum  gain  chargeback  requirement  in
Section  1.704-2(f) of the  Regulations  and shall be  interpreted  consistently
therewith.


                                       - 21 -



            (2) PARTNER MINIMUM GAIN CHARGEBACK.  Except as otherwise  provided
in Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision
of this  Section  3, if there is a net  decrease  in  Partner  Nonrecourse  Debt
Minimum Gain  attributable  to Partner  Nonrecourse  Debt during any  Allocation
Year, each Member who has a share of the Partner  Nonrecourse  Debt Minimum Gain
attributable  to such Partner  Nonrecourse  Debt,  determined in accordance with
Section  1.704-2(i)(5) of the  Regulations,  shall be allocated items of Company
income  and  gain  for such  Allocation  Year  (and,  if  necessary,  subsequent
Allocation  Years) in an amount equal to such Member's share of the net decrease
in  Partner   Nonrecourse  Debt  Minimum  Gain   attributable  to  such  Partner
Nonrecourse  Debt,  determined in accordance with Section  1.704-2(i)(4)  of the
Regulations.  Allocations  pursuant to the  previous  sentence  shall be made in
proportion  to the  respective  amounts  required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in accordance
with Sections  1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations.  This Section
3.3(b) is intended to comply with the minimum  gain  chargeback  requirement  in
Section  1.704-2(i)(4) of the Regulations and shall be interpreted  consistently
therewith.

            (3) QUALIFIED INCOME OFFSET.  In the event any Member  unexpectedly
receives any adjustments,  allocations,  or  distributions  described in Section
1.704-1(b)(2)(ii)(d)(4),     Section    1.704-1(b)(2)(ii)(d)(5)    or    Section
1.704-1(b)(2)(ii)(d)(6)  of the  Regulations,  items of Company  income and gain
shall be  specially  allocated  to each  such  Member in an  amount  and  manner
sufficient to eliminate, to the extent required by the Regulations, the Adjusted
Capital Account Deficit of such Member as quickly as possible,  PROVIDED that an
allocation  pursuant  to this  Section  3.3(c)  shall be made only if and to the
extent that such Member would have an Adjusted Capital Account Deficit after all
other  allocations  provided for in this Section 3 have been tentatively made as
if this Section 3.3(c) were not in the Agreement.

            (4) GROSS INCOME ALLOCATION.  In the event any Member has a deficit
Capital  Account at the end of any Allocation Year which is in excess of the sum
of (i) the amount such Member is obligated to restore  pursuant to any provision
of this Agreement,  and (ii) the amount such Member is deemed to be obligated to
restore   pursuant  to  the  penultimate   sentences  of  Regulations   Sections
1.704-2(g)(1) and 1.704-2(i)(5),  each such Member shall be specially  allocated
items of  Company  income  and gain in the  amount of such  excess as quickly as
possible,  PROVIDED that an allocation  pursuant to this Section 3.3(d) shall be
made only if and to the extent  that such  Member  would have a deficit  Capital
Account in excess of such sum after all other  allocations  provided for in this
Section 3 have been made as if Section  3.3(c)  hereof and this  Section  3.3(d)
were not in the Agreement.

            (5)  NONRECOURSE   DEDUCTIONS.   Nonrecourse   Deductions  for  any
Allocation  Year shall be  allocated  among the Members in  proportion  to their
respective Common Percentage Interests.

            (6)  NONRECOURSE  DEBT  ALLOCATION.  To  the  extent  necessary  to
determine  a  Member's   share  of   nonrecourse   liabilities   under   Section
1.752-3(a)(3)  of the  Regulations,  the Company Debt shall be allocated 100% to
ARCO Member and all other nonrecourse liabilities of


                                     - 22 -


the Company shall be allocated to the Members in proportion to their  respective
Common Percentage Interests.


            (7)  PARTNER  NONRECOURSE   DEDUCTIONS.   Any  Partner  Nonrecourse
Deductions  for any  Allocation  Year shall be allocated to the Member who bears
the economic risk of loss with respect to the Partner  Nonrecourse Debt to which
such Partner Nonrecourse  Deductions are attributable in accordance with Section
1.704-2(i)(1) of the Regulations.

            (8) SECTION 754  ADJUSTMENTS.  To the extent an  adjustment  to the
adjusted tax basis of any Company asset  pursuant to Code Section 734(b) or Code
Section  743(b) is  required  pursuant  to  Section  1.704-1(b)(2)(iv)(m)(2)  or
1.704-1(b)(2)(iv)(m)(4)   of  the  Regulations  to  be  taken  into  account  in
determining  Capital  Accounts  as the result of a  distribution  to a Member in
complete  liquidation of its Interest,  the amount of such adjustment to Capital
Accounts  shall be treated as an item of gain (if the  adjustment  increases the
basis of the asset) or loss (if the  adjustment  decreases  such basis) and such
gain or loss  shall  be  allocated  to the  Members  in  accordance  with  their
interests  in the Company in the event  Section  1.704-1(b)(2)(iv)(m)(2)  of the
Regulations  applies, or to the Member to whom such distribution was made in the
event Section 1.704-1(b)(2)(iv)(m)(4) of the Regulations applies.

            (9) ALLOCATIONS  RELATING TO TAXABLE ISSUANCE OF COMPANY INTERESTS.
Any income,  gain, loss or deduction  realized as a direct or indirect result of
the  issuance of an Interest by the Company to a Member (the  "Issuance  Items")
shall be allocated  among the Members so that, to the extent  possible,  the net
amount of such Issuance Items,  together with all other  allocations  under this
Agreement to each Member,  shall be equal to the net amount that would have been
allocated to each such Member if the Issuance Items had not been realized.

      3.4   CURATIVE ALLOCATIONS

      The  allocations set forth in Sections  3.3(a),  3.3(b),  3.3(c),  3.3(d),
3.3(e), 3.3(g), 3.3(h) and 3.3(i) (the "Regulatory Allocations") are intended to
comply with certain  requirements  of the  Regulations.  It is the intent of the
Members that, to the extent possible, all Regulatory Allocations shall be offset
either with other  Regulatory  Allocations or with allocations of other items of
Company income, gain, loss or deduction pursuant to this Section 3.4. Therefore,
notwithstanding any other provision of this Section 3 (other than the Regulatory
Allocations),  the Managing  Member shall make such  offsetting  allocations  of
Company  income,  gain,  loss or  deduction  in  whatever  manner it  determines
appropriate so that,  after such offsetting  allocations are made, each Member's
Capital Account balance is, to the extent possible, equal to the Capital Account
balance such Member would have had if the Regulatory  Allocations  were not part
of the Agreement and all Company items were allocated  pursuant to Sections 3.1,
3.2 and 3.3(i).  In  exercising  its  discretion  under this  Section  3.4,  the
Managing  Member shall take into account  future  Regulatory  Allocations  under
Sections  3.3(a) and 3.3(b) that,  although  not yet made,  are likely to offset
other Regulatory Allocations previously made under Section 3.3(e) and 3.3(g).

                                     - 23 -



      3.5   OTHER ALLOCATION RULES

            (1) For purposes of determining the Profits,  Losses,  or any other
items allocable to any period,  Profits,  Losses, and any such other items shall
be determined on a daily, monthly, or other basis, as determined by the Managing
Member using any  permissible  method under Code Section 706 and the Regulations
thereunder.

            (2) The  Members  are aware of the income tax  consequences  of the
allocations  made  by  this  Section  3 and  hereby  agree  to be  bound  by the
provisions  of this  Section 3 in reporting  their shares of Company  income and
loss for income tax purposes.

      3.6   TAX ALLOCATIONS:  CODE SECTION 704(C)

      In accordance  with Code Section  704(c) and the  Regulations  thereunder,
income,  gain,  loss, and deduction with respect to any Property  contributed to
the capital of the Company shall,  solely for tax purposes,  be allocated  among
the Members so as to take account of any variation between the adjusted basis of
such  Property to the Company for federal  income tax  purposes  and its initial
Gross Asset Value  (computed in  accordance  with the  definition of Gross Asset
Value).

      In the  event the  Gross  Asset  Value of any  Company  asset is  adjusted
pursuant to subparagraph (ii) of the definition of Gross Asset Value, subsequent
allocations  of income,  gain,  loss,  and deduction  with respect to such asset
shall take account of any variation between the adjusted basis of such asset for
federal  income tax  purposes  and its Gross  Asset  Value in the same manner as
under Code Section 704(c) and the  Regulations  thereunder.  With respect to the
allocations  under this Section 3.6,  for purposes of Code Section  704(c),  the
Company  shall  employ  the  method  prescribed  in  Section  1.704-3(b)  of the
Regulations (the "traditional method") or any equivalent successor Regulations.

      Any elections or other  decisions  relating to such  allocations  shall be
made by the Managing Member in any manner that  reasonably  reflects the purpose
and intention of this  Agreement.  Allocations  pursuant to this Section 3.6 are
solely for purposes of federal,  state, and local taxes and shall not affect, or
in any way be taken into account in computing,  any Member's  Capital Account or
share  of  Profits,  Losses,  other  items,  or  distributions  pursuant  to any
provision of this Agreement.

                                    SECTION 4

                                  DISTRIBUTIONS

      4.1     INITIAL DISTRIBUTION


                                     - 24 -


      As soon as is  practicable  after the issuance of the Company Debt,  there
shall be distributed to ARCO Member cash in the amount of $700,000,000, of which
$25,000,000 is to reimburse ARCO Member for certain capital  expenditures  under
Section 1.707-4(d) of the Regulations.

      4.2   AVAILABLE CASH

            (1)  Except   as  otherwise  provided  in  Sections  4.3 and 8.2 and
subject to any  applicable  provisions  of the Company Debt or  Successor  Debt,
distributions  to the  Members  shall be made first to ARCO  Member in an amount
equal to the accrued and unpaid cumulative Preferred Return, if any, and second,
to the  Members  pro  rata in  proportion  to each  Member's  respective  Common
Percentage Interests.

            (2) Any  such  distributions  may be made at such  times and in such
amounts as the Managing Member shall determine.  Except as otherwise provided in
Section 4.3, or as may be determined  desirable by both the Managing  Member and
the maker of any Member  Loans,  the Company  shall pay in full all Member Loans
(in accordance  with the order of payment  contemplated by Section 8.2(b)) prior
to making any cash distributions to the Members.

      4.3   TAX DISTRIBUTIONS

      Subject to applicable  provisions  of the Company Debt or Successor  Debt,
Available Cash shall be distributed to the Members in proportion to their Common
Percentage  Interests  within 135 days after the end of each  Fiscal Year of the
Company in an aggregate amount equal to the  Hypothetical  Income Tax Amount for
such Fiscal Year.

      4.4   AMOUNTS WITHHELD

      All amounts withheld pursuant to the Code or any provision of any state or
local tax law from any payment or  distribution  to a Member shall be treated as
amounts paid or  distributed  to such Member  pursuant to this Section 4 for all
purposes  under this  Agreement.  The Managing  Member is authorized to withhold
from  payments and  distributions  to any Member and to pay over to any federal,
state, or local  government any amounts  required to be so withheld  pursuant to
the Code or any provisions of any other federal, state, or local law.

                                    SECTION 5

                                   MANAGEMENT

      5.1   AUTHORITY OF THE MANAGING MEMBER

            (1)  GENERAL  AUTHORITY.  Subject  to Section  5.1(c),  the Managing
Member shall  conduct the business and affairs of the Company.  Except where the
approval of the Members is 



                                     - 25 -


expressly  required by this Agreement or  non-waivable  provisions of applicable
law, the  Managing  Member  shall have full and  complete  authority,  power and
discretion  to manage and control  the  business,  affairs  and  property of the
Company,  to make all decisions  regarding  those matters and to perform any and
all other acts or  activities  customary  or incident to the  management  of the
Company's business.

            (2)  DELEGATION.  The  Managing  Member  shall  have  the  power to
delegate authority to such officers,  employees,  agents and  representatives of
the Company as it may from time to time deem appropriate.

            (3) ACTIONS  REQUIRING  CONSENT  OF MEMBERS.  Each of the  following
actions  (each  such  action,  whether  it  constitutes  a single  and  separate
transaction  or part of a  series  of two or more  related  transactions,  being
treated as a single and separate action and being herein referred to as a "Major
Action")  shall  require  the prior  written  approval of all the Members if the
Company shall not on the date on which such Major Action is proposed to be taken
be in Base Credit Level Compliance:

                  (1) any  distributions of cash or Property to, or any loans to
      or other investments in, any Member or any Affiliate of any Member, except
      for Required Tax Distributions as set forth in Section 4.3;

                  (2) incurrence by the Company of any  Indebtedness  other than
      the Company Debt or any Successor Debt;

                  (3) the sale,  lease,  abandonment or other disposition of all
      or any  portion  of the  assets,  properties  and  rights  of the  Company
      otherwise than in the ordinary course of business; and

                  (4) the  consolidation  or merger of the Company  with or into
      any other Person.

            (4)  COVENANT.  The Managing  Member  covenants  and agrees that the
Company  will  treat the  Company  Debt and the  Successor  Debt as a  "recourse
liability" as defined in Section  1.752-1(a)(1)  of the Regulations with respect
to which ARCO Member bears the  "economic  risk of loss" for purposes of Section
1.752-2 of the Regulations  unless such treatment is inconsistent with any Final
Determination with respect to this matter for the Company.

      5.2   OFFICERS

            (1) ENUMERATION. The Managing Member  shall designate a President, a
Treasurer  and a Secretary  of the  Company,  and it may,  if it so  determines,
choose a  Chairman  of the Board  and a Vice  Chairman  of the  Board  among its
members.  The  Managing  Member may 

                                     - 26 -


also choose one or more Vice Presidents or other officers, one or more Assistant
Secretaries and one or more Assistant  Treasurers.  Each such officer shall hold
office  until his  successor  is  elected  and  qualified  or until his  earlier
resignation  or removal.  The  Managing  Member may remove any  officer  with or
without cause at any time,  but such removal  shall be without  prejudice to the
contractual rights, if any, of such officer with the Company.


            (2) PRESIDENT. The President shall manage the day-to-day operations
of and the business of the  Company,  subject to the  control,  supervision  and
oversight of the Managing Member.

            (3) VICE  PRESIDENT.  The Vice  President or if there shall be more
than one, the Vice Presidents,  in the order of their seniority unless otherwise
specified by the Managing  Member,  shall have all of the powers and perform all
of the duties of the  President  during the absence or  inability  to act of the
President.  Each Vice  President  shall also have such other  powers and perform
such  other  duties as shall  from time to time be  prescribed  by the  Managing
Member, the Chairman or the President.

            (4) SECRETARY.  The Secretary shall have custody of the seal of the
Company, if any, and of all books,  records,  and papers of the Company,  except
such  as  shall  be in the  charge  of the  Treasurer  or of some  other  person
authorized to have custody and  possession  thereof by direction of the Managing
Member.  The Secretary  shall also have such other powers and perform such other
duties as are  incident to the office of the  Secretary of a  corporation  or as
shall from time to time be prescribed by, or pursuant to authority delegated by,
the Managing Member.

            (5) TREASURER.  The Treasurer shall keep full and accurate accounts
of the  receipts  and  disbursements  of the Company in books  belonging  to the
Company,  shall deposit all moneys and other valuable  effects of the Company in
the  name  and to the  credit  of the  Company  in such  depositories  as may be
designated  by the  Managing  Member,  and shall also have such other powers and
perform such other  duties as are  incident to the office of the  Treasurer of a
corporation  or as shall  from time to time be  prescribed  by, or  pursuant  to
authority delegated by, the Managing Member.

            (6) OTHER OFFICERS AND ASSISTANT OFFICERS. The powers and duties of
each other  officer or assistant  officer who may from time to time be chosen by
the Managing Member shall be as specified by, or pursuant to authority delegated
by, the Managing  Member at the time of the appointment of such other officer or
assistant  officer or from time to time  thereafter.  In addition,  each officer
designated as an assistant  shall assist in the performance of the duties of the
officer to which he or she is  assistant  and shall have the powers and  perform
the duties of such  officer  during  the  absence  or  inability  to act of such
officer.

                                     - 27 -


            (7)  CONTRACTS.  Any contract to be entered into by the Company may
be signed by the President or any Vice President or by any person  authorized to
do so by the Managing Member, the Chairman or the President.

      5.3   LIABILITY OF MEMBERS

      No Member,  Managing Member,  former Member,  no Affiliate of any thereof,
nor any partner, shareholder, director, officer, employee or agent of any of the
foregoing,  shall be liable in  damages  for any act or  failure  to act in such
Person's  capacity as a Member,  Managing  Member or  otherwise on behalf of the
Company unless such act or omission  constituted  bad faith,  gross  negligence,
fraud or willful misconduct of such Person or a violation by such Person of this
Agreement. Subject to Section 5.4, each Member, former Member, each Affiliate of
any thereof,  and each partner,  shareholder,  director,  officer,  employee and
agent of any of the  foregoing,  shall be  indemnified  and held harmless by the
Company,  its receiver or trustee from and against any liability for damages and
expenses,  including  reasonable  attorneys' fees and  disbursements and amounts
paid in settlement,  resulting from any threatened, pending or completed action,
suit or proceeding relating to or arising out of such Person's acts or omissions
in such Person's  capacity as a Member,  Managing Member or otherwise  involving
such  Person's  activities  on behalf of the Company,  except to the extent that
such damages or expenses result from the bad faith,  gross negligence,  fraud or
willful  misconduct  of  such  Person  or a  violation  by such  Person  of this
Agreement.  Any  indemnity  by the Company,  its receiver or trustee  under this
Section 5.3 shall be provided out of and to the extent of Company Property only.

      5.4   INDEMNIFICATION

      Any Person asserting a right to indemnification under Section 5.3 shall so
notify the Company in writing. If the facts giving rise to such  indemnification
shall  involve  any actual or  threatened  claim or demand by or against a third
party,  the indemnified  Person shall give such notice promptly (but the failure
to so notify shall not relieve the indemnifying  Person from any liability which
it otherwise may have to such indemnified  Person hereunder except to the extent
the indemnifying Person is actually  prejudiced by such failure to notify).  The
indemnifying  Person shall be entitled to control the defense or  prosecution of
such  claim  or  demand  in the name of the  indemnified  Person,  with  counsel
satisfactory to the indemnified Person, if it notifies the indemnified Person in
writing of its  intention to do so within 20 days of its receipt of such notice,
without  prejudice,   however,  to  the  right  of  the  indemnified  Person  to
participate  therein  through counsel of its own choosing,  which  participation
shall be at the indemnified  Person's expense unless (i) the indemnified  Person
shall have been advised by its counsel that use of the same counsel to represent
both the indemnifying Person and the indemnified Person would present a conflict
of  interest  (which  shall be deemed to include  any case where  there may be a
legal defense or claim  available to the  indemnified  Person which is different
from or additional to those available to the indemnifying Person), in which case
the  indemnifying  Person shall not have the right to direct the defense of such
action on behalf of the  indemnified  Person,  or (ii) the  indemnifying  Person
shall fail  vigorously  to defend or  prosecute  such  claim or demand  within a


                                     - 28 -


reasonable  time.  Whether or not the  indemnifying  Person chooses to defend or
prosecute such claim,  the Members shall cooperate in the prosecution or defense
of such claim and shall  furnish such  records,  information  and  testimony and
attend such conferences,  discovery proceedings, hearings, trials and appeals as
may reasonably be requested in connection therewith.

      The  indemnified  Person shall not settle or permit the  settlement of any
claim or action for which it is  entitled to  indemnification  without the prior
written consent of the indemnifying Person, unless the indemnifying Person shall
have  failed to assume the  defense  thereof  after the notice and in the manner
provided above.

      The  indemnifying  Person may not without  the consent of the  indemnified
Person agree to any settlement (i) that requires such indemnified Person to make
any payment  that is not  indemnified  hereunder,  (ii) does not grant a general
release to such indemnified  Person with respect to the matters  underlying such
claim or action, or (iii) that involves the sale,  forfeiture or loss of, or the
creation  of any lien on, any  material  property  of such  indemnified  Person.
Notwithstanding  the foregoing,  the  indemnifying  Person may not in connection
with any such investigation,  defense or settlement,  without the consent of the
indemnified  Person,  take  or  refrain  from  taking  any  action  which  would
reasonably  be  expected  to  materially  impair  the  indemnification  of  such
indemnified Person hereunder or would require such indemnified Person to take or
refrain  from  taking  any action or to make any  public  statement,  which such
indemnified  Person  reasonably  considers to  materially  adversely  affect its
interests.

      Upon the request of any indemnified  Person, the indemnifying Person shall
use reasonable  efforts to keep such indemnified  Person reasonably  apprised of
the status of those aspects of such  investigation and defense controlled by the
indemnifying  Person and shall provide such  information with respect thereto as
such indemnified Person may reasonably request.

      5.5     INTERESTED PARTY TRANSACTIONS

      Except for the  Contribution  Agreement  and ARCO  Member  Guarantee,  any
contract,  agreement,  relationship or transaction between the Company or any of
its Subsidiaries, on the one hand and any Member or any Person in which a Member
(including  its  Controlled  Affiliates)  has  a  direct  or  indirect  material
financial interest or which has a direct or indirect material financial interest
in such Member (each, an "Interested Person") on the other hand, shall be (i) on
terms no less favorable to the Company than those generally being provided to or
available from unrelated  third parties.  Notwithstanding  the foregoing,  in no
event  may  any  contract  or  agreement  between  the  Company  or  any  of its
Subsidiaries  and  Interested  Persons  involve any subject  matter  outside the
ordinary course of the Company's mining business (including within such business
the making of any Arch Intercompany Loans).

                                     - 29 -


                                    SECTION 6

                          ACCOUNTING, BOOKS AND RECORDS

      6.1   ACCOUNTING, BOOKS AND RECORDS

      The Company  shall  maintain at its  principal  office  separate  books of
account  for the  Company  which (i)  shall  fully and  accurately  reflect  all
transactions of the Company, all costs and expenses incurred,  all charges made,
all credits made and received,  and all income  derived in  connection  with the
conduct of the Company and the operation of its business in accordance with GAAP
or, to the extent inconsistent  therewith, in accordance with this Agreement and
(ii)  shall  include  all  documents  and other  materials  with  respect to the
Company's  business  as are  usually  maintained  by persons  engaged in similar
businesses.   The  Company  shall  use  the  accrual  method  of  accounting  in
preparation  of its annual reports and for tax purposes and shall keep its books
and records accordingly.  Any Member or its designated representative shall have
the right,  at any  reasonable  time and for any lawful  purpose  related to the
affairs of the Company or the  investment in the Company by such Member,  (i) to
have  access to and to inspect  and copy the  contents of such books or records,
(ii) to visit the  facilities of the Company and (iii) to discuss the affairs of
the Company with its officers, employees, attorneys, accountants,  customers and
suppliers.  The Company  shall not charge such Member for such  examination  and
each Member shall bear its own expenses in connection with any examination  made
for any such Member's account.

      6.2   REPORTS

            (1) IN GENERAL.  The controller of the Company shall be responsible
for the preparation of financial  reports of the Company and the coordination of
financial matters of the Company with the Accountants.

            (2)  PERIODIC  AND OTHER  REPORTS.  The  Company  shall cause to be
delivered to each Member the financial  statements listed in clauses (i) through
(iii) below,  prepared,  in each case, in accordance with GAAP (and, if required
by any Member for purposes of  reporting  under the  Securities  Exchange Act of
1934,  as amended  ("Exchange  Act"),  Regulation  S-X),  any of the reports and
information  listed in subsection (d) below and such other reports as any Member
may reasonably request from time to time:

                  (1) As soon as  practicable  following  the end of each Fiscal
      Year (and in any event not later than 75 days after the end of such Fiscal
      Year) and at such time as  distributions  are made to the Members pursuant
      to Section 8.2 following the occurrence of a Liquidating  Event, a balance
      sheet of the Company as of the end of such Fiscal Year or at the time such
      distributions are made and the related statements of operations,  Members'
      Capital Accounts and changes therein, and cash flows for such Fiscal Year,
      together  with  appropriate   notes  to  such  financial   statements  and
      supporting schedules,  and, if audited, a copy of the audit report thereon
      by the independent  public  accountants  then serving the Company,  and in
      each case,  to the extent the Company was in  existence, 



                                     - 30 -


      setting  forth in  comparative  form  the  corresponding  figures  for the
      immediately  preceding  Fiscal Year (in the case of the balance sheet) and
      the  two  immediately   preceding   Fiscal  Years  (in  the  case  of  the
      statements).

                  (2) As soon as  practicable  following  the end of each of the
      first  three  fiscal  quarters  of each  Fiscal Year (and in any event not
      later than 45 days after the end of each such fiscal  quarter),  a balance
      sheet of the Company as of the end of such fiscal  quarter and the related
      statements of operations,  Members'  Capital Accounts and changes therein,
      and cash flows for such fiscal quarter and for the Fiscal Year to date, in
      each case,  to the extent the Company was in  existence,  setting forth in
      comparative  form the  corresponding  figures for the prior Fiscal  Year's
      fiscal quarter and interim period  corresponding to the fiscal quarter and
      interim period just completed.


                  (3) If the Company is a reporting  company  under the Exchange
      Act, all annual and quarterly  reports on Form 10-K and 10-Q,  all current
      reports on Form 8-K and all other  reports or  information  required to be
      filed under the Exchange Act or otherwise  prepared and distributed by the
      Company to any Member or other holders of equity in the Company.

                  (4) Together with the financial  statements delivered pursuant
      to the  foregoing  clauses  (i)  and  (ii),  a  certificate  of the  chief
      financial  officer of the Managing  Member,  as to (a)  compliance  by the
      Company,  and by each other  Person  whose Base  Credit  Level  Compliance
      purports to be evidenced by such certificate, with the Credit Ratios as of
      the  last day of the Test  Period  ended on the last day of the  reporting
      period  covered  by  such  financial  statements,  and/or,  in  each  case
      containing   calculations   in  reasonable   detail   demonstrating   such
      compliance,  and/or (b) stating  whether on the last day of the  reporting
      period covered by such financial statements, any other such Person, had an
      Acceptable Debt Rating.



                                     - 31 -


      6.3   TAX RETURNS AND INFORMATION

            (1) The Managing  Member shall act as the "Tax Matters  Partner" of
the  Company  within the meaning of Section  6231(a)(7)  of the Code (and in any
similar  capacity  under  applicable  state  or local  law)  (the  "Tax  Matters
Partner").  If the Managing  Member shall cease to be a Member,  then the Member
with the greatest  Common  Percentage  Interest shall  thereafter act as the Tax
Matters Partner.  The Tax Matters Partner shall take reasonable  action to cause
each  other  Member to be treated as a "notice  partner"  within the  meaning of
Section  6231(a)(8) of the Code.  All reasonable  expenses  incurred by a Member
while acting in its capacity as Tax Matters  Partner shall be paid or reimbursed
by the  Company.  Each Member  shall have the right to have five  Business  Days
advance  notice  from the Tax  Matters  Partner of the time and place of, and to
participate in (i) any material aspect of any administrative proceeding relating
to the determination of Company items at the Company level and (ii) any material
discussions  with the  Internal  Revenue  Service  relating  to the  allocations
pursuant  to Section 3 of this  Agreement.  The Tax  Matters  Partner  shall not
initiate  any  action  or  proceeding  in  any  court,  extend  any  statute  of
limitations, or take any other action contemplated by Sections 6222 through 6232
of the Code that would  legally  bind any other  Member  other  than  indirectly
through the Company  being bound by such action.  The Company shall from time to
time upon  request  of any other  Member  confer,  and cause the  Company's  tax
attorneys and  Accountants  to confer,  with such other Member and its attorneys
and  accountants  on any  matters  relating  to a Company  tax return or any tax
election.

          (2) The  Company  shall  cause all federal, state, local and other tax
returns  and reports  (including  amended  returns)  required to be filed by the
Company to be prepared and timely  filed with the  appropriate  authorities  and
shall cause all income or franchise tax returns or reports  required to be filed
by the Company to be sent to each  Member for review at least 15  Business  Days
prior to filing.  Unless otherwise  determined by the Managing Member,  all such
income  or  franchise  tax  returns  of the  Company  shall be  prepared  by the
Accountants.  The cost of preparation of any returns by the Accountants or other
outside preparers shall be borne by the Company.  Except as otherwise  expressly
provided herein,  all elections  required or permitted to be made by the Company
under  the Code (or  applicable  state or local  tax law)  shall be made in such
manner as may be determined by the Managing  Member to be in the best  interests
of the Members as a group.

            (3) The  Company  shall cause to be provided to each Member as soon
as possible  after the close of each Fiscal  Year (and,  in any event,  no later
than 135 days after the end of each Fiscal Year), a schedule  setting forth such
Member's  distributive share of the Company's income,  gain, loss, deduction and
credit as determined for federal  income tax purposes and any other  information
relating to the Company  that is  reasonably  required by such Member to prepare
its own  federal,  state,  local and other tax  returns.  At any time after such
schedule and information  have been provided,  upon at LEAST five Business Days'
notice  from a Member,  the  Company  shall  also  provide  each  Member  with a
reasonable  opportunity during 
                                      -32-



ordinary  business hours to review and make copies of all work papers related to
such schedule and  information  or to any return  prepared  under  paragraph (b)
above.  The Tax Matters  Partner shall also cause to be provided to each Member,
at the time that the quarterly financial statements are required to be delivered
pursuant to Section  6.2(b)(ii) above, an estimate of each Member's share of all
items of income,  gain, loss, deduction and credit of the Company for the fiscal
quarter just  completed  and for the Fiscal Year to date for federal  income tax
purposes.

            (4) The Company,  each Member and each Affiliate of a Member agrees
to take no action inconsistent with the tax-free nature of the reorganization of
LTLC, the  contribution of the ARCO Assets to the Company,  the  contribution to
ARCO Member of an interest in the Company and the  distributions  to ARCO Member
pursuant  to  Section  4.1  except to the  extent  requested  by ARCO  Member in
writing.  Each Member and each  Affiliate of a Member  agrees to take any action
pursuant to this Section 6.3(d) reasonably requested by ARCO Member. The Company
and each Member  will not file any  protective  claim or election in  connection
with these  matters  unless (i)  directed to do so by ARCO or (ii) they  receive
ARCO's  prior  written  consent  to  such  filing,  which  consent  will  not be
unreasonably withheld.


                                    SECTION 7

                            DISPOSITIONS OF INTERESTS

      7.1   RESTRICTION ON DISPOSITIONS

      Except as otherwise  permitted by this Agreement,  no Member shall Dispose
of all or any portion of its Interest.

      7.2   PERMITTED TRANSFERS

      Subject to the  conditions  and  restrictions  set forth in Section 7.3, a
Member may at any time  Transfer  all or any portion of its  Interest (a) to any
Controlled  Affiliate  of  such  Member,  (b) in  connection  with  a  Permitted
Transaction,  (c) to the  administrator  or trustee of such  Member to whom such
Interest is  transferred in an  Involuntary  Bankruptcy,  (d) pursuant to and in
compliance  with Section 7.4 or (e) with the prior written  consent of the other
Members  (each a "Permitted  Transfer"),  PROVIDED  that unless  approved by all
Members, no Transfer of a Member's Interest (other than pursuant to Section 7.4)
will be a Permitted  Transfer if such Transfer would reasonably likely result in
(y) a  breach  of  any  covenant,  representation  or  other  agreement  in  any
instrument  with  respect to the  Company  Debt or any  Successor  Debt;  or (z)
otherwise materially adversely affect the creditworthiness of the Company.

      After any Permitted Transfer,  the Transferred  Interest shall continue to
be subject to all the provisions of this Agreement,  including the provisions of
this Section 7 with respect to the Disposition of Interests.  Except in the case
of a Transfer of a Member's  entire  Interest  made in 

                                     -33-




compliance herewith, no Member shall withdraw from the Company,  except with the
consent of the  Managing  Member.  The  withdrawal  of a Member,  whether or not
permitted,  shall not relieve the withdrawing  Member of its  obligations  under
Section 10.7 and shall not relieve such Member or any of its  Affiliates  of its
obligations  under,  or result in a  termination  of or  otherwise  affect,  any
agreement  between  the Company  and such  Member or  Affiliate  then in effect,
except to the extent provided therein.

      7.3   CONDITIONS TO PERMITTED TRANSFERS

      A Transfer shall not be treated as a Permitted  Transfer  unless and until
the following conditions are satisfied:

            (1) Except in the case of a Transfer  involuntarily by operation of
law, the transferor and transferee shall execute and deliver to the Company such
documents as may be necessary  or  appropriate  in the opinion of counsel to the
Company  to  effect  such  Transfer.  In the  case of a  Transfer  of  Interests
involuntarily   by  operation  of  law,  the  Transfer  shall  be  confirmed  by
presentation  to the  Company of legal  evidence of such  Transfer,  in form and
substance  satisfactory  to counsel to the  Company.  In all cases,  the Company
shall be  reimbursed  by the  transferor  and/or  transferee  for all  costs and
expenses that it reasonably  incurs in connection with such Transfer  (including
reasonable attorneys' fees and expenses,  but excluding the portion of the costs
of  determining  Net Equity  that are to be borne by the  Company as provided in
Section 7.4(d));


            (2) Except in the case of a Transfer  involuntarily by operation of
law,  the  transferee  of an Interest  (other  than,  with respect to clause (A)
below, a transferee  that was a Member prior to the Transfer)  shall, by written
instrument in form and substance reasonably  satisfactory to the Managing Member
(and, in the case of clause (B) below,  the transferor  Member),  (A) accept and
adopt the terms and provisions of this Agreement,  including this Section 8, and
(B) assume the  obligations of the  transferor  Member under this Agreement with
respect to the  Transferred  Interest.  The transferor  Member shall be released
from all such assumed  obligations  except (x) as otherwise  provided in Section
10.7, (y) those  obligations or liabilities of the transferor Member arising out
of a breach of this  Agreement  and (z) in the case of a transfer  to any Person
other than a Member or any of its Controlled  Affiliates,  those  obligations or
liabilities  of the  transferor  Member  based on events  occurring,  arising or
maturing prior to the date of Transfer;

            (3) Except in the case of a Transfer  involuntarily by operation of
law,  the  transferor  and  its  Affiliates  will  be  obligated  to sell to the
transferee,  and the transferee will be obligated to buy from the transferor and
its  Affiliates,  all Member Loans of the Company held directly or indirectly by
the  transferor  or an Affiliate  thereof.  If the  transferee  is a Member or a
Controlled  Affiliate  thereof,  the terms of such  purchase  will include those
provided in Section 2.5;

                                      -34-




            (4) Except in  the case of a Transfer  involuntarily by operation of
law, if required by the Managing  Member,  the  transferee  shall deliver to the
Company an opinion,  satisfactory in form and substance to the Managing  Member,
of counsel reasonably satisfactory to the Managing Member to the effect that the
Transfer of the  Interest is in  compliance  with  applicable  state and federal
securities laws;

            (5) Except in the case of a Transfer  involuntarily by operation of
law, if required by the Managing Member, the transferee (other than a transferee
that was a Member prior to the Transfer)  shall deliver to the Company  evidence
of the authority of such Person to become a Member and to be bound by all of the
terms and conditions of this Agreement,  and the transferee and transferor shall
each  execute  and  deliver  such  other  instruments  as  the  Managing  Member
reasonably deems necessary or appropriate to effect, and as a condition to, such
Transfer,  including amendments to the Certificate or any other instrument filed
with the State of Delaware or any other state or governmental agency;

            (6) Unless otherwise  approved by the Managing Member,  no Transfer
of an  Interest  shall be made except upon terms which would not, in the opinion
of counsel  chosen by the  Managing  Member,  result in the  termination  of the
Company  within the meaning of Section 708 of the Code or cause the  application
of the rules of Sections 168(g)(1)(B) and 168(h) of the Code or similar rules to
apply to the Company.  If the immediate  Transfer of such Interest would, in the
opinion of such counsel,  cause a termination  within the meaning of Section 708
of the Code, then if, in the opinion of such counsel, the following action would
not precipitate such  termination,  the transferor  Member shall be entitled (or
required,  as the case may be) (i)  immediately to Transfer only that portion of
its  Interest as may, in the opinion of counsel to the Company,  be  transferred
without  causing  such a  termination  and (ii) to enter  into an  agreement  to
Transfer  the  remainder  of its  Interest,  in one or  more  Transfers,  at the
earliest  date or dates on which such  Transfer  or  Transfers  may be  effected
without causing such  termination.  The purchase price for the Interest shall be
allocated between the immediate  Transfer and the deferred Transfer or Transfers
pro  rata  on the  basis  of the  percentage  of the  aggregate  Interest  being
transferred,  each  portion  to be  payable  when  the  respective  Transfer  is
consummated, unless otherwise agreed by the parties to the Transfer. In the case
of a Transfer by one Member to another Member, the deferred purchase price shall
be deposited in an  interest-bearing  escrow  account  unless  another method of
securing  the payment  thereof is agreed upon by the  transferor  Member and the
transferee Member(s). In determining whether a particular proposed Transfer will
result in a termination  of the Company,  counsel to the Company shall take into
account the existence of prior written  commitments to Transfer made pursuant to
this  Agreement  and such  commitments  shall  always be given  precedence  over
subsequent proposed Transfers;

            (7) The transferor or transferee shall furnish the Company with the
transferee's taxpayer identification number, sufficient information to determine
the transferee's  initial tax basis in the Interest  transferred,  and any other
information  reasonably  necessary  to permit the  Company to file all  required
federal and state tax returns and other legally required 

                                      -35-





information  statements  or returns.  Without  limiting  the  generality  of the
foregoing,  the Company shall not be required to make any distribution otherwise
provided for in this Agreement with respect to any transferred Interest until it
has received such information; and

            (8) Except in the case of a Transfer  of an Interest  involuntarily
by operation of law, the  transferor  and  transferee  shall provide the Company
with an opinion  of  counsel,  which  opinion  of  counsel  shall be  reasonably
satisfactory  to the other  Members,  to the effect that such  Transfer will not
cause the Company to become  taxable as a  corporation  for  federal  income tax
purposes.

      Upon  completion  of  any  Permitted  Transfer  and  compliance  with  the
provisions of this Section 7.3, the transferee of the Interest (if not already a
Member) shall be admitted as a Member without any further action.

      7.4   PUT AND CALL RIGHTS

            (1)  ARCO  MEMBER   PUT  RIGHT.   At  any  time  after  the  seventh
anniversary of the Closing Date (as defined in the Purchase and Sale Agreement),
ARCO  Member  shall have the right,  upon  providing  at least 60 days'  advance
written  notice to Arch  Member (a "Put  Notice"),  to  require  Arch  Member to
purchase all or part of ARCO Member's Interest. The price at which ARCO Member's
Interest will be so purchased  and sold shall be determined by mutual  agreement
between Arch Member and ARCO Member.  If such price is not so agreed upon within
60 days after the date of the Put  Notice,  such price shall be equal to the sum
of (x) if the  Preferred  Capital  Amount or any part thereof is to be sold,  an
amount  equal to all or such  portion of the  Preferred  Capital  Amount and any
accrued and unpaid Preferred  Return thereon,  and (y) if the ARCO Member Common
Percentage  Interest or any part  thereof is to be sold,  the Net Equity of such
Common Percentage  Interest or part thereof determined as of the last day of the
fiscal quarter immediately  preceding the fiscal quarter in which the Put Notice
was given. No Damages or other amounts shall be payable to ARCO Member under the
Tax Sharing  Agreement  in  connection  with the  exercise by ARCO Member of its
rights under this Section 7.4(a).


            (2) ARCH  MEMBER  CALL  RIGHTS.  At any time after the date  hereof,
Arch  Member  shall have the right,  upon  providing  at least 60 days'  advance
written notice (a "Call Notice") to ARCO Member, to purchase or to cause another
person to purchase all, but not less than all, of the ARCO Member  Interest at a
price equal to the sum of (i) the Preferred  Capital  Amount and any accrued and
unpaid  Preferred  Return  thereon,  and (ii) the Net Equity of the ARCO  Member
Common Percentage  Interest  determined as of the last day of the fiscal quarter
immediately  preceding  the fiscal  quarter in which the Call  Notice was given,
together  with  Damages  (if any)  determined  as set  forth in the Tax  Sharing
Agreement.

            (3) POST 2013  CALL RIGHT.  At any time after January 1, 2013,  Arch
Member shall have the right,  upon  providing  at least 60 days advance  written
Call Notice to ARCO 

                                      -36-





Member,  to purchase  all of the ARCO Member  Interest  and any Interest of ARCO
Member  Transferred  at a price  equal  to the Net  Equity  of the  ARCO  Member
Interest and/or Transferred Interest determined as of the last day of the fiscal
quarter  immediately  preceding the fiscal  quarter in which the Call Notice was
given. No Damages or other amounts shall be payable to ARCO Member under the Tax
Sharing  Agreement in connection  with the exercise by Arch Member of its rights
under this Section 7.4(c).

            (4) TERMS  OF PURCHASE;  CLOSING. Unless Arch Member and ARCO Member
otherwise agree, the closing of the purchase and sale of ARCO Member's  Interest
shall occur at the principal  office of the Company at 10:00 a.m. (local time at
the place of the closing) on the first  Business  Day  occurring on or after the
60th day following the last day of the required  advance  written  notice period
(subject to the  provisions of Section  7.7). At the closing,  Arch Member shall
pay to ARCO Member, by cash or other  immediately  available funds, the purchase
price for ARCO  Member's  Interest and ARCO Member shall  deliver to Arch Member
good  title,  free  and  clear  of any  liens,  claims,  encumbrances,  security
interests  or options  (other  than those  created by this  Agreement  and those
securing financing obtained by the Company),  to the ARCO Member's Interest thus
purchased.

      At the closing,  the Members shall execute such documents and  instruments
of conveyance as may be necessary or appropriate to effectuate the  transactions
contemplated  hereby,  including the Transfer of the ARCO  Member's  Interest to
Arch Member and the assumption by Arch Member of ARCO Member's  obligations with
respect to the ARCO Member's  Interest  Transferred to Arch Member.  The Company
and each Member shall bear its own costs of such Transfer and closing, including
attorneys'  fees and filing fees.  The cost of  determining  Net Equity shall be
borne by the Company.

      7.5   NET EQUITY

      The "Net  Equity"  of a  Member's  Interest,  as of any day,  shall be the
amount that would be  distributed  to such Member in  liquidation of the Company
pursuant to Section 8 if (a) all of the Company's  business and assets were sold
substantially as an entirety for Gross Appraised Value, (b) the Company paid its
accrued,  but unpaid,  liabilities and established  reserves pursuant to Section
8.2 for the payment of reasonably  anticipated contingent or unknown liabilities
and (c) the  Company  distributed  the  remaining  proceeds  to the  Members  in
liquidation,  all as of such day,  PROVIDED that in determining such Net Equity,
no reserve for contingent or unknown  liabilities shall be taken into account if
such Member (or its  successor in interest)  agrees to indemnify the Company and
all other  Members for that  portion of any such  reserve as would be treated as
having been withheld  pursuant to Section 8.3 from the distribution  such Member
would have received pursuant to Section 8.2 if no such reserve were established.

      The Net Equity of a Member's  Interest shall be determined,  without audit
or certification,  from the books and records of the Company by the Accountants.
The Net Equity of a Member's  Interest shall be determined within 30 days of the
day upon which the  Accountants  are apprised 

                                      -37-





in writing of the Gross  Appraised  Value of the Company's  business and assets,
and the amount of such Net Equity  shall be disclosed to the Company and each of
the  Members  by  written   notice  ("Net  Equity   Notice").   The  Net  Equity
determination of the Accountants  shall be final and binding in the absence of a
showing of manifest error.

      7.6   GROSS APPRAISED VALUE

      "Gross Appraised Value," as of any day, means the price at which a willing
seller would sell, and a willing buyer would buy, the business and assets of the
Company,  free and  clear of all  liens and  encumbrances,  substantially  as an
entirety and as a going concern in a single  arm's-length  transaction for cash,
without time constraints and without being under any compulsion to buy or sell.

      In  connection   with   provisions  of  this   Agreement  that  require  a
determination  of Gross  Appraised  Value,  the Managing Member shall appoint an
appraiser  (the "First  Appraiser")  and the  affected  Member or Members  shall
appoint a second appraiser (the "Second Appraiser").  If the Second Appraiser is
not timely  designated,  the determination of the Gross Appraised Value shall be
made by the First Appraiser. The First Appraiser, or each of the First Appraiser
and the Second  Appraiser if the Second  Appraiser is timely  designated,  shall
submit  its  determination  of the Gross  Appraised  Value to the  Company,  the
Members and the Accountants  within 45 days of the date of its selection (or the
selection  of the  Second  Appraiser,  as  applicable).  If  there  are  two (2)
Appraisers and their respective determinations of the Gross Appraised Value vary
by less then ten percent of the higher determination,  the Gross Appraised Value
shall be the average of the two  determinations.  If such determinations vary by
ten  percent  or more of the  higher  determination,  the two  Appraisers  shall
promptly  designate  a third  appraiser  (the  "Third  Appraiser").  Neither the
Company  nor any  Member  shall  provide,  and the First  Appraiser  and  Second
Appraiser  shall be  instructed  not to provide,  any  information  to the Third
Appraiser  as to the  determinations  of the  First  Appraiser  and  the  Second
Appraiser or otherwise  influence such Third  Appraiser's  determination  in any
way. The Third Appraiser shall submit its  determination  of the Gross Appraised
Value to the Company, the Members and the Accountants within 45 days of the date
of its selection. The Gross Appraised Value shall be equal to the average of the
two  closest  of the three  determinations,  PROVIDED  that,  if the  difference
between the highest and middle  determinations  is no more than 105% and no less
than 95% of the difference  between the middle and lowest  determinations,  then
the  Gross  Appraised  Value  shall be equal to the  middle  determination.  The
determination  of the Gross  Appraised  Value in  accordance  with the foregoing
procedure  shall be final and  binding on the Company  and each  Member.  If any
Appraiser is only able to provide a range in which Gross  Appraised  Value would
exist, the average of the highest and lowest value in such range shall be deemed
to be  such  Appraiser's  determination  of the  Gross  Appraised  Value  of the
Company's  business and assets.  The Third  Appraiser  selected  pursuant to the
provisions  of this  Section  shall  be an  investment  banking  firm  or  other
qualified  Person with prior experience in appraising  businesses  comparable to
the business of the Company.

                                      -38-





      7.7   EXTENSION OF TIME

      If any transfer of a Member's  Interest in accordance  with this Section 7
requires the consent,  approval,  waiver,  or  authorization  of any  government
department,  board, bureau, commission, agency or instrumentality as a condition
to the lawful and valid  Transfer  of such  Member's  Interest  to the  proposed
transferee thereof, then each of the time periods provided in this Section 7, as
applicable,  for the closing of such Transfer  shall be suspended for the period
of time during which any such consent,  approval,  waiver,  or  authorization is
being  diligently  pursued;  PROVIDED,  HOWEVER,  that  in no  event  shall  the
suspension of any time period  pursuant to this Section 7.7 extend for more than
365 days. Each Member agrees to use its diligent efforts to obtain, or to assist
the  affected  Member or the Managing  Member in  obtaining,  any such  consent,
approval,  waiver,  or  authorization  and shall  cooperate and use its diligent
efforts to respond as promptly as practicable  to all inquiries  received by it,
by the affected Member or by the Managing Member from any government department,
board, bureau,  commission,  agency or instrumentality for initial or additional
information or documentation in connection therewith.


      7.8   TAGALONG RIGHTS

      In the event that the  Managing  Member  proposes to  Transfer  all or any
portion of its Common Percentage  Interest to any person other than a Controlled
Affiliate  of the  Managing  Member (a  "Tagalong  Transaction"),  the  Tagalong
Transaction  shall not be permitted  hereunder  unless the  proposed  transferee
("Tagalong  Purchaser") offers to purchase the entire Interest of ARCO Member if
ARCO Member desires to sell such Interest to the Tagalong  Purchaser at the same
price and on the same terms and conditions as the Tagalong Purchaser has offered
to the Managing  Member (the  "Transferring  Member") for its Common  Percentage
Interest,  plus an amount equal to the Preferred  Capital Amount and any accrued
but unpaid Preferred Return thereon to the date of purchase.  Prior to effecting
any Tagalong Transaction, the Transferring Member shall deliver to ARCO Member a
binding,  irrevocable offer (the "Tagalong Offer") by the Tagalong  Purchaser to
purchase  the entire  Interest  of ARCO Member at the same price and on the same
terms and conditions as the Tagalong  Purchaser has offered to the  Transferring
Member (the  "Tagalong  Notice")  for its Common  Percentage  Interest,  plus an
amount  equal  to the  Preferred  Capital  Amount  and any  accrued  but  unpaid
Preferred Return thereon to the date of purchase.  The "Tagalong Offer" shall be
irrevocable  for a period (the "Tagalong  Period")  ending at 11:59 p.m.,  local
time at the Company's  principal place of business on the 30th day following the
date of the Tagalong Notice. At any time during the Tagalong Period, ARCO Member
may accept the Tagalong  Offer as to the entire amount of its Interest by giving
written  notice of such  acceptance  to the  Tagalong  Purchaser.  The  Tagalong
Purchaser's  purchase of the  Interest of ARCO Member shall occur at the closing
of the  Tagalong  Transaction  (PROVIDED  such  closing is not  earlier  than 30
Business Days after the Tagalong Notice), subject to Section 7.7.

                                      -39-





      7.9   PROHIBITED DISPOSITIONS

      Any purported  Disposition of all or any part of an Interest that is not a
Permitted  Transfer  shall be null and void and of no force or effect  whatever;
PROVIDED that, if the Company is required to recognize a Disposition that is not
a Permitted Transfer (or if the Managing Member, in its sole discretion,  elects
to  recognize a  Disposition  that is not a Permitted  Transfer),  the  Interest
Disposed of shall be strictly limited to the transferor's  rights to allocations
and  distributions as provided by this Agreement with respect to the Transferred
Interest,  which  allocations and distributions may be applied (without limiting
any other  legal or  equitable  rights of the  Company)  to  satisfy  any debts,
obligations,  or  liabilities  for damages that the  transferor or transferee of
such Interest may have to the Company.

      7.10   REPRESENTATIONS REGARDING ACQUISITIONS OF INTERESTS

      Each Member  hereby  represents  and warrants to the Company and the other
Members  that  such  Member's  acquisition  of  Interests  hereunder  is made as
principal  for such Member's own account and not for resale or  distribution  of
such Interests.

      7.11   DISTRIBUTIONS AND ALLOCATIONS IN RESPECT OF TRANSFERRED INTERESTS

      If any Interest is Transferred  during any  Allocation  Year in compliance
with the provisions of this Section 7, Profits,  Losses, each item thereof,  and
all other items  attributable to the  Transferred  Interest for such Fiscal Year
shall be divided and  allocated  between the  transferor  and the  transferee by
taking into account their varying Percentage Interests during the Fiscal Year in
accordance with Code Section 706(d), using any conventions  permitted by law and
selected by the Managing Member. All distributions on or before the date of such
Transfer shall be made to the transferor, and all distributions thereafter shall
be made to the  transferee.  Solely for purposes of making such  allocations and
distributions,  the Company shall recognize such Transfer not later than the end
of the calendar month during which it is given notice of such Transfer, PROVIDED
that,  if the Company is given notice of a Transfer at least ten  Business  Days
prior to the Transfer,  the Company shall recognize such Transfer as of the date
of such  Transfer,  and PROVIDED  FURTHER that if the Company does not receive a
notice stating the date such Interest was Transferred and such other information
as the Managing  Member may  reasonably  require within 30 days after the end of
the Fiscal Year during which the Transfer  occurs,  then all such items shall be
allocated,  and all distributions shall be made, to the Person who, according to
the books and records of the Company,  was the owner of the Interest on the last
day of such Fiscal Year. Neither the Company nor the Managing Member shall incur
any liability for making  allocations and  distributions  in accordance with the
provisions  of this  Section  7.11,  whether or not the  Managing  Member or the
Company has knowledge of any Transfer of ownership of any Interest.

                                      -40-





                                    SECTION 8

                           DISSOLUTION AND WINDING UP

      8.1   LIQUIDATING EVENTS

      The Company shall dissolve and commence  winding up and  liquidating  upon
the first to occur of any of the following ("Liquidating Events"):

                  (i)   The sale of all or substantially  all of the Property;
      and

                  (ii) The  agreement of the Members to  dissolve,  wind up, and
      liquidate the Company.

      The Members hereby agree that,  notwithstanding  any provision of the Act,
the Company shall not dissolve prior to the occurrence of a Liquidating Event.

      The event  described in Section 8.1(ii) shall not constitute a Liquidating
Event until such time as the Company is  otherwise  required  to  dissolve,  and
commence winding up and liquidating.

      8.2   WINDING UP

      Upon the  occurrence of a Liquidating  Event,  the Company shall  continue
solely  for the  purposes  of  winding  up its  affairs  in an  orderly  manner,
liquidating  its assets,  and satisfying the claims of its creditors and Members
and  no  Member  shall  take  any  action  that  is  inconsistent  with,  or not
appropriate  for, the winding up of the Company's  business and affairs.  To the
extent not  inconsistent  with the foregoing,  this Agreement  shall continue in
full  force and  effect  until  such  time as the  Company's  Property  has been
distributed  pursuant to this Section 8.2 and the  Certificate has been canceled
in  accordance  with the Act.  The  Managing  Member  shall be  responsible  for
overseeing  the  winding  up and  dissolution  of the  Company,  shall take full
account of the Company's  liabilities  and  Property,  shall cause the Company's
Property to be liquidated as promptly as is consistent  with  obtaining the fair
value thereof, and shall cause the proceeds therefrom,  to the extent sufficient
therefor, to be applied and distributed in the following order:

            (1)  First,  to the  payment  of all of  the  Company's  debts  and
liabilities (other than Member Loans) to creditors other than the Members and to
the payment of the expenses of liquidation;

            (2)  Second,  to the  payment  of all  Member  Loans and all of the
Company's  debts and  liabilities  to the  Members  in the  following  order and
priority:

                                      -41-





                  (1) first, to the payment of all debts and liabilities owed to
      any Member other than in respect of Member Loans;

                  (2) second,  to the payment of all accrued and unpaid interest
      on  Member  Loans,  such  interest  to be  paid  to  each  Member  and its
      Affiliates  (considered as a group) pro rata in proportion to the interest
      owed to each such group; and

                  (3) third,  to the payment of the unpaid  principal  amount of
      all  Member  Loans,  such  principal  to be paid to  each  Member  and its
      Affiliates  (considered  as  a  group)  pro  rata  in  proportion  to  the
      outstanding principal owed to each such group;

            (3)  Third,   in   an   amount   equal  to  the  unpaid   cumulative
Preferred Return;

            (4) Fourth, in an amount equal to the Preferred Capital Amount;

            (5) The  balance,  if any, to the Members in  accordance  with their
Capital Accounts,  after giving effect to all  contributions,  distributions and
allocations for all periods;

            (6) In the discretion of the Managing Member, a pro rata portion of
the  distributions  that would otherwise be made to the Members pursuant to this
Section 8.2 may be:

                  (1) distributed to a trust  established for the benefit of the
      Members for the purposes of liquidating Company assets, collecting amounts
      owed to the Company,  and paying any contingent or unforeseen  liabilities
      or  obligations  of the  Company.  The assets of any such  trust  shall be
      distributed to the Members from time to time, in the reasonable discretion
      of the Managing Member, in the same proportions as the amount  distributed
      to such trust by the Company would otherwise have been  distributed to the
      Members pursuant to this Section 8.2; or

                  (2)  withheld  to provide a  reasonable  reserve  for  Company
      liabilities  (contingent  or  otherwise)  and to  reflect  the  unrealized
      portion of any installment obligations owed to the Company,  PROVIDED that
      such  withheld  amounts  shall be  distributed  to the  Members as soon as
      practicable; and

            (7)  Any such  distributions  to the  Members in respect of their
Capital  Accounts shall be made in accordance with the time  requirements  set
forth in Treas. Regs. ss.1.704-1(b)(2)(ii)(b)(2).

      Each Member and each of its  Affiliates  (as to Member  Loans only) agrees
that by accepting the  provisions of this Section 8.2 setting forth the priority
of  the  distribution  of  the  assets  of  the  Company  to be  made  upon  its
liquidation,  such Member or Affiliate expressly 

                                      -42-




waives any right which it, as a creditor of the Company,  might  otherwise  have
under the Act to  receive  distributions  of assets  pari  passu  with the other
creditors  of the Company in  connection  with a  distribution  of assets of the
Company in satisfaction of any liability of the Company, and hereby subordinates
to said creditors any such right.

      Notwithstanding the foregoing, in the event that the Managing Member shall
determine  that an immediate  sale of part of all the Property would cause undue
loss to the Members, or in the event that the Managing Member determines that it
would be in the best  interests of the Members to distribute the Property to the
Members in-kind (which distributions do not, as to the in-kind portions, have to
be in the same  proportions as they would be if cash were  distributed,  but all
such in-kind  distributions  shall be equalized,  to the extent necessary,  with
cash),  then the Managing  Member may either defer  liquidation of, and withhold
from  distribution  for a  reasonable  time,  any of the  Property  except  that
necessary to satisfy the Company's  debts and  obligations,  or  distribute  the
Property to the Members in-kind.

      8.3   DEEMED DISTRIBUTION AND RECONTRIBUTION

      Notwithstanding  any other  provision  of this Section 8, in the event the
Company is liquidated within the meaning of Section  1.704-1(b)(2)(ii)(g) of the
Regulations  but no  Liquidating  Event has occurred,  the Property shall not be
liquidated,  the Company's liabilities shall not be paid or discharged,  and the
Company's affairs shall not be wound up. Instead,  solely for federal income tax
purposes,  the Company shall be deemed to have  distributed the Property in kind
to the  Members,  who shall be deemed to have  assumed and taken  subject to all
Company  liabilities,  all in accordance with their respective Capital Accounts.
Immediately  thereafter,  the Members shall be deemed to have  recontributed the
Property in kind to the Company, which shall be deemed to have assumed and taken
subject to all such liabilities.

      8.4   RIGHTS OF MEMBERS

      Except as otherwise provided in this Agreement, (a) each Member shall look
solely to the assets of the Company for the return of its Capital  Contributions
and shall have no right or power to demand or receive  property  other than cash
from the Company, and (b) no Member shall have priority over any other Member as
to the return of its Capital Contributions, distributions, or allocations.

      If,  after  the  Company  ceases to exist as a legal  entity,  a Member is
required to make a payment to any Person on account of any  activity  carried on
by the Company,  such paying Member shall be entitled to reimbursement from each
other Member consistent with the manner in which the economic  detriment of such
payment  would  have  been  borne  had  the  amount  been  paid  by the  Company
immediately prior to its cessation.

                                      -43-





      8.5   NOTICE OF DISSOLUTION

      In the event a Liquidating Event occurs, the Managing Member shall, within
30 days thereafter, provide written notice thereof to each of the Members.


      8.6    DEEMED SALE AND ALLOCATION

      Upon a distribution  in kind of Company  Property,  such Property shall be
deemed to be sold for the fair  market  value  thereof  for  purposes  of making
allocations hereunder.

                                    SECTION 9

                               DISPUTE RESOLUTION

      9.1   DISPUTE RESOLUTION; ARBITRATION

            (1)  DISPUTE  RESOLUTION.    Any  claim,   dispute,   difference  or
controversy  between Members arising out of, or relating to, this Agreement,  or
the  subject  matter  hereof,  which  cannot be settled by mutual  understanding
between  or  among  such  Members,  shall  be  initially  submitted  to a  panel
consisting of an executive  management  representative of each of the respective
Parents  of the  Members  who are party to the  claim,  dispute,  difference  or
controversy (the "Parties").  The said  representatives  shall meet and use best
efforts to resolve the said claim, dispute, difference or controversy.

            (2) ARBITRATION. In the event that the dispute resolution procedure
described in Section 9.1(a) does not result in a final  resolution of the claim,
dispute,  difference  or  controversy  within 90 days of the date of  submission
thereof for resolution, any Party may invoke the following arbitration rights.

                  (1) The claim, dispute,  difference or controversy arising out
      of or in  relation  to this  Agreement  or the  interpretation  or  breach
      thereof shall be referred to  arbitration  under the rules of the American
      Arbitration   Association  ("AAA")  to  the  extent  such  rules  are  not
      inconsistent  with  these  paragraphs.  Judgment  upon  the  award  of the
      arbitrators  may be entered in any court  having  jurisdiction  thereof or
      application  may be made to such court for a judicial  confirmation of the
      award and an order of  enforcement,  as the case may be.  The  demand  for
      arbitration  shall be made  within a  reasonable  time  after  the  claim,
      dispute,  difference  or  controversy  or other  matter in  question,  has
      arisen,  but not before 90 days after  submission  thereof for  resolution
      pursuant to Section  9.1(a),  and in any event shall not be made after the
      date when  institution  of legal or equitable  proceedings,  based on such
      claim,  dispute,  difference or  controversy  or other matter in question,
      would be barred by the applicable statute of limitations.

                                      -44-




                  (2) The independent  arbitration  panel shall consist of three
      independent  arbitrators,  one of whom shall be  appointed  by each of the
      Parties,  if  there  are no more  than two  such  Parties,  and by the two
      Parties having the largest Percentage Interest, if there are more than two
      Parties,  with  the  third  to be  chosen  by  the  two  arbitrators  thus
      appointed.  In the event  that  either  Party  entitled  to do so does not
      designate an  arbitrator,  the other may request a United  States  federal
      judge or the Executive Secretary of the AAA to designate an arbitrator for
      such  party;  and,  if the two  arbitrators  appointed  by the Parties are
      unable  to  agree  on the  appointment  of the  third  arbitrator,  either
      arbitrator may petition the AAA to make the appointment.

                  (3) The place of  arbitration  shall be Denver,  Colorado,  or
      such other place as the parties may agree.

      9.2   JURISDICTION; SERVICE OF PROCESS

            (1) JURISDICTION.  Each Member (a) hereby irrevocably submits itself
to the non-exclusive  jurisdiction of (i) the Supreme Court for the State of New
York,  sitting in the Borough of Manhattan,  and (ii) the United States District
Court for the  Southern  District  of New York,  for the  purposes  of any suit,
action or other proceeding brought by the other, or its respective successors or
assigns,  to compel  submission to  arbitration,  in accordance with Section 9.1
hereof,  or to enforce a  resolution,  settlement,  order or award made pursuant
thereto, or to enforce any obligation for the payment of money contained herein,
and (iii) to the extent  permitted by applicable law, hereby waives,  and agrees
not to assert, by way of motion, as a defense,  or otherwise,  in any such suit,
action  or  proceeding,  any  claim  that it is not  personally  subject  to the
jurisdiction of the above-named  courts,  that the suit, action or proceeding is
brought  in an  inconvenient  forum,  that the  venue  of the  suit,  action  or
proceeding  is  improper  or that the  agreement  to submit to  arbitration,  as
provided in Section 9.1 hereof, or a resolution, settlement, order or award made
pursuant  thereto,  or such an obligation  for the payment of money,  may not be
enforced in or by such court.  Nothing contained herein shall be deemed to waive
the right of a Member to seek  removal of a matter  from state  court to federal
court if such removal is otherwise permissible.

            (2) SERVICE OF PROCESS.  Each  Member hereby  consents to service of
process on it at the office for service of process set forth below as its office
for service of process and additionally  irrevocably designates and appoints the
person  named in Schedule  9.2 as its "Agent"  and  attorney-in-fact  to receive
service of process in any action,  suit or proceeding with respect to any matter
as to which it submits to  jurisdiction as set forth above, it being agreed that
service  upon such  attorney-in-fact  shall  constitute  valid  service upon the
Member or its  successors  or  assigns.  Each  Member  agrees  that (x) the sole
responsibilities of the Agent shall be (i) to receive such process, (ii) to send
a copy of any such process so received to such Member,  by  registered  airmail,
return receipt requested, at the address for it set forth in Section 10.1, or at
the last  address  filled in  writing  by it with the  Agent,  and (iii) to give
prompt  telecopied notice of receipt 


                                     - 45 -


thereof to it at such address (y) the Agent shall have no responsibility for the
receipt or nonreceipt  by the  respective  Member of such  process,  nor for any
performance  or  nonperformance  by the  respective  Member  or  its  respective
successors  or assigns,  and (z) failure of the Agent to send a copy of any such
process or otherwise to give notice thereof to the  respective  Member shall not
affect the  validity of such  service or any  judgment  in any  action,  suit or
proceeding  based  thereon.  If  service of process  cannot be  effected  in the
foregoing  manner,  each Member further  irrevocably  consents to the service of
process in any action,  suit or proceeding  by the mailing of copies  thereof by
registered or certified airmail,  postage prepaid,  return receipt requested, to
it at its address set forth in Section  10.1  hereof.  The  foregoing,  however,
shall not limit the right of the  Member to serve  process  in any other  manner
permitted  by law.  Any  judgment  against a Member  in any suit for which  such
Member has no further right of appeal shall be  conclusive,  and may be enforced
in other  jurisdictions  by suit on the  judgment,  a certified  or true copy of
which  shall  be  conclusive  evidence  of the  fact  and of the  amount  of any
indebtedness or liability of such Member therein described; PROVIDED always that
the  plaintiff  may at its  option  bring  suit,  or  institute  other  judicial
proceedings,  against  such  Member or any of its  assets  in the  courts of any
country  or place  where such party or such  assets  may be found.  Each  Member
further  covenants and agrees that throughout the term of the Company,  it shall
maintain a duly  appointed  agent for the service of  summonses  and other legal
processes in New York.

      For purposes of this Section 9.2(b),  the Agent and offices for service of
process  for each of the Members  shall be as set forth on Schedule  2.1 or such
other person or offices as shall be  designated  in writing by any Member to the
other Member.

                                   SECTION 10

                                  MISCELLANEOUS

      10.1   NOTICES

      Any notice, payment,  demand, or communication required or permitted to be
given  by any  provision  of this  Agreement  shall  be in  writing  and  mailed
(certified or registered  mail,  postage prepaid,  return receipt  requested) or
sent  by  hand  or  overnight  courier,  or by  facsimile  (with  acknowledgment
received), charges prepaid and addressed as follows, or to such other address or
number as such Person may from time to time specify by notice to the Members:

            (1) If to  the  Company,  to the  address  or  number  set  forth on
Schedule 2.1;

            (2) If to  a Member to the  address or number set forth in  Schedule
2.1.

      All notices and other  communications given to a Person in accordance with
the provisions of this Agreement shall be deemed to have been given and received
(i) four Business Days after the same are sent by certified or registered  mail,
postage  prepaid,  return  receipt  requested,  (ii) when  delivered  by hand or
transmitted  by facsimile  (with  acknowledgment 

                                      -46-





received and, in the case of a facsimile  only, a copy of such notice is sent no
later than the next Business Day by a reliable  overnight courier service,  with
acknowledgment  of receipt) or (iii) one Business Day after the same are sent by
a reliable overnight courier service, with acknowledgment of receipt.

      10.2   BINDING EFFECT

      Except as otherwise  provided in this  Agreement,  this Agreement shall be
binding  upon and inure to the  benefit  of the  Members  and  their  respective
successors, transferees, and assigns.

      10.3   CONSTRUCTION

      This Agreement shall be construed simply according to its fair meaning and
not strictly for or against any Member.

      10.4   TIME

      Time is of the essence with respect to this Agreement.

      10.5   TABLE OF CONTENTS; HEADINGS

      The table of contents  and section and other  headings  contained  in this
Agreement  are for  reference  purposes  only and are not  intended to describe,
interpret, define or limit the scope, extent or intent of this Agreement.

      10.6   SEVERABILITY

      Every provision of this Agreement is intended to be severable. If any term
or  provision  hereof  is  illegal,  invalid  or  unenforceable  for any  reason
whatsoever,  that term or  provision  will be  enforced  to the  maximum  extent
permissible  so as to effect the  intent of the  Members,  and such  illegality,
invalidity or unenforceability  shall not affect the validity or legality of the
remainder of this  Agreement.  If necessary to effect the intent of the Members,
the Members will  negotiate in good faith to amend this Agreement to replace the
unenforceable  language with  enforceable  language which as closely as possible
reflects such intent.

      10.7   CONFIDENTIALITY

            (a)  Each  Member  and  each of its  Controlled  Affiliates  (each a
"Restricted Party") shall, and shall cause its respective  officers,  directors,
employees,  attorneys,  accountants,  consultants  and other agents and advisors
(collectively, "Agents") to, keep secret and maintain in confidence the terms of
this Agreement and all confidential and proprietary  information and data of the
Company and the other Members or their Affiliates disclosed to it (in each case,
a "receiving  party") in  connection  with the  formation of the Company and the
conduct  of the  

                                      -47-




Company's  business and in connection with the transactions  contemplated by the
Contribution  Agreement (the "Confidential  Information") and shall not disclose
Confidential Information,  and shall cause its respective Agents not to disclose
Confidential Information, to any Person other than the Members, their Controlled
Affiliates,  their  respective  Agents  that  need  to  know  such  Confidential
Information,  or the Company.  Each Member  further agrees that it shall not use
the  Confidential   Information  for  any  purpose  other  than  monitoring  and
evaluating  its  investment,  determining  and performing  its  obligations  and
exercising  its rights under this  Agreement.  The Company and each Member shall
take all reasonable measures necessary to prevent any unauthorized disclosure of
the Confidential Information by any of their respective Controlled Affiliates or
any of their respective Agents.

            (b) Nothing herein shall prevent the Company,  any Restricted  Party
or  its  Agents  from  using,  disclosing  or  authorizing  the  disclosure  of,
Confidential  Information  it  receives  in the  course of the  business  of the
Company which:

                  (i)   has been  published or is in the public domain through
      no fault of the receiving party;

                  (ii)  prior to  receipt  hereunder  was  properly  within  the
      legitimate  possession  of the receiving  party or,  subsequent to receipt
      hereunder  (or under such  Agreement),  is lawfully  received from a third
      party having rights therein without restriction of the third party's right
      to  disseminate  the  Confidential  Information  and without notice of any
      restriction against its further disclosure;

                  (iii)  is  independently  developed  by  the  receiving  party
      through parties who have not had, either directly or indirectly, access to
      or knowledge of such Confidential Information;

                  (iv) is disclosed  to a third party with the written  approval
      of the party originally  disclosing such  information,  PROVIDED that such
      Confidential  Information  shall cease to be confidential  and proprietary
      information covered by this Agreement only to the extent of the disclosure
      so consented to;

                  (v) subject to the receiving party's compliance with paragraph
      (d) below,  is required to be produced under order of a court of competent
      jurisdiction  or other  similar  requirements  of a  governmental  agency,
      PROVIDED that such  Confidential  Information  to the extent  covered by a
      protective order or equivalent shall otherwise continue to be Confidential
      Information  required  to  be  held  confidential  for  purposes  of  this
      Agreement; or

                  (vi)  subject  to  the  receiving   party's   compliance  with
      paragraph  (d) below,  is necessary  or  advisable  to be disclosed  under
      applicable  law or under the rules of a stock  exchange or  association on
      which such  receiving  party's  securities (or those of its Affiliate) are
      listed.


                                      -48-




            (c)  Notwithstanding  this  Section  10.7,  any Member  may  provide
Confidential  Information (i) to other Persons considering the consummation of a
Permitted  Transaction  with  respect  to such  Member or (ii) to any  financial
institution  in  connection  with  the  provision  of  funds  by such  financial
institution to such Member,  so long as prior to any such  disclosure such other
Person or  financial  institution  executes  a  confidentiality  agreement  that
provides  protection  substantially  equivalent to the  protection  provided the
Members and the Company in this Section 10.7.


            (d) In the event that any receiving  party (i) determines that it is
necessary or advisable to disclose Confidential Information under applicable law
(other than under the  requirements  of a stock exchange or association on which
such receiving party's securities or those of its Affiliates are listed) or (ii)
becomes  legally  compelled (by oral  questions,  interrogatories,  requests for
information or documents,  subpoenas,  civil investigative demands or otherwise)
to disclose any Confidential Information,  the receiving party shall provide the
disclosing  party with prompt  written notice so that in the case of clause (i),
the disclosing  party can work with the receiving  party to limit the disclosure
to the extent  practicable,  or in the case of clause (ii), the disclosing party
may seek a protective order or other appropriate remedy or waive compliance with
the  provisions  of this  Agreement.  In the case of said clause (ii) and in the
event that the disclosing  party is unable to obtain a protective order or other
appropriate  remedy, or if the disclosing party so directs,  the receiving party
shall,  and shall cause its employees to, exercise all  commercially  reasonable
efforts  to  obtain  a  protective  order  or other  appropriate  remedy  at the
disclosing party's reasonable  expense.  Failing the entry of a protective order
or other  appropriate  remedy or receipt of a waiver  hereunder,  the  receiving
party shall furnish only that portion of the Confidential  Information  which it
is advised by opinion of its  counsel is legally  required to be  furnished  and
shall exercise all commercially  reasonable efforts to obtain reliable assurance
that confidential treatment shall be accorded such Confidential Information,  it
being  understood that such reasonable  efforts shall be at the cost and expense
of the disclosing party whose Confidential Information has been sought.

      10.8   FURTHER ACTION

      Each Member, upon the reasonable request of the Managing Member, agrees to
perform all further acts and  execute,  acknowledge,  and deliver any  documents
which may be reasonably  necessary,  appropriate,  or desirable to carry out the
intent and purposes of this Agreement.

      10.9   GOVERNING LAW

      The  validity of this  Agreement,  the  construction  of its terms and the
interpretation  of the  rights  and  duties of the  Members  hereunder  shall be
governed by the substantive  laws of the State of Delaware without regard to the
principles  of  conflict  of  laws  of  the  State  of  Delaware  or  any  other
jurisdiction  (except  those  that  cannot be  waived)  that  would call for the
application of the substantive law of any  jurisdiction  other than the State of
Delaware.

                                      -49-




      10.10   WAIVER OF ACTION FOR PARTITION

      Each Member  irrevocably waives any right that it may have to maintain any
action for  partition  with respect to any of the  Property;  PROVIDED  that the
foregoing  shall not be  construed  to apply to any  action by a Member  for the
enforcement of its rights under this Agreement.  Each Member waives its right to
seek a court decree of dissolution  (other than a dissolution in accordance with
Section 8) or to seek  appointment of a court receiver for the Company as now or
hereafter permitted under applicable law.


      10.11   COUNTERPART EXECUTION

      This Agreement may be executed in any number of counterparts with the same
effect as if all the  Members  had signed the same  document.  All  counterparts
shall be construed together and shall constitute one agreement.

      10.12   SPECIFIC PERFORMANCE

      Each Member  agrees with the other Members that the other Members would be
irreparably damaged if any of the provisions of this Agreement are not performed
in accordance  with their  specific  terms and that  monetary  damages would not
provide an adequate remedy in such event. Accordingly,  in addition to any other
remedy to which the nonbreaching  Members may be entitled,  at law or in equity,
the  nonbreaching  Members  shall be  entitled to  injunctive  relief to prevent
breaches of this Agreement and  specifically to enforce the terms and provisions
hereof.

      10.13   ENTIRE AGREEMENT

      The  provisions  of this  Agreement  set forth the  entire  agreement  and
understanding  between the Members  pertaining to the subject  matter hereof and
supersede all prior agreements, oral or written,  representations,  discussions,
negotiations  and other  communications  between the Members  pertaining  to the
subject matter hereof.

      10.14   LIMITATION ON RIGHTS OF OTHERS

      Nothing in this Agreement,  whether express or implied, shall be construed
to give any Person other than the Members and their  respective  successors  and
permitted  assigns  any legal or  equitable  right,  remedy or claim under or in
respect of this Agreement.

      10.15   WAIVERS; REMEDIES

      The  observance  of any  term  of this  Agreement  may be  waived  (either
generally or in a particular instance and either retroactively or prospectively)
by the party or parties entitled to enforce such term, but any such waiver shall
be effective only if in a writing  signed by the party or parties  against which
such waiver is to be asserted.  Except as otherwise  provided herein, no failure
or delay of any Member in  exercising  any power or right  under this  Agreement
shall operate as a waiver thereof,  nor shall any single or partial  exercise of
any such  right or  power,  or 

                                      -50-




any  abandonment  or  discontinuance  of steps to  enforce  such right or power,
preclude  any other or further  exercise  thereof or the  exercise  of any other
right or power.

      10.16   AMENDMENT

      This  Agreement  may be amended  only in a writing  signed by all  Members
expressly stating that it is an amendment to this Agreement.

      IN WITNESS WHEREOF,  the parties have entered into this Limited  Liability
Company Agreement as of the day first above set forth.

                                    ARCH WESTERN ACQUISITION CORPORATION

                                    By: /s/ Jeffry N. Quinn
                                       -------------------------------------
                                       Name:  Jeffry N. Quinn
                                       Title:  President



                                    DELTA HOUSING INC.

                                    By: Terry G. Dallas
                                        -------------------------------------
                                        Name:  Terry G. Dallas
                                        Title:  Vice President


                                     - 51 -



                                                                     EXHIBIT 2.4



                              TAX SHARING AGREEMENT

      This TAX SHARING AGREEMENT ("Agreement") is entered into as of the 1st day
of June,  1998, by and among Arch Coal, Inc., a Delaware  corporation  ("Arch"),
Arch Western Acquisition  Corporation,  a Delaware  corporation ("Arch Member"),
Arch Western Resources LLC, a Delaware limited  liability  company  ("Company"),
and Delta Housing Inc., a Delaware corporation ("ARCO Member").

      WHEREAS,  with the execution and delivery of this  Agreement,  Arch Member
and ARCO Member have entered into a Limited  Liability  Company  Agreement  (the
"Company  Agreement")  with respect to the formation and  capitalization  of the
Company  pursuant to a Contribution  Agreement  among (among others) the parties
hereto (the "Contribution Agreement"); and

      WHEREAS,  Arch,  Arch  Member and ARCO  Member  desire to  evidence  their
agreement  regarding  amounts that may be payable as a result of certain actions
being taken, or a failure to take certain  actions,  regarding the Company,  its
assets and membership interests or upon the receipt of any unintended benefit.

      NOW,  THEREFORE,  in  consideration of the mutual covenants and agreements
herein contained and for other good and valuable  consideration  the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:


                                    SECTION 1
                               CERTAIN DEFINITIONS

      1.1  DEFINITIONS.

      The following  capitalized terms used in this Agreement have the following
meanings:

           "Allocable  Indemnified  Debt"  means the amount of Company  Debt and
Successor  Debt  allocable to the ARCO Member under  Section 752 of the Code and
includible in the ARCO Member's basis in its Membership  Interest  determined at
the date of original issuance or substantial  modification within the meaning of
Treas. Reg. section  1.1001-3,  in each case as in effect on the date hereof and
otherwise based on applicable law on the date hereof.

           "Arch  Indemnifiable  Event"  means  any  of  the  following  actions
undertaken  (except as  otherwise  provided in (7) below) by Arch,  Arch Member,
Arch Affiliate,  the Managing Member,  or the Company (except to the extent that
the ARCO Member has  consented 


to such action and  executed a written  waiver of its rights to collect  payment
for such event under this Agreement): 

           (1)  A  repayment,  acceleration  that  results  in  a  reduction  in
principal  amount  (either  actual or as  determined  under  federal  income tax
principles) or other reduction in principal amount of all or part of the Company
Debt or  Successor  Debt  (except by means of refunding of the Company Debt with
Successor  Debt with a principal  amount  equal to the  principal  amount of the
Company Debt immediately prior to such refunding);

           (2)  An express guarantee, indemnification,  reimbursement agreement,
pledge of collateral or any other payment or payment related  obligation for the
direct benefit of creditors of the Company by Arch, an Arch  Affiliate,  an Arch
Transferee  or Arch Member with respect to the Company  Debt or Successor  Debt,
except  to the  extent  set  forth  in the  Company  Agreement  or  Contribution
Agreement  (including  the making or repayment of Arch  Intercompany  Loans,  as
defined in the Company Agreement);

           (3)  A refinancing  of all or part of the Company  Debt or  Successor
Debt  if the  principal  amount  of the  Successor  Debt  (either  actual  or as
determined  under  federal  income tax  principles)  is less than the  principal
amount of the Company Debt immediately prior to such refinancing;

           (4)  A classification  of the  Company as a  corporation  for federal
income  tax  purposes  or a  merger  or  consolidation  of  the  Company  into a
corporation or the transfer of substantially all of the assets of the Company to
a corporation;

           (5)  The Dissolution or liquidation of the Company;

           (6)  An amendment or modification of the terms of the Company Debt or
Successor  Debt or other  agreement  with an obligee  thereof  pursuant to which
Arch,  Arch  Member,  the Company and such  obligee  agree (i) no Member will be
liable for the Company Debt or Successor  Debt  (including  pursuant to the ARCO
Member  Guarantee)  or (ii) that any Member (or  Affiliate of any Member)  other
than the ARCO Member (or Affiliate of the ARCO Member) is liable,  pursuant to a
guarantee or otherwise,  for satisfaction of the Company Debt or Successor Debt;
or

           (7)  A repayment or other  reduction  in principal  amount  of all or
part of the Company  Debt or  Successor  Debt  arising  upon the  insolvency  or
bankruptcy (including an Involuntary  Bankruptcy) of the Company, Arch Member or
Arch (except by means of refunding of the Company Debt with  Successor Debt with
a principal amount equal to the principal amount (either actual or as determined
under federal income tax  principles) of the Company Debt  immediately  prior to
such refunding in bankruptcy or insolvency).

           "Arch Transferee"  means any person, or affiliate of any person,  who
becomes a member of the Company as a result of being a successor  in interest to
all or any part of the Arch  Member's  interest  or by action  of Arch,  an Arch
Affiliate,  the Managing Member or Arch Member.  

                                       2


           "ARCO Contributed Assets" means the assets, properties, and rights of
the entities  contributed  to the Company by ARCO or the ARCO Member,  including
the interests in the contributed entities.

           "Current Tax Excess"  means an amount equal to the product of (i) the
excess of any taxable  income or gain of the ARCO Member  resulting  solely from
the  occurrence of an event set forth in Section 2(a) of this Agreement over the
Remaining  Gain  Recognition  Amount and (ii) the Tax Rate.  For purposes of the
foregoing  calculations,  the  gain on sale or  taxable  disposition  of an ARCO
Contributed  Asset will be limited to the amount of gain or income  allocated to
the ARCO Member pursuant Section 704(c) of the Code.

           "Damages"  means an amount equal to the Current Tax Excess divided by
one minus the Tax Rate  (calculated in accordance with the method set out in the
example  (which assumes  current tax rates) on Schedule A, attached  hereto) and
all interest,  penalties, and additions to the tax as well as all reasonable out
of  pocket  costs   incurred  by  the  ARCO  Member  in   connection   with  the
determination,  receipt  or  collection  of  Damages  to the  extent  that  such
interest,  penalties or additions to tax  reasonably  relate to a failure by the
Arch Member to provide  timely  notice to ARCO Member of an event  described  in
Section  2(a)  of this  Agreement  or to  make  timely  payment  of  Damages  in
accordance with this Agreement.

           "Discount Rate" means two percent (2%) per quarter.

           "Federal Rate" means the highest  marginal federal income tax rate or
rates  applicable  to  ordinary  income  or  capital  gain,  as the case may be,
applicable to domestic corporate taxpayers in effect for the year in issue.

           "Final Determination" means with respect to any issue or item (i) the
execution  of a final and  irrevocable  closing  agreement  or other  settlement
agreement  with the  Internal  Revenue  Service or the  relevant  state or local
taxing  authorities,  (ii) the  expiration  of the time for  filing a claim  for
refund or, if a refund claim has been timely filed,  the  expiration of the time
for  instigating  suit in respect of such refund claim,  (iii) the expiration of
the time for filing a petition with the Tax Court or the relevant state or local
tribunal if no such  petition has been filed and no suit has been  instigated in
respect of the subject  matter of such petition,  or (iv) a final,  unappealable
decision of any court of competent jurisdiction.

           "Remaining Gain Recognition Amount" means (a) in the case of an asset
sale, the present value (computed by using a discount rate equal to the Discount
Rate)  of the  taxable  income  or gain  attributable  to the  assets  sold  and
recognized by the ARCO Member as a result of allocations under Section 704(c) of
the Code as if such income or gain had been  recognized on the 15th  anniversary
of the Closing Date and (b) in the case of a reduction in Allocable  Indemnified
Debt, the present value (computed by using a discount rate equal to the Discount
Rate) of the income or gain  recognized  by the ARCO Member as if such income or
gain had been recognized on the 15th anniversary of the Closing Date.

                                       3


           "Section 7.4(b) Call Event" means the  consummation of a purchase and
sale of the ARCO  Member  Interest  effected  pursuant  to the  exercise by Arch
Member of its right to purchase the ARCO Member Interest under Section 7.4(b) of
the Company Agreement.

           "Tax Rate" means the sum of (i) 4% plus (ii) the Federal Rate.

      1.2  ADDITIONAL DEFINITIONS.

      Capitalized terms used in this Agreement and not defined in Section 1.1 or
elsewhere in this Agreement shall have the respective  meanings ascribed to such
terms in the Company Agreement and the Contribution Agreement.

      1.3  TERMS GENERALLY.

      The  definitions  in Sections 1.1 and 1.2 and elsewhere in this  Agreement
shall apply equally to both the singular and plural forms of the terms  defined.
Whenever the context may require,  any pronoun shall  include the  corresponding
masculine,  feminine  and neuter  forms.  The words  "include",  "includes"  and
"including"  shall be deemed to be followed by the phrase "without  limitation."
The words  "herein",  "hereof" and "hereunder" and words of similar import refer
to this Agreement  (including the Schedules) in its entirety and not to any part
hereof unless the context shall  otherwise  require.  All  references  herein to
Sections  shall be deemed  references to Sections of this  Agreement  unless the
context shall otherwise require. Unless the context shall otherwise require, any
references to any agreement or other  instrument or statute or regulation are to
it as amended and supplemented  from time to time (and, in the case of a statute
or  regulation,  to  any  corresponding  provisions  of  successor  statutes  or
regulations).  Any  reference  in this  Agreement to a "day" or number of "days"
(without the explicit  qualification  of  "Business")  shall be interpreted as a
reference to a calendar day or number of calendar  days. If any action or notice
is to be taken or given on or by a particular  calendar  day, and such  calendar
day is not a Business Day,  then such action or notice shall be deferred  until,
or may be taken or given on, the next Business Day.


                                    SECTION 2
                                     DAMAGES

           (a)  If any of the following  events  occur:  (i) the  sale or  other
taxable  disposition prior to the 15th anniversary of the Closing Date of all or
any part of the ARCO  Contributed  Assets,  (ii) a Section 7.4(b) Call Event, or
(iii) a reduction  in the amount of  Allocable  Indemnified  Debt due to an Arch
Indemnifiable Event, then Arch or Arch Member jointly and severally agree to pay
to the ARCO Member in accordance  with Section 2(b) below an amount equal to the
Damages,  if any,  incurred  by ARCO  or the  ARCO  Member  as a  result  of the
occurrence of any such event.

                                       4


           (b)  Within  ninety  (90)  days  after  the  occurrence  of any event
specified in Section 2(a),  Arch or Arch Member will (i) pay Damages to the ARCO
Member and (ii) provide  sufficient  documentation to support the calculation of
amounts paid.

           (c)  The  making of a  payment  by Arch and Arch  Member  under  this
Section  2 shall  be the  sole  and  exclusive  remedy  of ARCO  Member  and its
Affiliates  with respect to any tax liability  incurred in connection  with this
Agreement,  the Company  Agreement or the  transactions  contemplated  hereby or
thereby,  other than with  respect  to any  damages  arising  out of a breach of
Sections 2.5 and 2.7 of the Contribution Agreement.

           (d)  ARCO Member shall have the right to audit (i) the balance sheets
of the Company and its  controlled  affiliates,  (ii)  Company  records of asset
sales or disposition, (iii) all modifications of the Company contracts, and (iv)
the  calculation of Damages or Tax Benefit True-Up by the Company or Arch Member
pursuant to this Tax Sharing Agreement. ARCO Member shall also have the right to
audit the calculation of the tax basis of its Membership interest.

           (e)  ARCO Member or the Company or the Arch  Member,  as the case may
be, shall take such reasonable steps as requested by Arch or Arch Member, on the
one hand, or ARCO or ARCO Member, on the other hand, to avoid a reduction in the
Allocable Indemnified Debt.

           (f)  Notwithstanding  any  other  provision  of this Agreement (other
than Section 2(e) of this Agreement) or any provision of the Company  Agreement,
neither  Arch nor Arch Member shall be liable for Damages to the extent (i) such
Damages  are  incurred  as a direct  result of the ARCO  Guarantee  having  been
refuted,  repudiated,  withdrawn  in a  manner  that  is  legally  effective  to
extinguish  such  guarantee,  or having been found  unenforceable,  or otherwise
being  inapplicable  or  ineffective  to guarantee the Company Debt or Successor
Debt, or non-recourse as to the ARCO Member,  in whole or in part, other than as
a direct result of an action by Arch, Arch Member,  an Arch  Affiliate,  an Arch
Transferee,   or  the  Company,   (ii)  such  Damages  relate  to   transactions
contemplated by the Contribution Agreement or Company Agreement that occur on or
before the Closing  Date,  or (iii) such Damages are incurred as a direct result
of a change in applicable law.

           (g)  If at any time on or before the 15th anniversary  of the Closing
Date,  ARCO or ARCO Member  receives a refund of Damages or a tax benefit giving
rise to cash tax savings with respect to such  Damages,  ARCO Member,  within 90
days  after  receipt  of any such  refund  or  realization  of any such cash tax
savings, shall pay an amount to Arch Member equal to such refund or savings.

           (h)  Nothing contained in this Agreement shall be construed to permit
a party to receive a double benefit or  compensation  with respect to Damages or
payments described in Section 3.

                                       5


           (i)  The  section   704(c)  gain  amount  as  of  the  Closing   Date
attributable  to the ARCO  Contributed  Assets  will be reduced by any  positive
basis adjustments resulting from a Final Determination described in Section 3.


                                    SECTION 3
                               TAX BENEFIT TRUE-UP

      If there is a Final  Determination  of a federal  income tax  liability of
ARCO or an ARCO Affiliate  arising from the contribution of the ARCO Contributed
Assets or the  distribution  to the ARCO  Member  pursuant to Section 4.1 of the
Company  Agreement and Arch Member or an Arch Affiliate  receives an actual cash
tax benefit as a result of such determination,  Arch shall pay to ARCO an amount
equal to the ARCO Tax Benefit Amount (as defined below).

      Any  deduction or credit not  resulting in actual cash tax savings for the
taxable period shall be carried forward to succeeding  taxable years,  provided,
however, no ARCO Tax Benefit Amount shall accrue with respect to tax savings for
Arch or Arch Member in a tax year  beginning  after the 15th  anniversary of the
Closing Date.  Any actual cash tax benefit shall be deemed  realized in the year
that such  deduction or credit  (including a  carryforward  of such deduction or
credit in the form of a net operating loss or otherwise) gives rise to an actual
reduction in the amount of income tax paid by Arch Member or Arch for such year.
All  payments  pursuant to this Section 3 shall be made within 30 days after the
filing of the  applicable  tax return for the period in which such  deduction or
credit results in a cash tax benefit.

      "ARCO Tax  Benefit  Amount"  means an amount  equal to (i) the  actual tax
savings  produced  by such  deduction  or  credit  less (ii) the  present  value
(calculated  using a discount  rate equal to the Discount  Rate) of the cash tax
savings  that  would have been  realized  if such  deduction  or credit had been
realized on the 15th  anniversary of the Closing Date and (iii) further  reduced
by the present  value  (calculated  using a discount  rate equal to the Discount
Rate) of lost tax savings to Arch or Arch Member that is directly attributable a
deduction or credit that Arch or Arch Member is prevented  from utilizing due to
the expiration of the applicable statute of limitations.  The amount of any such
tax savings for any given period shall be the amount of the federal income taxes
reflected on such return for such period or, in the case of a future tax savings
amount,  the amount of federal  income  taxes that would have been  reflected on
such  return,  as  compared  to the  federal  income  taxes that would have been
reflected on such return in the absence of such deduction or credit.


                                       6


                                    SECTION 4
                               DISPUTE RESOLUTION

      4.1  DISPUTE RESOLUTION: ARBITRATION.

           (a) Dispute Resolution. Any claim, dispute, difference or controversy
between the parties  hereto  (individually  "Party" or  collectively  "Parties")
arising out of, or relating to, this  Agreement,  or the subject  matter hereof,
which  cannot be settled by mutual  understanding  between or among the Parties,
shall be initially  submitted to a panel  consisting of an executive  management
representative of each of the respective Parents of the Parties who are party to
the claim,  dispute,  difference or controversy.  The said representatives shall
meet and use best  efforts to resolve the said  claim,  dispute,  difference  or
controversy.

           (b) Arbitration.  In the event that the dispute resolution  procedure
described in Section 4.1(a) does not result in a final  resolution of the claim,
dispute,  difference  or  controversy  within 90 days of the date of  submission
thereof for resolution, any Party may invoke the following arbitration rights.

               (i)  The claim, dispute, difference or controversy arising out of
or in relation to this Agreement or the  interpretation  or breach thereof shall
be  referred  to  arbitration  under  the  rules  of  the  American  Arbitration
Association  ("AAA") to the extent  such rules are not  inconsistent  with these
paragraphs.  Judgment  upon the award of the  arbitrators  may be entered in any
court having jurisdiction thereof or application may be made to such court for a
judicial confirmation of the award and an order of enforcement,  as the case may
be. The demand for arbitration  shall be made within a reasonable time after the
claim,  dispute,  difference  or  controversy  or other matter in question,  has
arisen, but not before 90 days after submission thereof for resolution  pursuant
to  Section  4.1(a),  and in any  event  shall  not be made  after the date when
institution  of legal or equitable  proceedings,  based on such claim,  dispute,
difference or  controversy  or other matter in question,  would be barred by the
applicable statute of limitations.

               (ii)  The independent  arbitration  panel shall  consist of three
independent arbitrators,  one of whom shall be appointed by each of the Parties,
if there are no more than two such  Parties,  and by the two Parties  having the
largest Percentage Interest,  if there are more than two Parties, with the third
to be chosen by the two  arbitrators  thus  appointed.  In the event that either
Party entitled to do so does not designate an arbitrator,  the other may request
a United States federal judge or the Executive Secretary of the AAA to designate
an  arbitrator  for such party;  and, if the two  arbitrators  appointed  by the
Parties are unable to agree on the appointment of the third  arbitrator,  either
arbitrator may petition the AAA to make the appointment.

               (iii)  The place of arbitration shall be New York, New York.


                                       7



      4.2  JURISDICTION; SERVICE OF PROCESS.

           (a) Jurisdiction. Each Party (a) hereby irrevocably submits itself to
the  nonexclusive  jurisdiction  of (a) the  Supreme  Court for the State of New
York,  situated in the Borough of Manhattan,  and (b) the United States District
Court for the Southern District of New York for the purposes of any suit, action
or other  proceeding  brought  by the other,  or its  respective  successors  or
assigns,  to compel  submission to  arbitration,  in accordance with Section 4.1
hereof,  or to enforce a  resolution,  settlement,  order or award made pursuant
thereto, or to enforce any obligation for the payment of money contained herein,
and (ii) to the extent  permitted by applicable law,  hereby waives,  and agrees
not to assert, by way of motion, as a defense,  or otherwise,  in any such suit,
action  or  proceeding,  any  claim  that it is not  personally  subject  to the
jurisdiction of the above-named  courts,  that the suit, action or proceeding is
brought  in an  inconvenient  forum,  that the  venue  of the  suit,  action  or
proceeding  is  improper  or that the  agreement  to submit to  arbitration,  as
provided in Section 3.1 hereof, or a resolution, settlement, order or award made
pursuant  thereto,  or such an obligation  for the payment of money,  may not be
enforced in or by such court.  Nothing contained herein shall be deemed to waive
the right of a Party to seek  removal of a matter  from  state  court to federal
court if such removal is otherwise permissible.

           (b) Service  of  Process.  Each Party  hereby  consents to service of
process on it at the office for service of process set forth below as its office
for service of process and additionally  irrevocably designates and will appoint
a person as its Agent and  attorney-in-fact to receive service of process in any
action,  suit or proceeding with respect to any matter as to which it submits to
jurisdiction  as set  forth  above,  it being  agreed  that  service  upon  such
attorney-in-fact shall constitute valid service upon the Party or its successors
or assigns.  Each Party agrees that (x) the sole  responsibilities  of the Agent
shall be (i) to receive such process, (ii) to send a copy of any such process so
received to such Party, by registered airmail,  return receipt requested, at the
address for it set forth in Section 5.1 of the Company Agreement, or at the last
address  filed  in  writing  by it with the  Agent,  and  (iii)  to give  prompt
telecopied  notice of receipt  thereof to it at such address (y) the Agent shall
have no responsibility  for the receipt or nonreceipt of the respective Party of
such process,  nor for any performance or nonperformance by the respective Party
or its respective  successors or assigns, and (z) failure of the Agent to send a
copy of any such process or otherwise to give notice  thereof to the  respective
Party  shall not affect the  validity  of such  service or any  judgment  in any
action,  suit or  proceeding  based  thereon.  If service  of process  cannot be
effected in the foregoing manner, each Party further irrevocably consents to the
service of process in any action,  suit or  proceeding  by the mailing of copies
thereof by registered or certified  airmail,  postage  prepaid,  return  receipt
requested,  to it at its address set forth in Section 5.1 hereof. The foregoing,
however,  shall not limit the right of the Parties to serve process in any other
manner permitted by law. Any judgment against a Party in any suit for which such
Party has no further right of appeal shall be conclusive, and may be enforced in
other  jurisdictions by suit on the judgment,  a certified or true copy of which
shall be conclusive  evidence of the fact and of the amount of any  indebtedness
or liability of such Party therein described; provided always that the plaintiff
may at its option bring suit, or institute other judicial  proceedings,  against
such Party or any of its assets in the courts of any country or place 

                                       8


where such Party or such assets may be found.  Each Party further  covenants and
agrees  that  throughout  the  term of the  Company,  it shall  maintain  a duly
appointed  agent for the service of summonses  and other legal  processes in the
State of New York.

      For purposes of this Section 4.2(b),  the Agent and offices for service of
process  for each of the Parties  shall be as set forth on  Schedule  9.2 to the
Company  Agreement  or such other  Person or offices as shall be  designated  in
writing by any Party to the other Parties.

      4.3  CONDUCT OF AUDITS, LITIGATION.

           (a) CONTROL OF AUDITS AND JUDICIAL  PROCEEDINGS.  ARCO shall have the
exclusive  right (i) to control any audit,  conference or other  proceeding with
the Internal Revenue Service or the relevant state or local authorities,  or any
judicial  proceedings  concerning  the  determination  of  the  ARCO  Group  tax
liability,   (ii)  pursue  or  forego  any  and  all   administrative   appeals,
proceedings,  hearings and conferences  with the taxing  authority in respect of
such  claim and (iii) to  compromise  or settle  any  adjustment  or  deficiency
proposed,  asserted or assessed as a result of any such  proceeding.  ARCO shall
bear any costs relating to any proceedings described in this Section 4.3(a).

           (b) SETTLEMENTS  INVOLVING  MATERIAL  SECTION 3 CLAIMS.  ARCO may not
pay, settle,  compromise or concede any adjustments at the examination level, at
appeals or in any judicial proceeding that are reasonably likely to give rise to
a material claim under Section 3 of this Agreement without giving written notice
to Arch to that  effect.  Such notice shall  include the  material  terms of the
settlement and the projected  dollar amount of the aggregate  basis  adjustment.
ARCO may settle, compromise or concede any such adjustment, after providing such
notice,  unless Arch delivers,  at Arch's expense,  within 15 days following the
date that ARCO  provides  such notice,  a written  opinion  from an  independent
nationally   recognized  law  firm  to  the  effect  that  such   settlement  is
unreasonable  on the  merits as a stand  alone  issue.  In the  event  that Arch
provides  such  opinion,  ARCO may not  settle the issue on the  proposed  terms
unless it provides Arch with a written  opinion from an  independent  nationally
recognized law firm that such payment,  settlement,  compromise or concession is
as  favorable a result on that issue as is predicted to be the result that would
be obtained in further administrative proceedings or litigation as a stand alone
issue.

           (c) Notwithstanding the foregoing, ARCO shall not be precluded in its
sole and absolute  discretion from paying,  settling,  compromising or conceding
any proposed  adjustment or  determination  with respect to which ARCO agrees to
waive any claims that it may have under Section 3 of this Agreement with respect
to such claims.



                                       9


                                    SECTION 5
                                  MISCELLANEOUS

      5.1  INTEREST ON DELINQUENT PAYMENTS.

      Any payment  required by this  Agreement that is not made on or before the
date provided  herein shall bear  interest  after such date at the interest rate
per annum announced  publicly by Citibank,  N.A. in New York, New York from time
to time as Citibank, N.A.'s base rate.

      5.2  NOTICES.

      Any notice, payment,  demand, or communication required or permitted to be
given  by any  provision  of this  Agreement  shall  be in  writing  and  mailed
(certified or registered  mail,  postage prepaid,  return receipt  requested) or
sent  by  hand  or  overnight  courier,  or by  facsimile  (with  acknowledgment
received),  charges  prepaid and  addressed  as provided in Section  10.1 of the
Company Agreement, or to such other address or number as any Party may from time
to time specify by notice to the other.

      All notices and other  communications given to a Person in accordance with
the provisions of this Agreement shall be deemed to have been given and received
(i) four (4) Business  Days after the same are sent by  certified or  registered
mail, postage prepaid, return receipt requested,  (ii) when delivered by hand or
transmitted  by facsimile  (with  acknowledgment  received and, in the case of a
facsimile  only,  a copy of such notice is sent no later than the next  Business
Day by a reliable overnight courier service,  with acknowledgment of receipt) or
(iii)  one (1)  Business  Day after  the same are sent by a  reliable  overnight
courier service, with acknowledgment of receipt.

      5.3  BINDING EFFECT.

      This  Agreement  shall be  binding  upon and inure to the  benefit  of the
Parties and their respective successors, transferees, and assigns.

      5.4  CONSTRUCTION.

      This Agreement shall be construed simply according to its fair meaning and
not strictly for or against any Party.

      5.5  TIME.

      Time is of the essence with respect to this Agreement.


                                       10



      5.6   HEADINGS.

      The  section  and  other  headings  contained  in this  Agreement  are for
reference purposes only and are not intended to describe,  interpret,  define or
limit the scope, extent or intent of this Agreement.

      5.7   SEVERABILITY.

      Every provision of this Agreement is intended to be severable. If any term
or  provision  hereof  is  illegal,  invalid  or  unenforceable  for any  reason
whatsoever,  that term or  provision  will be  enforced  to the  maximum  extent
permissible  so as to effect the  intent of the  Parties,  and such  illegality,
invalidity or unenforceability  shall not affect the validity or legality of the
remainder of this  Agreement.  If necessary to effect the intent of the Parties,
the Parties will  negotiate in good faith to amend this Agreement to replace the
unenforceable  language with  enforceable  language which as closely as possible
reflects such intent.

      5.8   CONFIDENTIALITY.

      Each Party and its  Controlled  Affiliates  shall,  and shall  cause their
respective  Agents to, keep secret and maintain in confidence  the terms of this
Agreement and all confidential and proprietary information and data of the other
Party disclosed to it in connection with the  transactions  contemplated by this
Agreement, all as provided in Section 10.1 of the Company Agreement.

      5.9   GOVERNING LAW.

      The internal laws of the State of Delaware  (without  regard to principles
of  conflict  of  law)  shall  govern  the  validity  of  this  Agreement,   the
construction of its terms,  and the  interpretation  of the rights and duties of
the Parties.

      5.10  COUNTERPART EXECUTION.

      This Agreement may be executed in any number of counterparts with the same
effect as if all the  Parties  had signed the same  document.  All  counterparts
shall be construed together and shall constitute one agreement.

      5.11  LIMITATION ON RIGHTS OF OTHERS.

      Nothing in this Agreement,  whether express or implied, shall be construed
to give any Person other than the Parties and their  respective  successors  and
permitted  assigns  any legal or  equitable  right,  remedy or claim under or in
respect of this Agreement.



                                       11



      5.12  WAIVERS; REMEDIES.

      The  observance  of any  term  of this  Agreement  may be  waived  (either
generally or in a particular instance and either retroactively or prospectively)
by the Party or Parties entitled to enforce such term, but any such waiver shall
be effective only if in a writing  signed by the Party or Parties  against which
such waiver is to be asserted.  Except as otherwise  provided herein, no failure
or delay of any Party in  exercising  any power or right  under  this  Agreement
shall operate as a waiver thereof,  nor shall any single or partial  exercise of
any such  right or  power,  or any  abandonment  or  discontinuance  of steps to
enforce such right or power,  preclude any other or further  exercise thereof or
the exercise of any other right or power.

      5.13  AMENDMENT.

      This  Agreement  may be  amended  only in  writing  signed  by each  Party
expressly stating that it is an amendment to this Agreement.



                                       12





      IN  WITNESS  WHEREOF,  the  parties  have  entered  into this Tax  Sharing
Agreement as of the day first above set forth.

                                    ARCH COAL, INC.

                                    /s/ David B. Peugh
                                    ------------------------------------
                                    By:    David B. Peugh
                                    Title: Vice President


                                    ARCH WESTERN ACQUISITION CORPORATION

                                    /s/ Jeffry N. Quinn
                                    ------------------------------------    
                                    By:    Jeffry N. Quinn
                                    Title: President


                                    DELTA HOUSING INC.

                                    /s/ Terry G. Dallas
                                    ------------------------------------
                                    By:    Terry G. Dallas
                                    Title: Vice President



                                                                     EXHIBIT 4.1

                     $600,000,000 REVOLVING CREDIT FACILITY
                             $300,000,000 TERM LOAN
                                CREDIT AGREEMENT

                                  by and among

                                 ARCH COAL, INC.

                                       and

                            THE LENDERS PARTY HERETO

                                       and

                         PNC BANK, NATIONAL ASSOCIATION,

                                       as

                              Administrative Agent

                                       and

                  MORGAN GUARANTY TRUST COMPANY OF NEW YORK,

                                       as

                                Syndication Agent

                                       and

                           FIRST UNION NATIONAL BANK,

                             as Documentation Agent


                            Dated as of June 1, 1998












                                TABLE OF CONTENTS

SECTION                                                                   PAGE


1. CERTAIN DEFINITIONS........................................................1
      1.1 Certain Definitions.................................................1
      1.2 Construction.......................................................28
            1.2.1  Number; Inclusion.........................................28
            1.2.2  Determination.............................................28
            1.2.3  Administrative Agent's Discretion and Consent.............28
            1.2.4  Documents Taken as a Whole................................28
            1.2.5  Headings..................................................29
            1.2.6  Implied References to This Agreement......................29
            1.2.7  Persons...................................................29
            1.2.8  Modifications to Documents................................29
            1.2.9  From, To and Through......................................29
            1.2.10 Shall; Will...............................................29
      1.3 Accounting Principles..............................................29

2. REVOLVING CREDIT, SWING LOAN AND TERM LOAN FACILITIES.....................30
      2.1 Revolving Credit Commitments.......................................30
            2.1.1  Revolving Credit Loans....................................30
            2.1.2  Swing Loan Commitment.....................................30
      2.2 Nature of Banks' Obligations With Respect to Revolving Credit
            Loans............................................................30
      2.3 Revolving Credit Facility Fee......................................31
      2.4 Loan Requests......................................................31
            2.4.1  Committed Loan Requests...................................31
            2.4.2  Swing Loan Requests.......................................32
      2.5 Making Revolving Credit Loans and Swing Loans......................32
            2.5.1  Making Swing Loans........................................32
      2.6 Swing Loan Note....................................................33
      2.7 Use of Proceeds....................................................33
      2.8 Borrowings to Repay Swing Loans....................................33
      2.9 Bid Loan Facility..................................................33
            2.9.1  Bid Loan Requests.........................................33
            2.9.2  Bidding...................................................34
            2.9.3  Accepting Bids............................................35
            2.9.4  Funding Bid Loans.........................................35
            2.9.5  Several Obligations.......................................36
            2.9.6  Bid Notes.................................................36
            2.9.7  Payments and Prepayments..................................36
      2.10 Letter of Credit Subfacility......................................36
            2.10.1 Issuance of Letters of Credit.............................36
            2.10.2 Letter of Credit Fees.....................................37
            2.10.3 Participations in Letters of Credit; Disbursements,
                    Reimbursement............................................37
            2.10.4 [Intentionally Omitted]...................................38
            2.10.5 Documentation.............................................39
            2.10.6 Determinations to Honor Drawing Requests..................39
            2.10.7 Nature of Participation and Reimbursement
                    Obligations..............................................39
            2.10.8 Indemnity.................................................40

                                      - i -

 
            2.10.9 Liability for Acts and Omissions..........................41
      2.11 [Intentionally Omitted]...........................................41
      2.12 Term Loan Commitments.............................................42
      2.13 Nature of Banks' Obligations with Respect to Term Loans...........42
      2.14 Term Loan Notes...................................................42
      2.15 Use of Proceeds...................................................42

3. INTEREST RATES............................................................42
      3.1 Interest Rate Options..............................................42
            3.1.1  Interest Rate Options.....................................43
            3.1.2  Rate Quotations...........................................44
            3.1.3  Change in Fees or Interest Rates..........................44
      3.2 Interest Periods...................................................44
            3.2.1  Ending Date and Business Day..............................45
            3.2.2  Amount of Borrowing Tranche...............................45
            3.2.3  Termination Before  Applicable Expiration Date............45
            3.2.4  Renewals..................................................45
      3.3 Interest After Default.............................................45
            3.3.1  Letter of Credit Fees, Interest Rate......................45
            3.3.2  Other Obligations.........................................45
            3.3.3  Acknowledgment............................................46
      3.4 Euro-Rate Unascertainable; Illegality; Increased Costs;
            Deposits Not Available...........................................46
            3.4.1  Unascertainable...........................................46
            3.4.2  Illegality; Increased Costs; Deposits Not Available.......46
            3.4.3  Administrative Agent's and Lender's Rights................47
      3.5 Selection of Interest Rate Options.................................47

4. PAYMENTS..................................................................48
      4.1 Payments...........................................................48
      4.2 Pro Rata Treatment of Banks........................................48
      4.3 Interest Payment Dates.............................................49
      4.4 Prepayments........................................................49
            4.4.1  Voluntary Prepayments.....................................49
            4.4.2  Replacement of a Lender...................................50
            4.4.3  Change of Lending Office..................................51
            4.4.4  Voluntary Reduction of Commitments........................51
            4.4.5  Mandatory Prepayment Upon Issuance of Certain Debt
                    and Certain Equity.......................................52
            4.4.6  Mandatory Prepayment Upon Sale of Assets..................52
      4.5 Additional Compensation in Certain Circumstances...................53
            4.5.1  Increased Costs or Reduced Return Resulting From
                    Taxes, Reserves, Capital Adequacy Requirements,
                    Expenses, Etc............................................53
            4.5.2  Indemnity.................................................53
      4.6 Notes..............................................................54
      4.7 Settlement Date Procedures.........................................54
      4.8 Taxes..............................................................55

                                      - ii -


            4.8.1  No Deductions.............................................55
            4.8.2  Stamp Taxes...............................................55
            4.8.3  Indemnification for Taxes Paid by Lenders.................55
            4.8.4  Certificate...............................................56
            4.8.5  Survival..................................................56
            4.8.6  Refund and Contest........................................56

5. REPRESENTATIONS AND WARRANTIES............................................56
      5.1 Representations and Warranties.....................................56
            5.1.1  Organization and Qualification............................57
            5.1.2  Shares of Borrower; Subsidiaries; and Subsidiary
                    Shares...................................................57
            5.1.3  Power and Authority.......................................57
            5.1.4  Validity and Binding Effect...............................58
            5.1.5  No Conflict...............................................58
            5.1.6  Litigation................................................59
            5.1.7  Financial Statements......................................59
            5.1.8  Use of Proceeds; Margin Stock.............................61
            5.1.9  Full Disclosure...........................................61
            5.1.10 Taxes.....................................................61
            5.1.11 Consents and Approvals....................................62
            5.1.12 No Event of Default; Compliance With Instruments and
                    Material Contracts.......................................62
            5.1.13 Insurance.................................................63
            5.1.14 Compliance With Laws......................................63
            5.1.15 Investment Companies; Regulated Entities..................63
            5.1.16 Plans and Benefit Arrangements............................63
            5.1.17 Employment Matters........................................64
            5.1.18 Environmental Matters.....................................64
            5.1.19 Senior Debt Status........................................65
            5.1.20 Title to Properties.......................................65
            5.1.21 Black Lung................................................65
            5.1.22 Coastal Agreement.........................................65
      5.2 Continuation of Representations....................................65

6. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT...................66
      6.1 First Loans and Letters of Credit..................................66
            6.1.1  Officer's Certificate.....................................66
            6.1.2  Secretary's Certificate...................................66
            6.1.3  Delivery of Guaranty Agreement............................67
            6.1.4  Opinion of Counsel........................................67
            6.1.5  Legal Details.............................................67
            6.1.6  Payment of Fees...........................................67
            6.1.7  Consents..................................................68
            6.1.8  Officer's Certificate Regarding No Material Adverse
                    Change  and Solvency.....................................68
            6.1.9  No Violation of Laws......................................68
            6.1.10 No Actions or Proceedings.................................68
            6.1.11 Acquisition...............................................68
            6.1.12 Financial Projections.....................................69
            6.1.13 Arch Western Capital and Financing........................69
            6.1.14 Insurance.................................................69
            6.1.15 Payoff of Existing Credit Facility........................69

                                     - iii -


            6.1.16 Non-Occurrence of Certain Events..........................69
      6.2 Each Additional Loan or Letter of Credit...........................69
      6.3 Syndication........................................................70
            6.3.1  Syndication Date Representations and Warranties...........70
            6.3.2  Syndication Cooperation...................................70

7. COVENANTS.................................................................70
      7.1 Affirmative Covenants..............................................70
            7.1.1  Preservation of Existence, Etc............................71
            7.1.2  Payment of Liabilities, Including Taxes, Etc..............71
            7.1.3  Maintenance of Insurance..................................71
            7.1.4  Maintenance of Properties and Leases......................71
            7.1.5  Visitation Rights.........................................72
            7.1.6  Keeping of Records and Books of Account...................72
            7.1.7  Plans and Benefit Arrangements............................72
            7.1.8  Compliance With Laws......................................72
            7.1.9  Use of Proceeds...........................................73
            7.1.10 Operation of Mines........................................73
            7.1.11 Maintenance of Material Contracts.........................73
      7.2 Negative Covenants.................................................73
            7.2.1  Indebtedness..............................................73
            7.2.2  Liens.....................................................74
            7.2.3  Liquidations, Mergers, Consolidations, Acquisitions.......75
            7.2.4  Dispositions of Assets or Subsidiaries....................75
            7.2.5  Affiliate Transactions....................................77
            7.2.6  Subsidiaries, Partnerships and Joint Ventures.............77
            7.2.7  Continuation of or Change in Business.....................77
            7.2.8  Plans and Benefit Arrangements............................77
            7.2.9  Off-Balance Sheet Financing...............................78
            7.2.10 Maximum Leverage Ratio....................................78
            7.2.11 Minimum Fixed Charge Coverage Ratio.......................78
            7.2.12 Minimum Net Worth.........................................79
            7.2.13 No Restriction on Dividends...............................79
            7.2.14 Loans and Investments.....................................79
            7.2.15 No Amendments to Acquisition Documents....................80
      7.3 Reporting Requirements.............................................80
            7.3.1  Quarterly Financial Statements............................80
            7.3.2  Annual Financial Statements...............................81
            7.3.3  Certificate of the Borrower...............................81
            7.3.4  Notice of Default.........................................81
            7.3.5  Notice of Litigation......................................82
            7.3.6  Notice of Change in Debt Rating...........................82
            7.3.7  Notices Regarding Plans and Benefit Arrangements..........82
            7.3.8  Other Information.........................................84

8. DEFAULT...................................................................84
      8.1 Events of Default..................................................84
            8.1.1  Payments Under Loan Documents.............................84
            8.1.2  Breach of Warranty........................................84
            8.1.3  Breach of Negative Covenants or Visitation Rights.........84

                                      - iv -


            8.1.4  Breach of Other Covenants.................................84
            8.1.5  Defaults in Other Agreements or Indebtedness..............85
            8.1.6  Judgments or Orders.......................................85
            8.1.7  Loan Document Unenforceable...............................85
            8.1.8  Uninsured Losses; Proceedings Against Assets..............86
            8.1.9  Notice of Lien or Assessment..............................86
            8.1.10 Insolvency................................................86
            8.1.11 Events Relating to Plans and Benefit Arrangements.........86
            8.1.12 Cessation of Business.....................................87
            8.1.13 Change of Control.........................................87
            8.1.14 Involuntary Proceedings...................................87
            8.1.15 Voluntary Proceedings.....................................87
      8.2 Consequences of Event of Default...................................88
            8.2.1  Events of Default Other Than Bankruptcy, Insolvency
                    or Reorganization Proceedings............................88
            8.2.2  Bankruptcy, Insolvency or Reorganization Proceedings......88
            8.2.3  Set-off...................................................88
            8.2.4  Suits, Actions, Proceedings...............................89
            8.2.5  Application of Proceeds...................................89
            8.2.6  Other Rights and Remedies.................................90
      8.3 Right of Competitive Bid Loan Lenders..............................90

9. THE AGENTS................................................................90
      9.1   Appointment......................................................90
      9.2   Delegation of Duties.............................................90
      9.3   Nature of Duties; Independent Credit Investigation...............91
      9.4   Actions in Discretion of Agents; Instructions From the Banks.....91
      9.5   Reimbursement and Indemnification of Agents by the Borrower......92
      9.6   Exculpatory Provisions; Limitation of Liability..................92
      9.7   Reimbursement and Indemnification of Agents by the Lenders.......93
      9.8   Reliance by Agents...............................................94
      9.9   Notice of Default................................................94
      9.10  Notices..........................................................94
      9.11  Banks in Their Individual Capacities.............................94
      9.12  Holders of Notes.................................................95
      9.13  Equalization of Lenders..........................................95
      9.14  Successor Agents.................................................95
      9.15  Administrative Agent's Fees......................................96
      9.16  Availability of Funds............................................96
      9.17  Calculations.....................................................97
      9.18  Beneficiaries....................................................97

10. MISCELLANEOUS............................................................97
      10.1  Modifications, Amendments or Waivers.............................97

                                     - v -


            10.1.1  Increase of Revolving Credit Commitments; Extension
                     of Expiration Date; Modification of Terms of
                     Payment.................................................98
            10.1.2  Increase of Term Loan Commitments; Extension of Term
                     Loan Expiration Date; Modification of Terms of
                     Payment.................................................98
            10.1.3  Release of Guarantor.....................................98
            10.1.4  Miscellaneous............................................98
      10.2  No Implied Waivers; Cumulative Remedies; Writing Required........99
      10.3  Reimbursement and Indemnification of Lenders by the
            Borrower; Taxes..................................................99
      10.4  Holidays........................................................100
      10.5  Funding by Branch, Subsidiary or Affiliate......................100
            10.5.1  Notional Funding........................................100
            10.5.2  Actual Funding..........................................101
      10.6  Notices.........................................................101
      10.7  Severability....................................................101
      10.8  Governing Law...................................................102
      10.9  Prior Understanding.............................................102
      10.10 Duration; Survival..............................................102
      10.11 Successors and Assigns..........................................102
            10.11.1  Binding Effect; Assignments by Borrower................102
            10.11.2  Assignments and Participations by Banks Other Than
                      Assignments of Bid Loans Among Designating Banks
                      and Designated Lenders................................103
            10.11.3  Assignments of Bid Loans Among Designating Banks
                      and Designated Lenders................................104
            10.11.4  Foreign Assignees and Participants.....................105
            10.11.5  Assignments by Lenders to Federal Reserve Banks........105
      10.12 Confidentiality.................................................106
            10.12.1  General................................................106
            10.12.2  Sharing Information With Affiliates of the Lenders.....106
      10.13 Counterparts....................................................106
      10.14 Agent's or Lender's Consent.....................................106
      10.15 Exceptions......................................................107
      10.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL..........................107
      10.17 Tax Withholding Clause..........................................107
      10.18 Joinder of Guarantors...........................................108




                                     - vi -


      
                         LIST OF SCHEDULES AND EXHIBITS

SCHEDULES

SCHEDULE 1.1(A)        -   PRICING GRID
SCHEDULE 1.1(B)        -   COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
SCHEDULE 5.1.2         -   CERTAIN INFORMATION REGARDING CAPITALIZATION OF
                           BORROWER AND ITS SUBSIDIARIES
SCHEDULE 5.1.11        -   CONSENTS AND APPROVALS


EXHIBITS

EXHIBIT 1.1(A)         -   ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(B)         -   BID NOTE
EXHIBIT 1.1(D)         -   DESIGNATION AGREEMENT
EXHIBIT 1.1(G)(1)      -   GUARANTOR JOINDER AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(G)(2)      -   CONTINUING GUARANTY AND SURETYSHIP AGREEMENT
EXHIBIT 1.1(R)         -   REVOLVING CREDIT NOTE
EXHIBIT 1.1(S)         -   SWING LOAN NOTE
EXHIBIT 1.1(T)         -   TERM NOTE
EXHIBIT 2.4.1          -   COMMITTED LOAN REQUEST
EXHIBIT 2.4.2          -   SWING LOAN REQUEST
EXHIBIT 2.9.1          -   BID LOAN REQUEST
EXHIBIT 4.4.4          -   COMMITMENT REDUCTION NOTICE
EXHIBIT 6.1.4          -   OPINION OF COUNSEL
EXHIBIT 7.3.3          -   QUARTERLY COMPLIANCE CERTIFICATE










                                    - vii -

                             




                                CREDIT AGREEMENT

      THIS  CREDIT  AGREEMENT  is dated as of June 1,  1998,  and is made by and
among ARCH COAL, INC., a Delaware corporation (the "Borrower"),  the LENDERS (as
hereinafter defined), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, in its capacity
as   syndication   agent,   FIRST  UNION  NATIONAL  BANK,  in  its  capacity  as
documentation  agent,  and PNC BANK,  NATIONAL  ASSOCIATION,  in its capacity as
administrative agent for the Banks under this Agreement.

                                   WITNESSETH:

      WHEREAS,  the  Borrower  has  requested  the Banks to provide a  revolving
credit facility to the Borrower in an aggregate  principal  amount not to exceed
$600,000,000 and a $300,000,000 term loan facility;

      WHEREAS,  the revolving  credit and term loan facilities  shall be used to
finance the Acquisition  Transactions (as hereinafter defined), to refinance the
Existing Credit Facility and for general corporate purposes; and

      WHEREAS,  the Banks are willing to provide  such credit upon the terms and
conditions hereinafter set forth;

      NOW,  THEREFORE,  the parties  hereto,  in  consideration  of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:


                             1. CERTAIN DEFINITIONS

            1.1   CERTAIN DEFINITIONS.

            In addition to words and terms defined  elsewhere in this Agreement,
the following words and terms shall have the following  meanings,  respectively,
unless the context hereof clearly requires otherwise:

                  ACC shall mean the U.S.  operations  of ARCO Coal  Company,  a
division of ARCO.

                  ACC ANNUAL  STATEMENTS shall have the meaning assigned to such
term in Section 5.1.7(i).

                  ACC BALANCE SHEET shall mean the audited, consolidated balance
sheet of ACC as of December 31, 1997.

                  ACC GROUP shall mean collectively,  ARCO and each Affiliate of
ARCO party to any Acquisition Document.


                  ACQUISITION  shall mean the  transactions  contemplated by the
Purchase  Agreement and the  Contribution  Agreement,  as such  documents may be
amended, modified or supplemented after the Closing Date as permitted by Section
7.2.15.

                  ACQUISITION  DOCUMENTS  shall mean  collectively  the Purchase
Agreement,  the Contribution Agreement,  the Tax Sharing Agreement,  and the LLC
Agreements,  as  limited by their  schedules  and  exhibits,  as the same may be
amended, modified or supplemented after the Closing Date as permitted by Section
7.2.15.

                  ACQUISITION TRANSACTIONS shall mean transactions  contemplated
by the Purchase Agreement.

                  ADMINISTRATIVE   AGENT   shall   mean   PNC   Bank,   National
Association,  in its capacity as administrative agent for the Lenders under this
Agreement and its successors in such capacity.

                  ADMINISTRATIVE  AGENT'S FEE shall have the meaning assigned to
that term in Section 9.15.

                  ADMINISTRATIVE  AGENT'S LETTER shall have the meaning assigned
to that term in Section 9.15.

                  AFFILIATE  as to any Person  shall  mean any other  Person (i)
which  directly or indirectly  controls,  is  controlled  by, or is under common
control with such Person,  (ii) which  beneficially  owns or holds 5% or more of
any class of the voting or other equity interests of such Person, or (iii) 5% or
more of any class of voting  interests  or other  equity  interests  of which is
beneficially owned or held, directly or indirectly,  by such Person. Control, as
used in this definition,  shall mean the possession,  directly or indirectly, of
the power to direct or cause the  direction of the  management  or policies of a
Person,  whether  through the  ownership  of voting  securities,  by contract or
otherwise,  including the power to elect a majority of the directors or trustees
of a corporation or trust, as the case may be.  Notwithstanding the foregoing, a
Subsidiary  of the  Borrower  (other than an Excluded  Subsidiary)  shall not be
deemed an Affiliate of the Borrower.

                  AGENTS shall mean collectively the  Administrative  Agent, the
Documentation  Agent and the Syndication  Agent, and Agent shall mean any one of
the Agents, individually.

                  AGREEMENT shall mean this Credit Agreement, as the same may be
supplemented or amended from time to time, including all schedules and exhibits.

                  ANNUAL STATEMENTS shall have the meaning assigned to that term
in Section 5.1.7(i).

                  APPLICABLE  FACILITY FEE RATE shall mean the  percentage  rate
per annum at the  indicated  level (i) of Leverage  Ratio for any period  during
which a Debt  Rating  is not in  

                                     - 2 -


effect as set forth in the pricing  grid on  SCHEDULE  1.1(A) PART (A) below the
heading  "Facility  Fee"; or (ii) of Debt Rating for any period a Debt Rating is
in effect as set forth in the pricing grid on SCHEDULE 1.1(A) PART (B) below the
heading  "Facility  Fee." The Applicable  Facility Fee Rate shall be computed in
accordance with the parameters set forth on SCHEDULE 1.1(A). Notwithstanding the
foregoing,  it is  expressly  agreed  that  through  and  including  the Initial
Delivery Date,  the Applicable  Facility Fee Rate shall be such rate as computed
in accordance  with the parameters set forth on SCHEDULE 1.1(A) but no less than
the  rate  set  forth in the  pricing  grid in Level IV of PART (A) of  SCHEDULE
1.1(A).  For  periods  after the  Initial  Delivery  Date until such time as the
Borrower's  senior unsecured  long-term debt, on a consolidated  basis, has been
rated  Investment  Grade,  the Applicable  Facility Fee Rate shall be the amount
determined  under Part (A) of SCHEDULE  1.1(A) (based upon the Leverage  Ratio),
and for any period  thereafter  when a Debt  Rating is in effect the  Applicable
Facility  Fee Rate shall be the  amount  determined  under Part (B) of  SCHEDULE
1.1(A).

                  APPLICABLE  LETTER OF CREDIT  FEE RATE shall mean the rate per
annum at the indicated level (i) of Leverage Ratio for any period during which a
Debt Rating is not in effect as set forth in the pricing grid on SCHEDULE 1.1(A)
PART (A) below the heading  "Letter of Credit Fee," or (ii) of Debt Rating,  for
any  period a Debt  Rating  is in effect  as set  forth in the  pricing  grid on
SCHEDULE  1.1(A)  PART (B)  below  the  heading  "Letter  of  Credit  Fee."  The
Applicable  Letter of Credit Fee Rate shall be computed in  accordance  with the
parameters set forth on SCHEDULE 1.1(A).  Notwithstanding  the foregoing,  it is
expressly  agreed that through and  including  the Initial  Delivery  Date,  the
Applicable  Letter  of  Credit  Fee  Rate  shall  be such  rate as  computed  in
accordance with the parameters set forth on SCHEDULE 1.1(A) but no less than the
rate set forth in the pricing  grid in Level IV of PART (A) of SCHEDULE  1.1(A).
For periods after the Initial  Delivery  Date until such time as the  Borrower's
senior  unsecured  long-term  debt,  on a  consolidated  basis,  has been  rated
Investment  Grade, the Applicable  Letter of Credit Fee Rate shall be the amount
determined  under PART (A) of SCHEDULE  1.1(A) (based upon the Leverage  Ratio),
and for any period  thereafter  when a Debt Rating is in effect,  the Applicable
Letter of Credit  Fee Rate  shall be the  amount  determined  under  PART (B) of
SCHEDULE 1.1(A).

                  APPLICABLE MARGIN shall mean, as applicable:

                  (A) the percentage  spread to be added to Euro-Rate  under the
Revolving  Credit  Euro-Rate Option at the indicated level of Leverage Ratio for
any  period  during  which a Debt  Rating  is not in  effect as set forth in the
pricing  grid on SCHEDULE  1.1(A) PART (A) below the heading  "Revolving  Credit
Euro-Rate Spread,"

                  (B) the percentage  spread to be added to Euro-Rate  under the
Revolving  Credit Euro-Rate Option at the indicated level of Debt Rating for any
period  during which a Debt Rating is in effect as set forth in the pricing grid
on  SCHEDULE  1.1(A)  PART (B) below the  heading  "Revolving  Credit  Euro-Rate
Spread,"

                  (C) the percentage  spread to be added to Euro-Rate  under the
Term Loan  Euro-Rate  Option at the  indicated  level of Leverage  Ratio for any
period  during  which a  

                                     - 3 -


Debt Rating is not in effect as set forth in the pricing grid on SCHEDULE 1.1(A)
PART (A) below the heading "Term Loan Euro-Rate Spread," or

                  (D) the percentage  spread to be added to Euro-Rate  under the
Term Loan Euro-Rate  Option at the indicated level of Debt Rating for any period
during  which a Debt  Rating is in effect  as set forth in the  pricing  grid on
SCHEDULE 1.1(A) PART (B) below the heading "Term Loan Euro-Rate Spread."

The  Applicable  Margin shall be computed in accordance  with the parameters set
forth on SCHEDULE 1.1(A).  Notwithstanding the foregoing, it is expressly agreed
that following the Closing Date through and including the Initial Delivery Date,
the  Applicable  Margin shall be such amount as determined  in  accordance  with
SCHEDULE  1.1(A) but no less than the amount  set forth in the  pricing  grid in
Level IV of PART (A) of SCHEDULE 1.1(A).  For periods after the Initial Delivery
Date, until such time as the Borrower's  senior  unsecured  long-term debt, on a
consolidated basis, has been rated Investment Grade, the Applicable Margin shall
be the amount  determined  under  clause  (A) or clause  (C) above,  and for any
period thereafter when a Debt Rating is in effect the Applicable Margin shall be
the amount determined under clause (B) or clause (D) above.

                  APPROPRIATE  PERCENTAGE  shall  mean,  with  respect  to  each
Special  Subsidiary,  the  percentage  of the equity of such Person owned by the
Borrower or any Subsidiary of the Borrower.

                  ARCH COAL GROUP shall mean,  as of any date of  determination,
the Borrower and its Subsidiaries (other than the Excluded Subsidiaries).

                  ARCH OF WYOMING LLC shall mean Arch of Wyoming, LLC, a limited
liability  company  organized  and  existing  under  the  laws of the  State  of
Delaware.

                  ARCH OF WYOMING LLC AGREEMENT  shall mean that certain Limited
Liability Agreement, dated as of April 15, 1998, of Arch of Wyoming LLC.

                  ARCH WESTERN shall mean Arch Western Resources, LLC, a limited
liability  company  organized  and  existing  under  the  laws of the  State  of
Delaware.

                  ARCH WESTERN  CREDIT  FACILITY  shall mean that certain Credit
Agreement by and among Arch Western, PNC Bank as administrative agent, Morgan as
syndication agent and NationsBank N.A. as documentation  agent,  providing for a
$675,000,000  term loan  facility to Arch  Western,  as the same may be amended,
restated, modified or supplemented from time to time after the date hereof.

                  ARCH   WESTERN   GROUP   shall   mean,   as  of  any  date  of
determination, AWAC, Arch Western and the Subsidiaries of Arch Western.

                  ARCH WESTERN LLC  AGREEMENT  shall mean that  certain  Limited
Liability  Company  Agreement  by and between  AWAC and Delta  Housing,  Inc., a
Delaware  corporation,  

                                     - 4 -


dated as of June 1, 1998,  with AWAC and Delta  Housing,  Inc.  as  members  and
creating Arch Western Resources, LLC, a Delaware limited liability company.

                  ARCO shall mean  Atlantic  Richfield  Company,  a  corporation
organized and existing under the laws of the State of Delaware.

                  ARRANGERS shall mean PNC and Morgan.

                  ASSIGNMENT AND ASSUMPTION  AGREEMENT  shall mean an Assignment
and Assumption  Agreement by and among a Purchasing  Bank, a Transferor Bank and
the  Administrative  Agent,  as agent  and on  behalf  of the  remaining  Banks,
substantially in the form of EXHIBIT 1.1(A).

                  AU SUB LLC AGREEMENT shall mean that certain Limited Liability
Company  Agreement,  dated as of April 8,  1998,  as  amended,  of AU Sub LLC, a
limited  liability company organized and existing under the laws of the State of
Delaware.

                  AUTHORIZED OFFICER shall mean those individuals, designated by
written  notice to the  Administrative  Agent from the  Borrower,  authorized to
execute  notices,  reports  and other  documents  on behalf of the Loan  Parties
required hereunder. The Borrower may amend such list of individuals from time to
time by giving written notice of such amendment to the Administrative Agent.

                  AWAC  shall  mean  Arch  Western  Acquisition  Corporation,  a
corporation organized and existing under the laws of the State of Delaware.

                  BANKS shall mean the financial  institutions named on SCHEDULE
1.1(B) and their respective successors and assigns as permitted hereunder,  each
of which is referred to herein as a Bank.

                  BASE NET WORTH shall mean the sum of $500,000,000, plus 50% of
consolidated  net  income  of the  Borrower  and its  Subsidiaries  (before  the
after-tax effect of changes in accounting principles) for each fiscal quarter in
which  net  income  was  earned  plus 80% of the net  increase  in  Consolidated
Tangible Net Worth  resulting from the issuance of any equity  securities by the
Borrower,  for the period from April 1, 1998 through the date of  determination.
In no event  shall Base Net Worth be reduced  on account of a  consolidated  net
loss for any fiscal period.

                  BASE RATE shall mean the greater of (i) the interest  rate per
annum announced from time to time by the  Administrative  Agent at its Principal
Office as its then prime rate,  which rate may not be the lowest rate then being
charged commercial  borrowers by the  Administrative  Agent, or (ii) the Federal
Funds Effective Rate plus 1/2% per annum.

                  BASE RATE OPTION shall mean either the  Revolving  Credit Base
Rate Option or the Term Loan Base Rate Option.

                                     - 5 -


                  BENEFIT  ARRANGEMENT  shall  mean  at any  time  an  "employee
benefit  plan," within the meaning of Section 3(3) of ERISA,  which is neither a
Plan nor a  Multiemployer  Plan and which is maintained,  sponsored or otherwise
contributed to by any member of the ERISA Group.

                  BID shall have the  meaning  assigned  to such term in Section
2.9.2.

                  BID LOAN  BORROWING  DATE shall mean,  with respect to any Bid
Loan, the date for the making thereof which shall be a Business Day.

                  BID LOAN  EURO-RATE  RATE OPTION  shall mean the option of the
Borrower  to  request  that the  Banks  submit  Bids to make Bid  Loans  bearing
interest at a rate per annum quoted by such Banks at the Euro-Rate in effect two
Business  Days before the  Borrowing  Date of such Bid Loan plus a Euro-Rate Bid
Loan Spread.

                  BID LOAN  FIXED  RATE  OPTION  shall  mean the  option  of the
Borrower  to  request  that the  Banks  submit  Bids to make Bid  Loans  bearing
interest  at a fixed  rate  per  annum  quoted  by  such  Banks  as a  numerical
percentage (and not as a spread over another rate such as the Euro-Rate).

                  BID LOAN  INTEREST  PERIOD shall have the meaning  assigned to
such term in Section 2.9.1.

                  BID LOAN LENDERS shall have the meaning  assigned to such term
in Section 8.3.

                  BID LOAN  PROCESSING  FEE shall have the  meaning  assigned to
such term in Section 9.15.

                  BID LOAN REQUEST shall have the meaning  assigned to such term
in Section 2.9.1.

                  BID LOANS  shall  mean  collectively  and Bid Loan  shall mean
separately  all of the Bid Loans or any Bid Loan made by any of the  Lenders  to
the Borrower pursuant to Section 2.9.

                  BID NOTES  shall  mean  collectively  and Bid Note  shall mean
separately  all of the Bid Notes of the  Borrower in the form of EXHIBIT  1.1(B)
evidencing the Bid Loans,  together with all amendments,  extensions,  renewals,
replacements, refinancings or refunds thereof in whole or in part.

                  BORROWER shall mean Arch Coal,  Inc., a corporation  organized
and existing under the laws of the State of Delaware.

                  BORROWER  SHARES  shall have the  meaning set forth in Section
5.1.2.

                                     - 6 -


                  BORROWING DATE shall mean,  with respect to any Loan, the date
for the making thereof or the renewal or conversion thereof at or to the same or
a different Interest Rate Option, which shall be a Business Day.

                  BORROWING  TRANCHE  shall  mean  specified  portions  of Loans
outstanding  as follows:  (i) any Loans to which either a Euro-Rate  Option or a
Bid Loan Fixed Rate Option  applies  which become  subject to the same  Interest
Rate Option  under the same Loan Request by the Borrower and which have the same
Interest Period shall  constitute one Borrowing  Tranche,  and (ii) all Loans to
which a Base Rate applies shall constitute one Borrowing Tranche.

                  BUSINESS  shall mean the business of owning and  operating the
U.S.  domestic coal properties of ACC,  substantially  as operated by ACC at the
time of the closing of the Acquisition.

                  BUSINESS  DAY shall  mean any day  other  than a  Saturday  or
Sunday or a legal holiday on which  commercial  banks are authorized or required
to be closed for business in  Pittsburgh,  Pennsylvania  and New York, New York;
and if the  applicable  Business Day relates to any Loan to which the  Euro-Rate
Option applies,  such day must also be a day on which dealings are carried on in
the London interbank market.

                  CANYON  FUEL shall mean Canyon  Fuel  Company,  LLC, a limited
liability company organized and existing under the laws of the State of Delaware

                  CANYON  FUEL LLC  AGREEMENT  shall mean that  certain  Limited
Liability Company agreement by and between Arch Western (or a Subsidiary of Arch
Western) and Itochu Coal International,  Inc., a Delaware corporation,  dated as
of January 1, 1997, as amended, with Arch Western and Itochu Coal International,
Inc.  as members of Canyon  Fuel  Company,  LLC,  a Delaware  limited  liability
company,.

                  CLOSING  DATE shall mean the  Business  Day on which the first
Loan shall be made, which shall be June 1, 1998.

                  COASTAL  AGREEMENT  shall mean that certain  Purchase and Sale
Agreement among The Coastal Corporation,  a Delaware corporation,  Coastal Coal,
Inc.,  a  Delaware  corporation,   ARCO  and  Itochu  Corporation,   a  Japanese
corporation, dated as of October 23, 1996.

                  COMMERCIAL  LETTER OF CREDIT  shall  mean any Letter of Credit
which is a  commercial  letter of credit  issued in respect of the  purchase  of
goods or services by one or more of the Loan Parties in the  ordinary  course of
their business.

                  COMMITMENT  shall  mean as to any  Bank the  aggregate  of its
Revolving  Credit  Commitment and Term Loan  Commitment  and, in the case of PNC
Bank, its Swing Loan Commitment, and Commitments shall mean the aggregate of the
Revolving Credit Commitments, Term Loan Commitments and Swing Loan Commitment of
all of the Banks.

                                     - 7 -


                  COMMITMENT  REDUCTION  NOTICE shall have the meaning set forth
in Section 4.4.4.

                  COMMITTED  LOAN shall mean either a Revolving  Credit  Loan, a
Swing Loan or a Term Loan.

                  COMMITTED  LOAN  INTEREST  PERIOD  shall have the  meaning set
forth in Section 3.2.

                  COMMITTED  LOAN  REQUEST  shall mean a request for a Revolving
Credit  Loan or a Swing Loan or a request to select,  convert to or renew a Base
Rate Option or Euro-Rate Option with respect to an outstanding  Revolving Credit
Loan or Term Loan in accordance with Sections 2.4, 3.1 and 3.2.

                  CONSOLIDATED  TANGIBLE  NET WORTH shall mean as of any date of
determination total stockholders'  equity less intangible assets of the Borrower
and its  Subsidiaries as of such date determined and  consolidated in accordance
with  GAAP  less  the  positive  number,  if any,  equal  to the  amount  of the
Investment by the Borrower and its  Subsidiaries  in Permitted Joint Ventures in
excess of  $30,000,000  and  adjusted  to  exclude  the after tax  effect of any
changes in accounting principles subsequent to March 31, 1998.

                  CONTRIBUTION  AGREEMENT  shall mean that certain  Contribution
Agreement  among the  Borrower,  AWAC,  ARCO,  Delta  Housing,  Inc., a Delaware
corporation, and Arch Western.

                  DEBT shall mean for any Person as of any date of determination
the aggregate of the following for such Person,  as of such date,  determined in
accordance  with GAAP:  (i) all  indebtedness  for  borrowed  money  (including,
without  limitation,  all subordinated  indebtedness  but excluding  obligations
under any interest rate swap,  cap,  collar or floor agreement or other interest
rate management device), (ii) all amounts raised under or liabilities in respect
of any note purchase or acceptance  credit  facility,  (iii) all indebtedness in
respect  of any other  transaction  (including  production  payments  (excluding
royalties),   installment   purchase   agreements,   forward  sale  or  purchase
agreements,  capitalized  leases and conditional  sales  agreements)  having the
commercial effect of a borrowing of money entered into by such Person to finance
its  operations  or  capital   requirements,   (iv)  reimbursement   obligations
(contingent or otherwise)  under any letter of credit (other than,  with respect
to the  Borrower  and its  Subsidiaries,  contingent  reimbursement  obligations
aggregating   at  any  time  up  to  $10,000,000   and  other  than   contingent
reimbursement  obligations  in respect of the letter of credit issued to support
the Port  Bond)  and (v) the  amount of all  indebtedness  (whether  matured  or
unmatured,   liquidated  or  unliquidated,   direct  or  indirect,  absolute  or
contingent,  or joint or  several) in respect of all  Guarantees  by such Person
(the  "Guaranteeing  Person") of Debt of other  Persons  (each such other Person
being a "Primary  Obligor" and the  obligations  of a Primary  Obligor which are
subject to a Guarantee by a Guaranteeing Person being "Primary Obligations") (it
being  understood that if the Primary  Obligations of the Primary Obligor do not
constitute  Debt, then the Guarantee by the  Guaranteeing  Person of the Primary
Obligations of the Primary  Obligor shall not constitute  Debt). It is expressly
agreed  that the amount of the  indebtedness  in respect of 

                                     - 8 -


the Guaranty by the Borrower of the Port Bond, shall be excluded from the amount
determined under clause (v) of the previous sentence.  Further,  it is expressly
agreed that the  difference  between  actual  funded  indebtedness  and the fair
market  value  of  funded  indebtedness   recorded  as  required  by  Accounting
Principles  Board  Opinion  No. 16 (as in effect on the  Closing  Date)  will be
excluded from indebtedness in the determination of Debt.

                  DEBT  RATING  shall mean the rating of the  Borrower's  senior
unsecured long-term debt by either of Standard & Poor's or Moody's.

                  DELIVERY  DATE shall mean the earlier of (i) the date on which
the Borrower delivers its consolidated financial statements pursuant to Sections
7.3.1 and 7.3.2, together with the duly executed compliance certificate required
by  Section  7.3.3 or (ii) one  Business  Day  following  the date on which such
financial statements are due to be delivered pursuant to such Sections.

                  DERIVATIVES  OBLIGATIONS  shall  mean,  for  any  Person,  all
obligations of such Person in respect of any rate swap transaction,  basis swap,
forward rate transaction,  commodity swap,  commodity  option,  equity or equity
index swap,  equity or equity index option,  bond option,  interest rate option,
foreign  exchange  transaction,  cap  transaction,  floor  transaction,   collar
transaction,  currency swap transaction,  cross-currency  rate swap transaction,
currency  option or any other  similar  transaction  (including  any option with
respect  to  any of  the  foregoing  transactions)  or  any  combination  of the
foregoing transactions.

                  DESIGNATED   LENDER   shall  mean  any  Person  who  has  been
designated by a Bank to fund Bid Loans and has executed a Designation  Agreement
and thereby becomes a party to this Agreement pursuant to Section 10.11.3.1.

                  DESIGNATING  BANK shall have the meaning assigned to such term
in Section 10.11.3.1.

                  DESIGNATION  AGREEMENT  shall  mean  a  designation  agreement
entered  into  by  a  Bank  and  a   Designated   Lender  and  accepted  by  the
Administrative Agent, in substantially the form of EXHIBIT 1.1(D).

                  DOCUMENTATION  AGENT shall mean First Union  National  Bank in
its capacity as documentation agent under this Agreement,  and its successors in
such capacity.

                  DOLLAR,  DOLLARS,  U.S.  DOLLARS  and the  symbol $ shall mean
lawful money of the United States of America.

                  DRAWING  DATE shall have the meaning  assigned to that term in
Section 2.10.3.2.

                  EBITDDA  for any  period  of  determination  shall  mean  with
respect  to any Person the sum of income  from  operations  before the effect of
changes in accounting principles,  nonrecurring charges and extraordinary items,
net interest expense, income taxes, depreciation, 

                                     - 9 -


depletion and amortization  for such period  determined in accordance with GAAP.
For purposes of  calculating  the Fixed Charge  Coverage  Ratio and the Leverage
Ratio:  (i)  EBITDDA  of  Arch  Western  and  its  Subsidiaries,  including  the
Appropriate  Percentage  of  EBITDDA  of Canyon  Fuel,  shall be  assumed  to be
$39,200,000  for the fiscal  quarter ended March 31, 1998,  and (ii) EBITDDA for
Arch Western and its  Subsidiaries,  including  the  Appropriate  Percentage  of
EBITDDA  of  Canyon  Fuel for the  months  of  April  and  May,  1998,  shall be
determined  based upon the results from the  operations  of the business of such
Persons for such months by ARCO as set forth in an income statement with respect
to such months prepared by ARCO and reasonably  acceptable to the Agents,  shall
take into account the $1,000,000 per month reduction in overhead  resulting from
the consummation of the  Acquisition,  shall assume that operating lease expense
of Arch Western and its  Subsidiaries,  including Canyon Fuel, shall be $970,000
per month and shall  assume  that  interest  expense  for such  Persons for such
months shall be zero, with such  calculation of EBITDDA for Arch Western and its
Subsidiaries for such months to be reasonably acceptable to the Agents. Further,
for purposes of  calculating  the Fixed Charge  Coverage  Ratio and the Leverage
Ratio for the fiscal  quarters  ended June 30,  1998,  and  September  30, 1998,
EBITDDA  of  Arch  Western  and  its  Subsidiaries,  including  the  Appropriate
Percentage of EBITDDA of Canyon Fuel,  shall be deemed to be an amount equal to:
(i) for the fiscal  quarter  ended June 30,  1998,  the  product of, (x) without
duplication,  EBITDDA of Arch  Western and its  Subsidiaries  for the two fiscal
quarters then ended determined on a consolidated  basis in accordance with GAAP,
plus the  Appropriate  Percentage of EBITDDA of Canyon Fuel,  for the two fiscal
quarters then ended, determined on a consolidated basis in accordance with GAAP,
multiplied by (y) two (2); and (ii) for the fiscal  quarter ended  September 30,
1998, the product of, (x) without  duplication,  EBITDDA of Arch Western and its
Subsidiaries   for  the  three  fiscal  quarters  then  ended  determined  on  a
consolidated  basis in accordance with GAAP, plus the Appropriate  Percentage of
EBITDDA of Canyon Fuel for the three fiscal quarters then ended  determined on a
consolidated basis in accordance with GAAP, multiplied by (y) four-thirds (4/3).

                  ENVIRONMENTAL CLAIM shall mean any administrative,  regulatory
or judicial action,  suit, claim, notice of non-compliance or violation,  notice
of  liability  or  potential  liability,  proceeding,  consent  order or consent
agreement  relating in any way to any Environmental Law,  Environmental  Permit,
Regulated  Substances or Hazardous  Substances or arising from alleged injury or
threat of injury to the environment.

                  ENVIRONMENTAL  LAW shall  mean any  federal,  state,  local or
foreign statute, law, ordinance, rule, regulation, code, order, judgment, decree
or  judicial  or agency  interpretation,  policy  or  guidance  relating  to the
environment  or  any  release  or  disposal  of or  contamination  by  Hazardous
Substances.

                  ENVIRONMENTAL PERMIT shall mean any permit, approval,  license
or other authorization required under any Environmental Law.

                  ERISA shall mean the Employee  Retirement  Income Security Act
of 1974, as the same may be amended or  supplemented  from time to time, and any
successor statute of similar import,  and the rules and regulations  thereunder,
as from time to time in effect.

                                     - 10 -


                  ERISA GROUP  shall mean,  at any time,  the  Borrower  and all
members of a  controlled  group of  corporations  and all  trades or  businesses
(whether or not incorporated) under common control and all other entities which,
together with the Borrower,  are treated as a single  employer under Section 414
of the Internal Revenue Code.

                  EURO-RATE shall mean, with respect to the Loans comprising any
Borrowing Tranche to which the Euro-Rate Option applies for any Interest Period,
the interest rate per annum determined by the  Administrative  Agent by dividing
(the resulting quotient rounded upward to the nearest 1/100 of 1% per annum) (i)
the rate of interest determined by the Administrative Agent (which determination
shall be  conclusive  absent  manifest  error) to be the  average  of the London
interbank  offered rates of interest per annum for U.S. Dollars set forth on Dow
Jones Market  Service  display  page 3750 or such other  display page on the Dow
Jones Market  Service System as may replace such page to evidence the average of
rates  quoted  by banks  designated  by the  British  Bankers'  Association  (or
appropriate  successor or, if the British Bankers'  Association or its successor
ceases to provide  such  quotes,  a  comparable  replacement  determined  by the
Administrative Agent) at 11:00 a.m. (London time) two (2) Business Days prior to
the first day of such Interest Period for an amount comparable to such Borrowing
Tranche and having a borrowing  date and a maturity  comparable to such Interest
Period by (ii) a number equal to 1.00 minus the  Euro-Rate  Reserve  Percentage.
The Euro-Rate may also be expressed by the following formula:

                  Dow Jones Market Service page 3750 quoted by British Bankers'
      Euro-Rate = ASSOCIATION OR APPROPRIATE SUCCESSOR
                  1.00 - Euro-Rate Reserve Percentage

The Euro-Rate shall be adjusted with respect to any Euro-Rate Option outstanding
on the effective  date of any change in the Euro-Rate  Reserve  Percentage as of
such effective  date. The  Administrative  Agent shall give prompt notice to the
Borrower and the Banks of the  Euro-Rate as determined or adjusted in accordance
herewith, which determination shall be conclusive absent manifest error.

                  EURO-RATE BID LOAN shall mean any Bid Loan that bears interest
under the Bid Loan Euro-Rate Option.

                  EURO-RATE  BID LOAN SPREAD  shall mean the spread  quoted by a
Bank in its Bid to apply to such Bank's Bid Loan if such Bank's Bid is accepted.
The Euro-Rate Bid Loan Spread shall be quoted as a percentage rate per annum and
expressed in multiples of 1/1000 of one  percentage  point to be either added to
(if it is positive) or  subtracted  from (if it is  negative)  the  Euro-Rate in
effect two (2) Business Days before the Borrowing  Date with respect to such Bid
Loan.  Interest on Euro-Rate Bid Loans shall be computed  based on a year of 360
days and actual days elapsed.

                  EURO-RATE  INTEREST  PERIOD  shall  mean the  Interest  Period
applicable to a Loan subject to the Euro-Rate Option.

                                     - 11 -


                  EURO-RATE  OPTION  shall  mean  either  the  Revolving  Credit
Euro-Rate  Option,  the Bid Loan  Euro-Rate  Option or the Term  Loan  Euro-Rate
Option.

                  EURO-RATE RESERVE PERCENTAGE shall mean the maximum percentage
(expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined
by the  Administrative  Agent which is in effect during any relevant period,  as
prescribed  by the Board of  Governors  of the  Federal  Reserve  System (or any
successor) for determining  the reserve  requirements  (including  supplemental,
marginal  and  emergency  reserve  requirements)  with  respect to  eurocurrency
funding (currently  referred to as "Eurocurrency  Liabilities") of a member bank
in such System.

                  EVENT OF DEFAULT  shall mean any of the  events  described  in
Section 8.1 and referred to therein as an "Event of Default."

                  EXCLUDED  SUBSIDIARIES  shall mean,  collectively,  AWAC, Arch
Western and the Subsidiaries of Arch Western.

                  EXISTING CREDIT FACILITY shall mean collectively all interest,
principal,  fees  and  other  amounts  due and  owing  by the  Borrower  and its
Significant  Subsidiaries  under that certain Credit  Agreement by and among the
Borrower, certain of its Subsidiaries, Morgan Guaranty Trust Company of New York
as Documentation and Syndication Agent and PNC Bank,  National  Association,  as
Administrative and Syndication Agent, dated July 1, 1997, as amended,  providing
for a $500,000,000 credit facility.

                  EXPIRATION  DATE shall  mean,  with  respect to the  Revolving
Credit  Commitments  and Swing Loan  Commitment,  and as  applicable  to the Bid
Loans, May 31, 2003.

                  FACILITY FEE shall mean the fee referred to in Section 2.3.

                  FEDERAL FUNDS  EFFECTIVE  RATE for any day shall mean the rate
per annum  (based on a year of 360 days and  actual  days  elapsed  and  rounded
upward to the nearest 1/100 of 1%) announced by the Federal  Reserve Bank of New
York (or any  successor) on such day as being the weighted  average of the rates
on overnight federal funds transactions arranged by federal funds brokers on the
previous trading day, as computed and announced by such Federal Reserve Bank (or
any  successor) in  substantially  the same manner as such Federal  Reserve Bank
computes and announces the weighted  average it refers to as the "Federal  Funds
Effective  Rate" as of the date of this  Agreement;  PROVIDED,  if such  Federal
Reserve  Bank (or its  successor)  does not  announce  such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.

                  FINANCIAL  PROJECTIONS shall have the meaning assigned to that
term in Section 5.1.7(iii).

                  FIXED  CHARGE  COVERAGE  RATIO shall mean the ratio of (a) the
sum, without duplication, of EBITDDA of the Borrower and its Subsidiaries,  plus
the  Appropriate  Percentage  of each Special  Subsidiary's  EBITDDA,  each on a
consolidated  basis in accordance with GAAP, 

                                     - 12 -


plus  operating  lease  expense of the Borrower and its  Subsidiaries,  plus the
Appropriate  Percentage of each Special  Subsidiary's  operating  lease expense,
each on a consolidated basis in accordance with GAAP, to (b) the sum of interest
expense (other than Permitted Loan Origination  Expense) of the Borrower and its
Subsidiaries,  plus the  Appropriate  Percentage  of  interest  expense  of each
Special  Subsidiary,  each on a consolidated basis in accordance with GAAP, plus
operating  lease  expense  of  the  Borrower  and  its  Subsidiaries,  plus  the
Appropriate  Percentage of operating  lease expense of each Special  Subsidiary,
each on a consolidated basis in accordance with GAAP, with the amounts under the
numerator  and  denominator  of such ratio all  calculated as of the last day of
each fiscal quarter for the four fiscal  quarters of the Borrower then ended. It
is assumed that  operating  lease expense of Arch Western and its  Subsidiaries,
including  Canyon Fuel,  shall be $970,000 per month for the months of April and
May,  1998 and that  interest  expense for such Persons for such months shall be
zero. For purposes of calculating the Fixed Charge Coverage Ratio for the fiscal
quarters  ended  June 30,  1998,  September  30,  1998 and  December  31,  1998,
operating  lease  expense of Arch Western and its  Subsidiaries,  including  the
Appropriate  Percentage  of operating  lease  expense of Canyon  Fuel,  shall be
deemed to be an amount equal to: (i) for the fiscal quarter ended June 30, 1998,
the product of, (x) without duplication, operating lease expense of Arch Western
and its  Subsidiaries  for such fiscal quarter  determined and  consolidated  in
accordance with GAAP, plus the Appropriate Percentage of operating lease expense
of Canyon Fuel for such  fiscal  quarter  determined  in  accordance  with GAAP,
multiplied  by (y) four (4);  (ii) for the fiscal  quarter  ended  September 30,
1998, the product of, (x) without  duplication,  operating lease expense of Arch
Western and its  Subsidiaries  for the two fiscal quarters then ended determined
and  consolidated in accordance  with GAAP,  plus the Appropriate  Percentage of
operating  lease  expense of Canyon Fuel for the two fiscal  quarters then ended
determined in accordance with GAAP, multiplied by (y) two (2); and (iii) for the
fiscal quarter ended December 31, 1998, the product of, (x) without duplication,
operating  lease  expense of Arch  Western  and its  Subsidiaries  for the three
fiscal quarters then ended  determined and consolidated in accordance with GAAP,
plus the  Appropriate  Percentage of operating  lease expense of Canyon Fuel for
the three  fiscal  quarters  then  ended  determined  in  accordance  with GAAP,
multiplied  by (y)  four-thirds  (4/3).  For purposes of  calculating  the Fixed
Charge Coverage Ratio for the fiscal quarters ended June 30, 1998, September 30,
1998  and  December  31,  1998,   interest  expense  of  Arch  Western  and  its
Subsidiaries, including the Appropriate Percentage of interest expense of Canyon
Fuel, shall be deemed to be an amount equal to: (i) for the fiscal quarter ended
June 30, 1998, the product of, (x) without duplication, interest expense of Arch
Western and its Subsidiaries for such fiscal quarter determined and consolidated
in accordance with GAAP, plus the Appropriate  Percentage of interest expense of
Canyon  Fuel for  such  fiscal  quarter  determined  in  accordance  with  GAAP,
multiplied  by (y) four (4);  (ii) for the fiscal  quarter  ended  September 30,
1998, the product of, (x) without duplication,  interest expense of Arch Western
and its  Subsidiaries  for the two fiscal  quarters  then ended  determined  and
consolidated  in  accordance  with  GAAP,  plus the  Appropriate  Percentage  of
interest  expense  of  Canyon  Fuel  for  the two  fiscal  quarters  then  ended
determined in accordance with GAAP, multiplied by (y) two (2); and (iii) for the
fiscal quarter ended December 31, 1998, the product of, (x) without duplication,
interest  expense of Arch  Western  and its  Subsidiaries  for the three  fiscal
quarters then ended  determined and  consolidated  in accordance with GAAP, plus
the  Appropriate  Percentage  of  interest  expense of Canyon Fuel for 

                                     - 13 -


the three  fiscal  quarters  then  ended  determined  in  accordance  with GAAP,
multiplied by (y) four-thirds (4/3).

                  FIXED RATE shall mean a fixed  interest  rate quoted by a Bank
in its Bid to apply to such  Bank's  Bid Loan  over the term of such Bid Loan if
such Bank's Bid is accepted.

                  FIXED RATE BID LOAN shall mean a Bid Loan that bears  interest
under the Bid Loan Fixed Rate Option.

                  GAAP shall mean Generally  Accepted  Accounting  Principles as
are in effect from time to time,  subject to the  provisions of Section 1.3, and
applied on a consistent basis both as to classification of items and amounts.

                  GOVERNMENTAL ACTS shall have the meaning assigned to that term
in Section 2.10.8.

                  GUARANTOR  shall  mean at any  time  each  of the  Significant
Subsidiaries of the Borrower.

                  GUARANTOR  JOINDER  shall  mean a  joinder  by a  Person  as a
Guarantor  under the Guarantor  Joinder and Assumption  Agreement in the form of
EXHIBIT 1.1(G)(1).

                  GUARANTY  of any  Person  shall  mean any  obligation  of such
Person guaranteeing or in effect guaranteeing any liability or obligation of any
other Person in any manner,  whether directly or indirectly,  including any such
liability arising by virtue of partnership  agreements,  including any agreement
to indemnify or hold harmless any other Person,  any  performance  bond or other
suretyship  arrangement  and any other form of assurance  against  loss,  except
endorsement of negotiable or other  instruments for deposit or collection in the
ordinary course of business.

                  GUARANTY  AGREEMENT  shall mean the  Continuing  Guaranty  and
Suretyship Agreement in substantially the form of EXHIBIT 1.1(G)(2) executed and
delivered by each of the Guarantors to the Administrative  Agent for the benefit
of the Banks.

                  HAZARDOUS   SUBSTANCES  shall  mean  petroleum  and  petroleum
products,    byproducts   or   breakdown   products,    radioactive   materials,
asbestos-containing  materials,  radon  gas and any  hazardous  or solid  waste,
hazardous substance or chemical  substance,  as such terms are defined under the
Resource  Conservation  and Recovery Act (42 U.S.C.  Sections 4901 et seq.), the
Comprehensive Environmental Response,  Compensation and Liability Act (42 U.S.C.
Sections 9601 et seq.),  the Toxic  Substances  Control Act (15 U.S.C.  Sections
2601 et seq.) or any similar state law.

                  HISTORICAL  STATEMENTS shall have the meaning assigned to that
term in Section 5.1.7(i).

                                     - 14 -


                  INDEBTEDNESS shall mean, as to any Person at any time, any and
all  indebtedness,  obligations  or liabilities  (whether  matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or  several)  of such  Person for or in respect  of: (i)  borrowed  money,  (ii)
amounts  raised  under  or  liabilities  in  respect  of any  note  purchase  or
acceptance  credit  facility,  (iii)  reimbursement  obligations  (contingent or
otherwise)  under any letter of credit,  (iv) any other  transaction  (including
production  payments (excluding  royalties),  installment  purchase  agreements,
forward sale or purchase  agreements,  capitalized  leases and conditional sales
agreements) having the commercial effect of a borrowing of money entered into by
such Person to finance its operations or capital requirements (but not including
trade payables and accrued expenses  incurred in the ordinary course of business
which are not represented by a promissory note or other evidence of indebtedness
and which are not more than thirty (30) days past due),  or (v) any  Guaranty of
any such Indebtedness.  It is understood that Derivatives  Obligations shall not
be deemed to be Indebtedness.

                  INELIGIBLE  SECURITY  shall mean any security which may not be
underwritten  or dealt in by member  banks of the Federal  Reserve  System under
Section  16 of the  Banking  Act of 1933 (12 U.S.C.  Section  24,  Seventh),  as
amended.

                  INITIAL ANNUAL  STATEMENTS AND  COMPLIANCE  CERTIFICATE  shall
mean collectively with respect to the fiscal year of the Borrower ended December
31, 1998, the annual  financial  statements of the Borrower and its Subsidiaries
consisting of the unaudited  consolidated and consolidating  balance sheet as of
the end of such fiscal year, related  consolidated and consolidating  statements
of income and stockholders'  equity and related  consolidated  statement of cash
flows for the fiscal year then ended,  together with the duly  executed  related
compliance  certificate required to be delivered to the Administrative Agent and
the Banks  pursuant to Section  7.3.3.  It is  acknowledged  and agreed that the
Initial Annual Statements and Compliance  Certificate are to be delivered by the
Borrower for purposes of calculating  the Leverage Ratio as of December 31, 1998
in order to determine the Applicable  Margin,  the Applicable  Facility Fee Rate
and the Applicable Letter of Credit Fee Ratio.  Notwithstanding  the delivery of
the Initial Annual  Statements and  Compliance  Certificate,  the Borrower shall
still be required to comply with the provisions of Section 7.3.2 and deliver the
audited  financial  statements  required  thereby,  together  with  the  related
Compliance Certificate required to be delivered under Section 7.3.3.

                  INITIAL  DELIVERY  DATE  shall  mean  the  date  the  Borrower
delivers to the Administrative Agent and the Banks the Initial Annual Statements
and Compliance Certificate.

                  INSOLVENCY  PROCEEDING shall mean, with respect to any Person,
(a) a case,  action or  proceeding  with  respect to such  Person (i) before any
court  or  any  other   Official   Body   under  any   bankruptcy,   insolvency,
reorganization  or other similar Law now or hereafter in effect, or (ii) for the
appointment   of  a  receiver,   liquidator,   assignee,   custodian,   trustee,
sequestrator,  conservator (or similar  official) of any Loan Party or otherwise
relating to the liquidation,  dissolution,  winding-up or relief of such Person,
or (b)  any  general  assignment  for the  benefit  of  creditors,  composition,
marshaling of assets for creditors,  or other, similar arrangement in respect of
such Person's creditors  generally or any substantial  portion of its creditors,
undertaken under any Law.

                                     - 15 -


                  INTEREST  PERIOD shall mean either a Committed  Loan  Interest
Period or a Bid Loan Interest Period.

                  INTEREST RATE OPTION shall mean any Revolving Credit Euro-Rate
Option,  Term Loan Euro-Rate Option,  Bid Loan Euro-Rate Option,  Bid Loan Fixed
Rate Option,  Term Loan Base Rate Option,  Revolving  Credit Base Rate Option or
Offered Rate Option.

                  INTERIM  STATEMENTS  shall have the  meaning  assigned to that
term in Section 5.1.7(i).

                  INTERNAL  REVENUE CODE shall mean the Internal Revenue Code of
1986,  as the same may be amended  or  supplemented  from time to time,  and any
successor statute of similar import,  and the rules and regulations  thereunder,
as from time to time in effect.

                  INVESTMENT  GRADE  shall  mean the  rating  of the  Borrower's
senior unsecured  long-term debt, on a consolidated  basis, of BBB- or better by
Standard & Poor's AND Baa3 or better by Moody's.

                  INVESTMENTS  shall mean collectively all of the following with
respect to any  Person:  (i)  investments  or  contributions  by any of the Loan
Parties or their Subsidiaries  directly or indirectly in or to the capital of or
other payments to (except in connection with  transactions for the sale of goods
or services for fair value in the ordinary course of business) such Person, (ii)
loans by any of the Loan Parties or their  Subsidiaries  to such  Person,  (iii)
guaranties  by any Loan Party or any  Subsidiary  of any Loan Party  directly or
indirectly  of the  obligations  of  such  Person,  or (iv)  other  obligations,
contingent or otherwise,  of any Loan Party or any  Subsidiary of any Loan Party
to or for the benefit of such Person. If the nature of an Investment is tangible
property then the amount of such Investment  shall be determined by valuing such
property at fair value in accordance  with the past practice of the Loan Parties
and such fair values shall be satisfactory to the  Administrative  Agent, in its
sole discretion.

                  ISSUING BANKS shall mean,  with respect to a Letter of Credit,
including any replacements therefor or extensions thereof, PNC Bank or any other
Bank  which  shall have  consented  to its  designation  by the  Borrower  as an
"Issuing Bank" by providing prior written notice of such designation and consent
to the Administrative Agent.

                  LABOR   CONTRACTS   shall  mean  all  employment   agreements,
employment  contracts,  collective  bargaining  agreements and other  agreements
among any Loan Party or Subsidiary of a Loan Party and its employees.

                  LAW shall mean any law (including  common law),  constitution,
statute, treaty, regulation,  rule, ordinance,  opinion, release, ruling, order,
injunction, writ, decree or award of any Official Body.

                  LENDER shall mean each of the Banks and each of the Designated
Lenders.

                                     - 16 -


                  LETTER OF CREDIT shall have the meaning  assigned to that term
in Section 2.10.1.

                  LETTER OF CREDIT FEE shall have the  meaning  assigned to that
term in Section 2.10.2.

                  LETTERS OF CREDIT  OUTSTANDING  shall mean at any time the sum
of (i) the aggregate  undrawn face amount of  outstanding  Letters of Credit and
(ii)  the  aggregate   amount  of  all  unpaid  and  outstanding   Reimbursement
Obligations.

                  LEVERAGE  RATIO  shall  mean the ratio of the sum of,  without
duplication,  Debt of the Borrower and its  Subsidiaries,  plus the  Appropriate
Percentage of Debt of each Special  Subsidiary,  each on a consolidated basis in
accordance  with GAAP (as the  numerator)  to  EBITDDA of the  Borrower  and its
Subsidiaries,  plus the  Appropriate  Percentage  of each  Special  Subsidiary's
EBITDDA,  each  on  a  consolidated  basis  in  accordance  with  GAAP  (as  the
denominator).  For purposes of  calculating  the Leverage  Ratio,  Debt shall be
determined  as of the end of each  fiscal  quarter of the  Borrower  and EBITDDA
shall be determined as of the end of each fiscal quarter of the Borrower for the
four fiscal quarters then ended.

                  LIEN shall mean any  mortgage,  deed of trust,  pledge,  lien,
security  interest,  charge or other encumbrance or security  arrangement of any
nature whatsoever,  whether  voluntarily or involuntarily  given,  including any
conditional  sale or title retention  arrangement,  and any assignment,  deposit
arrangement  or lease  intended  as, or having the effect of,  security  and any
filed  financing  statement or other notice of any of the foregoing  (whether or
not a lien or other encumbrance is created or exists at the time of the filing).

                  LLC AGREEMENTS  shall mean  collectively  the Arch Western LLC
Agreement,  Canyon Fuel LLC  Agreement,  Mountain  Coal LLC  Agreement,  Arch of
Wyoming LLC  Agreement,  AU Sub LLC  Agreement,  State Leases LLC  Agreement and
Thunder Basin LLC Agreement.

                  LLC  INTERESTS  shall have the  meaning  given to such term in
Section 5.1.2.

                  LOAN DOCUMENTS shall mean this Agreement,  the  Administrative
Agent's Letter,  the Guaranty  Agreement,  the Notes, and any other instruments,
certificates or documents delivered or contemplated to be delivered hereunder or
thereunder  or  in  connection  herewith  or  therewith,  as  the  same  may  be
supplemented  or amended from time to time in accordance  herewith or therewith,
and Loan Document shall mean any of the Loan Documents.

                  LOAN PARTIES shall mean the Borrower and the Guarantors.

                  LOAN  REQUEST  shall  mean  either  a Bid  Loan  Request  or a
Committed Loan Request.

                                     - 17 -


                  LOANS shall mean  collectively  and Loan shall mean separately
all  Revolving  Credit  Loans,  Term  Loans,  Swing  Loans  and Bid Loans or any
Revolving Credit Loan, Term Loan, Swing Loan or Bid Loan.

                  MANDATORY  PREPAYMENT  shall have the meaning assigned to such
term in Section 4.4.5.

                  MATERIAL ADVERSE CHANGE shall mean any set of circumstances or
events  which  (a) has or could  reasonably  be  expected  to have any  material
adverse effect  whatsoever upon the validity or enforceability of this Agreement
or any  other  Loan  Document,  (b) is or could  reasonably  be  expected  to be
materially adverse to the business, financial condition or results of operations
of the Borrower and its Subsidiaries taken as a whole, or (c) impairs materially
or could reasonably be expected to impair materially the ability of any Agent or
any of the Lenders,  to the extent  permitted,  to enforce their legal  remedies
pursuant to this Agreement or any other Loan Document.

                  MATERIAL   CONTRACTS   shall   mean   collectively:   (i)  the
Acquisition Documents, (ii) all other contracts, agreements or other instruments
described  in  Regulation  S-K,  Item  601(b)(10)  promulgated  pursuant  to the
Securities  Exchange Act of 1934, as amended,  which the Borrower is required to
file as an exhibit to any annual, quarterly or other report required to be filed
by the Borrower under the Securities Exchange Act of 1934, as amended, and (iii)
all coal supply  agreements or contracts  (or related coal supply  agreements or
contracts)  under  which the  Borrower  or any  Subsidiary  of the  Borrower  is
required,  over the  remaining  term of such  agreement  or  contract  as of the
Closing Date, to deliver one million (1,000,000) tons or more of coal.

                  MATERIAL  SUBSIDIARY  shall mean any  Subsidiary  of  Borrower
which at any time (i) has gross  revenues  equal to or in excess of five percent
(5%)  of  the  gross  revenues  of  the  Borrower  and  its  Subsidiaries  on  a
consolidated  basis,  or (ii) has  total  assets  equal to or in  excess of five
percent (5%) of the total assets of the Borrower and its Subsidiaries, in either
case, as determined and consolidated in accordance with GAAP.

                  MONTH,  with respect to an Interest Period under the Euro-Rate
Option,  shall mean the interval between the days in consecutive calendar months
numerically  corresponding  to the first  day of such  Interest  Period.  If any
Interest Period for any Loan subject to a Euro-Rate  Option begins on a day of a
calendar month for which there is no numerically  corresponding day in the month
in which such Interest Period is to end, the final month of such Interest Period
shall be deemed to end on the last Business Day of such final month.

                  MOODY'S shall mean Moody's  Investors  Service,  Inc., and its
successors.

                  MORGAN shall mean Morgan Guaranty Trust Company of New York.

                  MOUNTAIN  COAL LLC AGREEMENT  shall mean that certain  Limited
Liability Company Agreement,  dated as of March 6, 1998, as amended, of Mountain
Coal Company,  

                                     - 18 -


L.L.C., a limited liability company organized and existing under the laws of the
State of Delaware..

                  MULTIEMPLOYER  PLAN shall mean any employee benefit plan which
is a "multiemployer  plan" within the meaning of Section 4001(a)(3) of ERISA and
to which  the  Borrower  or any  member  of the  ERISA  Group is then  making or
accruing an obligation to make  contributions or, within the preceding five Plan
years, has made or had an obligation to make such contributions.

                  MULTIPLE EMPLOYER PLAN shall mean a Plan which has two or more
contributing  sponsors (including the Borrower or any member of the ERISA Group)
at least two of whom are not under common  control,  as such a plan is described
in Sections 4063 and 4064 of ERISA.

                  NET CASH PROCEEDS shall mean, with respect to any transaction,
an amount  equal to the cash  proceeds  received  by the  Borrower or any of its
Subsidiaries  (other  than  Excluded  Subsidiaries)  from or in  respect of such
transaction  (including,  when received, any cash proceeds received as income or
other cash proceeds of any non-cash proceeds of such transaction),  less (x) any
expenses  or charges  (including  commissions,  fees and taxes paid or  payable)
reasonably  incurred  by such  Person in  respect of such  transaction,  (y) any
amounts considered appropriate by the chief financial officer of the Borrower to
provide  reserves  in  accordance  with  GAAP  for  payment  of  indemnities  or
liabilities  that may be incurred in connection  with such sale or  disposition,
and (z) in the case of any asset sale permitted by Section 7.2.4(v),  the amount
of any debt  secured by a Lien on the related  asset and  discharged  as part of
such asset sale.  For purposes of this  definition,  if taxes or other  expenses
payable in connection  with the sale or other  disposition  of any asset are not
known  as of the  date of such  sale  or  other  disposition,  then  such  fees,
commissions,  expenses  or taxes shall be  estimated  in good faith by the chief
financial  officer of the Borrower and such estimated amounts shall be deducted.
At such time as any reserved  amount  described in clause (y) above is no longer
required  to be held in  reserve,  the  balance  thereof,  after  payment of the
related liabilities or indemnities, shall be used to make a mandatory prepayment
of the Term Loans in accordance with Section 4.4.6.

                  NOTES shall mean the Revolving Credit Notes, Term Notes, Swing
Loan Notes and Bid Notes, if any.

                  NOTICES  shall  have  the  meaning  assigned  to that  term in
Section 10.6.

                  OBLIGATION  shall mean any  obligation  or liability of any of
the Loan Parties to any Agent or any of the Lenders,  howsoever created, arising
or  evidenced,  whether  direct or  indirect,  absolute  or  contingent,  now or
hereafter  existing,  or due or to become due, under or in connection  with this
Agreement,  any Notes, the Letters of Credit, the Administrative  Agent's Letter
or any other Loan Document.

                  OFFERED AMOUNT shall have the meaning assigned to such term in
Section 2.9.2.

                                     - 19 -


                  OFFERED  RATE OPTION  shall mean the rate of  interest  quoted
from time to time by the  Administrative  Agent to the  Borrower and accepted by
the Borrower with respect to a Swing Loan.

                  OFFICIAL BODY shall mean any national,  federal,  state, local
or other government or political subdivision or any agency,  authority,  bureau,
central bank, commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.

                  PARTNERSHIP  INTERESTS  shall have the  meaning  given to such
term in Section 5.1.2.

                  PBGC  shall  mean the  Pension  Benefit  Guaranty  Corporation
established pursuant to Subtitle A of Title IV of ERISA or any successor.

                  PERMITTED ACQUISITIONS shall have the meaning assigned to such
term in Section 7.2.3.

                  PERMITTED INVESTMENTS shall mean:

                  (i)   Direct obligations  of  the  United States of America or
any agency or  instrumentality  thereof or obligations  backed by the full faith
and credit of the United  States of America  maturing  in twelve  (12) months or
less from the date of acquisition;

                  (ii)  Commercial  paper maturing in 180 days or less rated not
lower  than  A-1 by  Standard  &  Poor's  or  P-1 by  Moody's  on  the  date  of
acquisition; and

                  (iii) Demand  deposits,  time   deposits  or  certificates  of
deposit  maturing  within one year in a commercial  bank whose  obligations  are
rated A-1,  A or the  equivalent  or better by  Standard & Poor's on the date of
determination.

                  PERMITTED  INVESTMENTS  IN ARCH WESTERN shall have the meaning
assigned to that term in Section 7.2.14(v).

                  PERMITTED JOINT VENTURE shall mean any Person (i) with respect
to which the  ownership  of equity  interests  thereof  by the  Borrower  or any
Subsidiary  of the  Borrower is  accounted  for in  accordance  with the "equity
method" in accordance with GAAP; (ii) engaged in a line of business permitted by
Section 7.2.7 [Continuation of or Change in Business]; and (iii) with respect to
which the equity  interests  thereof were acquired by the Borrower or Subsidiary
of the Borrower in an  arms-length  transaction;  provided  that any such Person
shall be treated  for  purposes  of this  Agreement  as a  Subsidiary  and not a
Permitted  Joint  Venture if (A) the  Borrower has  management  control over the
operations  of such Person and (B) the Borrower  owns  directly or  indirectly a
majority of the economic equity interest in such Person.

                                     - 20 -


                  PERMITTED LIENS shall mean:

                  (i)   Liens   for  taxes,  assessments,  or  similar  charges,
incurred  in the  ordinary  course  of  business  and  which are not yet due and
payable;

                  (ii)  Pledges  or  deposits  made in the  ordinary  course  of
business to secure payment of reclamation liabilities, worker's compensation, or
to   participate  in  any  fund  in  connection   with  worker's   compensation,
unemployment insurance, old-age pensions or other social security programs;

                  (iii) Liens of mechanics, materialmen, warehousemen, carriers,
or other like Liens,  securing  obligations  incurred in the ordinary  course of
business  that  are not yet due and  payable  and  Liens of  landlords  securing
obligations  to pay  lease  payments  that  are not yet  due and  payable  or in
default;

                  (iv)  Good-faith  pledges  or  deposits  made in the  ordinary
course of  business  to  secure  performance  of bids  (including  bonus  bids),
tenders,  contracts  (other than for the repayment of borrowed money) or leases,
not in excess of the aggregate  amount due  thereunder,  or to secure  statutory
obligations,  or surety, appeal,  indemnity,  performance or other similar bonds
required in the ordinary course of business (it being understood that any appeal
or similar bond (other than such a bond required  pursuant to applicable  Law to
secure in the  ordinary  course  payment of worker's  compensation,  reclamation
liabilities or royalty bonds) in an amount exceeding $50,000,000 shall not be in
the ordinary course of business);

                  (v)   Encumbrances   consisting    of   zoning   restrictions,
easements  or  other  restrictions  on the use of real  property,  none of which
materially  impairs the use of such property or the value  thereof,  and none of
which is violated in any material respect by existing or proposed  structures or
land use;

                  (vi)  Liens on property leased by any Loan Party or Subsidiary
of a Loan Party under capital or operating leases (in either case, as the nature
of such lease is determined in accordance  with GAAP)  securing  obligations  of
such Loan Party or Subsidiary to the lessor under such leases;

                  (vii)  Purchase Money Security Interests;

                  (viii) The following, (A) if the validity or amount thereof is
being contested in good faith by appropriate and lawful  proceedings  diligently
conducted so long as levy and execution thereon have been stayed and continue to
be stayed or (B) if a final  judgment is entered and such judgment is discharged
within thirty (30) days of entry,  and they do not in the  aggregate  materially
impair  the  ability  of any  member  of the  Arch  Coal  Group to  perform  its
Obligations hereunder or under the other Loan Documents:

                         (1)  Claims or Liens for taxes, assessments  or charges
            due and payable and  subject to interest or penalty,  provided  that
            the applicable member of the Arch Coal Group maintains such reserves
            or other appropriate provisions as

                                     - 21 -


            shall be required by GAAP and pays all such  taxes,  assessments  or
            charges  forthwith upon the commencement of proceedings to foreclose
            any such Lien;

                        (2)  Claims, Liens or encumbrances  upon, and defects of
            title to, real or personal  property,  including  any  attachment of
            personal  or  real   property  or  other  legal   process  prior  to
            adjudication of a dispute on the merits;

                        (3)  Claims   or   Liens  of   mechanics,   materialmen,
            warehousemen, carriers, or other statutory nonconsensual Liens; or

                        (4)  Liens resulting from judgments or orders  described
            in Section 8.1.6;

                  (xi)  any Lien or restriction resulting from ownership,  by an
entity other than an Affiliate of the Borrower, of a minority interest in Canyon
Fuel: and

                  (xii) the pledge by Coal-Mac,  Inc. and Ashland Terminal, Inc.
of their respective  partnership  interests in Dominion  Terminal  Associates in
connection with the Port Bond.

                  PERMITTED  LOAN  ORIGINATION  EXPENSE shall mean the aggregate
amount of all fees and expenses  incurred by the Borrower in connection with the
closing of the  transactions  under this  Agreement  and under the Arch  Western
Credit Facility which are required to be capitalized in accordance with GAAP.

                  PERSON shall mean any  individual,  corporation,  partnership,
limited   liability   company,   association,    joint-stock   company,   trust,
unincorporated organization,  joint venture, government or political subdivision
or agency thereof, or any other entity.

                  PLAN shall mean at any time an employee  pension  benefit plan
(including a Multiple  Employer  Plan,  but not a  Multiemployer  Plan) which is
covered  by Title IV of ERISA or is  subject to the  minimum  funding  standards
under  Section 412 of the Internal  Revenue Code and either (i) is maintained by
any member of the ERISA Group for  employees of any member of the ERISA Group or
(ii) has at any time  within the  preceding  five years been  maintained  by any
entity  which was at such time a member of the ERISA Group for  employees of any
entity which was at such time a member of the ERISA Group.

                  PNC  BANK  shall  mean PNC  Bank,  National  Association,  its
successors and assigns.

                  PORT BOND shall mean collectively, those certain Coal Terminal
Revenue Refunding Bonds (Dominion Terminal Associates  Project),  Series 1987-A,
B, C and D Bonds issued by Peninsula  Ports  Authority of Virginia,  a political
subdivision of the Commonwealth of Virginia,  in the face amount of $23,240,000,
together with any renewals thereof or replacements  therefor so long as the face
amount thereof is not in excess of $23,240,000.

                                     - 22 -


                  POTENTIAL DEFAULT shall mean any event or condition which with
notice,  passage of time or a determination by the  Administrative  Agent or the
Required Banks, or any combination of the foregoing,  would  constitute an Event
of Default.

                  PRINCIPAL  OFFICE  shall mean the main  banking  office of the
Administrative Agent in Pittsburgh, Pennsylvania.

                  PROHIBITED  TRANSACTION shall mean any prohibited  transaction
as defined in Section 4975 of the Internal  Revenue Code or Section 406 of ERISA
for which  neither an  individual  nor a class  exemption has been issued by the
United States Department of Labor.

                  PROPERTY shall mean all real property,  both owned and leased,
of any Loan Party or Subsidiary of a Loan Party.

                  PURCHASE  AGREEMENT shall mean that certain  Purchase and Sale
Agreement  among ARCO,  ARCO Uinta Coal  Company,  a Delaware  corporation,  the
Borrower and AWAC,  dated as of March 22, 1998,  together with all schedules and
exhibits thereto.

                  PURCHASE  MONEY  SECURITY   INTEREST  shall  mean  Liens  upon
tangible  personal  property securing loans to any Loan Party or Subsidiary of a
Loan  Party or  deferred  payments  by such  Loan  Party or  Subsidiary  for the
purchase of such tangible personal property.

                  PURCHASING  BANK shall  mean a Bank  which  becomes a party to
this Agreement by executing an Assignment and Assumption Agreement.

                  REGULATED SUBSTANCES shall mean any substance, the generation,
manufacture, extraction, processing, distribution, treatment, storage, disposal,
transport,  recycling,  reclamation,  use, reuse,  spilling,  leaking,  dumping,
injection,  pumping,  leaching,  emptying,  discharge,  escape, release or other
management or  mismanagement  of which is regulated by the  Environmental  Laws.
REGULATION  U shall mean  Regulation  U, T or X as  promulgated  by the Board of
Governors of the Federal Reserve System, as amended from time to time.

                  REIMBURSEMENT  OBLIGATION  shall have the meaning  assigned to
such term in Section 2.10.3.2.

                  REPLACEMENT  SALES CERTIFICATE shall HAVE THE MEANING ASSIGNED
TO SUCH TERM IN SECTION 7.2.4 (III).

                  REPORTABLE  EVENT shall mean a reportable  event  described in
Section  4043 of ERISA and  regulations  thereunder  with  respect  to a Plan or
Multiemployer Plan.

                  REQUESTED  AMOUNT shall have the meaning assigned to such term
in Section 2.9.1.

                                     - 23 -


                  REQUIRED BANKS shall mean

                  (A)  if  there  are  no  Loans  or  Reimbursement  Obligations
outstanding,  Required Banks shall mean Banks whose  Commitments  (excluding the
Swing Loan Commitment) aggregate at least 51% of the Commitments  (excluding the
Swing Loan Commitment) of all of the Banks, or

                  (B)  if  there   are   Loans  or   Reimbursement   Obligations
outstanding,  and the Revolving Credit  Commitments  remain in effect,  Required
Banks shall mean any Bank or group of Banks if the sum of the  principal  amount
of the Term Loans then  outstanding  and Revolving  Credit  Commitments  of such
Banks aggregates at least 51% of the sum of the total principal amount of all of
the Term Loans then outstanding plus the aggregate Revolving Credit Commitments,
or

                  (C)  if  there   are   Loans  or   Reimbursement   Obligations
outstanding  but the Revolving  Credit  Commitments  no longer remain in effect,
Required Banks shall mean any Bank or group of Banks if the sum of the principal
amount  of the Loans  and  Revolving  Credit  Ratable  Shares  of  Reimbursement
Obligations  then outstanding of such Banks aggregate at least 51% of the sum of
the total  principal  amount of all Loans then  outstanding  plus the  aggregate
principal amount of all Reimbursements Obligations then outstanding.

                  REQUIRED SHARE shall have the meaning assigned to such term in
Section 4.7.

                  REVOLVING CREDIT BASE RATE OPTION shall mean the option of the
Borrower to have Revolving  Credit Loans bear interest at the rate and under the
terms and conditions set forth in Section 3.1.1(a)(i).

                  REVOLVING CREDIT  COMMITMENT shall mean, as to any Bank at any
time, the amount initially set forth opposite its name on SCHEDULE 1.1(B) in the
column labeled "Amount of Commitment for Revolving Credit Loans," and thereafter
on Schedule I to the most recent Assignment and Assumption Agreement executed by
such Bank, and Revolving Credit  Commitments shall mean the aggregate  Revolving
Credit Commitments of all of the Banks.

                  REVOLVING CREDIT EURO-RATE OPTION shall mean the option of the
Borrower to have Revolving  Credit Loans bear interest at the rate and under the
terms and conditions set forth in Section 3.1.1(a)(ii).

                  REVOLVING  CREDIT LOANS shall mean  collectively and Revolving
Credit Loan shall mean  separately  all Revolving  Credit Loans or any Revolving
Credit  Loan made by the Banks or one of the Banks to the  Borrower  pursuant to
Section 2.1 or 2.10.3. A Bid Loan is not a Revolving Credit Loan, except that it
will be treated as a  Revolving  Credit  Loan  following  a  termination  of the
Commitments  hereunder pursuant to Section 8.2.1 or 8.2.2 as provided in Section
8.3.

                                     - 24 -


                  REVOLVING  CREDIT NOTE shall mean any Revolving Credit Note of
the Borrower in the form of EXHIBIT 1.1(R) issued by the Borrower at the request
of a Bank pursuant to Section 4.6 evidencing the Revolving  Credit Loans to such
Bank,  together  with  all  amendments,   extensions,   renewals,  replacements,
refinancings or refundings thereof in whole or in part.

                  REVOLVING  CREDIT RATABLE SHARE shall mean the proportion that
a Bank's Revolving Credit Commitment (excluding the Swing Loan Commitment) bears
to the Revolving Credit  Commitments  (excluding the Swing Loan  Commitments) of
all of the Banks.

                  REVOLVING FACILITY USAGE shall mean at any time the sum of the
Revolving Credit Loans outstanding,  the Bid Loans outstanding,  the Swing Loans
outstanding and the Letters of Credit Outstanding.

                  SEC shall mean the Securities  and Exchange  Commission or any
governmental agencies substituted therefor.

                  SETTLEMENT  DATE  shall  mean each  Business  Day on which the
Administrative Agent effects settlement pursuant to Section 4.7.

                  SIGNIFICANT  SUBSIDIARY  shall mean any Subsidiary of Borrower
(other than the Excluded  Subsidiaries) which at any time (i) has gross revenues
equal to or in excess of five percent (5%) of the gross revenues of the Borrower
and its Subsidiaries on a consolidated  basis, or (ii) has total assets equal to
or in excess of five  percent  (5%) of the total  assets of the Borrower and its
Subsidiaries,  in either case, as determined and consolidated in accordance with
GAAP.

                  SOLVENT shall mean, with respect to any Person on a particular
date,  that on such date (i) the fair value of the  property  of such  Person is
greater than the total amount of  liabilities,  including,  without  limitation,
contingent  liabilities,  of such Person, (ii) the present fair salable value of
the assets of such  Person is not less than the amount  that will be required to
pay the probable  liability of such Person on its debts as they become  absolute
and  matured,  (iii) such Person is able to realize  upon its assets and pay its
debts and other  liabilities,  contingent  obligations and other  commitments as
they mature in the normal  course of business,  (iv) such Person does not intend
to, and does not believe that it will,  incur debts or  liabilities  beyond such
Person's  ability  to pay as such  debts and  liabilities  mature,  and (v) such
Person is not engaged in business or a  transaction,  and is not about to engage
in business or a transaction,  for which such Person's property would constitute
unreasonably  small capital  after giving due  consideration  to the  prevailing
practice  in the  industry in which such Person is  engaged.  In  computing  the
amount  of  contingent  liabilities  at  any  time,  it is  intended  that  such
liabilities  will be computed at the amount which, in light of all the facts and
circumstances  existing at such time,  represents the amount that can reasonably
be expected to become an actual or matured liability.

                  SPECIAL  SUBSIDIARY  shall  mean  Canyon  Fuel and each  other
Person to be treated  as a  Subsidiary  in  accordance  with the  proviso to the
definition of Permitted Joint Venture.

                                     - 25 -


                  STANDARD  &  POOR'S  shall  mean  Standard  &  Poor's  Ratings
Services, a division of The McGraw-Hill Companies, Inc., and its successors.

                  STANDBY  LETTER OF CREDIT shall mean a Letter of Credit issued
to support  obligations of one or more Persons,  contingent or otherwise,  which
finance the working  capital and business needs of such Persons  incurred in the
ordinary course of business.

                  STATE LEASES LLC  AGREEMENT  shall mean that  certain  Limited
Liability  Company  Agreement,  dated as of April 8, 1998, as amended,  of State
Leases LLC, a limited liability company organized and existing under the laws of
the State of Delaware.

                  SUBSIDIARY  of any  Person  at any  time  shall  mean  (i) any
corporation  or trust of which  more than 50% (by  number of shares or number of
votes)  of the  outstanding  capital  stock or  shares  of  beneficial  interest
normally  entitled to vote for the election of one or more directors or trustees
(regardless  of any  contingency  which does or may suspend or dilute the voting
rights) is at such time owned  directly or  indirectly  by such Person or one or
more of such Person's Subsidiaries, (ii) any partnership of which such Person is
a general partner or of which more than 50% of the  partnership  interests is at
the time  directly  or  indirectly  owned by such  Person or one or more of such
Person's Subsidiaries,  (iii) any limited liability company of which such Person
is a member or of which more than 50% of the limited liability company interests
is at the time  directly  or  indirectly  owned by such Person or one or more of
such Person's Subsidiaries or (iv) any corporation, trust, partnership,  limited
liability  company  or other  entity  which is  controlled  or  capable of being
controlled  by such Person or one or more of such Person's  Subsidiaries.  It is
expressly agreed that each Special Subsidiary shall be deemed to be a Subsidiary
of the Borrower for the purposes of this Agreement. Nonetheless, the Appropriate
Percentage of the assets,  income,  expenses,  liabilities  and other items with
respect to each Special Subsidiary shall be included for purposes of calculating
the Leverage  Ratio,  the Fixed Charge  Coverage  Ratio and inclusion in Section
7.2.9 [OFF-BALANCE SHEET FINANCING],  as described more fully in the definitions
of "EBITDDA," "Leverage Ratio," "Fixed Charge Coverage Ratio" and Section 7.2.9.

                  SUBSIDIARY SHARES shall have the meaning assigned to that term
in Section 5.1.2.

                  SWING LOAN COMMITMENT shall mean PNC Bank's commitment to make
Swing Loans to the Borrower  pursuant to Section 2.4.2  hereof,  in an aggregate
principal amount up to $50,000,000.

                  SWING LOAN NOTE shall mean the Swing Loan Note of the Borrower
in the form of EXHIBIT  1.1(S)  evidencing  the Swing Loans,  together  with all
amendments,  extensions,  renewals,  replacements,  refinancings  or  refundings
thereof in whole or in part.

                  SWING LOAN  REQUEST  shall mean a request for Swing Loans made
in accordance with Section 2.4.2 hereof.

                                     - 26 -


                  SWING LOANS shall mean  collectively and Swing Loan shall mean
separately  all Swing  Loans or any Swing Loan made by PNC Bank to the  Borrower
pursuant to Section 2.5.

                  SYNDICATION  AGENT  shall  mean  Morgan  in  its  capacity  as
syndication  agent for the Banks under this Agreement and its successors in such
capacity.

                  SYNDICATION  DATE shall  mean the  earlier of (i) a date after
the Closing Date which is selected by the Arrangers and notice of which is given
by the  Arrangers to the Borrower at least five (5) Business  Days prior thereto
and (ii) the 90th day following the Closing Date.

                  SYNTHETIC  LEASE shall have the meaning  assigned to such term
in Section 7.2.9.

                  TAX  SHARING  AGREEMENT  shall mean that  certain  Tax Sharing
Agreement dated as of June 1, 1998 by and among the Borrower, AWAC, Arch Western
and Delta Housing, Inc., a Delaware corporation.

                  TERM LOAN shall have the meaning given to such term in Section
2.12; Term Loans shall mean collectively all of the Term Loans.

                  TERM  LOAN  BASE  RATE  OPTION  shall  mean the  option of the
Borrower  to have Term Loans bear  interest  at the rate and under the terms and
conditions set forth in Section 3.1.1(b)(i). TERM LOAN COMMITMENT shall mean, as
to any Bank at any time,  the amount  initially  set forth  opposite its name on
SCHEDULE 1.1(B) in the column labeled "Amount of Commitment for Term Loans," and
thereafter on Schedule I to the most recent Assignment and Assumption  Agreement
executed by such Bank, and Term Loan  Commitments  shall mean the aggregate Term
Loan Commitments of all of the Banks.

                  TERM  LOAN  EURO-RATE  OPTION  shall  mean the  option  of the
Borrower  to have Term Loans bear  interest  at the rate and under the terms and
conditions set forth in Section 3.1.1(b)(ii).

                  TERM LOAN EXPIRATION DATE shall mean, with respect to the Term
Loan Commitments, May 31, 2003.

                  TERM LOAN  RATABLE  SHARE  shall  mean the  proportion  that a
Bank's Term Loan  Commitment  bears to the Term Loan  Commitments  of all of the
Banks.

                  TERM NOTES  shall mean  collectively  and Term Note shall mean
separately  all of the Term Notes of the Borrower in the form of EXHIBIT  1.1(T)
issued by the  Borrower  at the  request  of a Bank  pursuant  to  Section  2.14
evidencing the Term Loans, together with all 

                                     - 27 -


amendments, extensions, renewals, replacements,  refinancings or refunds thereof
in whole or in part.

                  THUNDER  BASIN LLC AGREEMENT  shall mean that certain  Limited
Liability Company Agreement,  dated as of July 10, 1998, as amended,  of Thunder
Basin Coal Company,  L.L.C., a limited  liability company organized and existing
under the laws of the State of Delaware.

                  TRANSFEROR  BANK shall mean the  selling  Bank  pursuant to an
Assignment and Assumption Agreement.

                  U.S. shall mean the United States of America.

            1.2   CONSTRUCTION.

            Unless the context of this Agreement otherwise clearly requires, the
following  rules of  construction  shall apply to this Agreement and each of the
other Loan Documents:

                  1.2.1  NUMBER; INCLUSION.

                  references to the plural include the singular, the plural, the
part and the whole;  "or" has the inclusive  meaning  represented  by the phrase
"and/or";  and "including" has the meaning  represented by the phrase "including
without limitation";

                  1.2.2  DETERMINATION.

                  references  to  "determination"  of or by  the  Administrative
Agent or the  Lenders  shall be deemed to include  good-faith  estimates  by the
Administrative Agent or the Lenders (in the case of quantitative determinations)
and good-faith beliefs by the  Administrative  Agent or the Lenders (in the case
of qualitative determinations) and such determination shall be conclusive absent
manifest error;

                  1.2.3  ADMINISTRATIVE AGENT'S DISCRETION AND CONSENT.

                  whenever the  Administrative  Agent or the Lenders are granted
the right herein to act in its or their sole  discretion or to grant or withhold
consent such right shall be exercised in good faith;

                  1.2.4  DOCUMENTS TAKEN AS A WHOLE.

                  the  words  "hereof,"  "herein,"   "hereunder,"  "hereto"  and
similar  terms  in this  Agreement  or any  other  Loan  Document  refer to this
Agreement  or such  other  Loan  Document  as a whole and not to any  particular
provision of this Agreement or such other Loan Document;

                                     - 28 -


                  1.2.5  HEADINGS.

                  the section and other headings  contained in this Agreement or
such other Loan  Document  and the Table of Contents  (if any),  preceding  this
Agreement or such other Loan Document are for reference  purposes only and shall
not  control or affect the  construction  of this  Agreement  or such other Loan
Document or the interpretation thereof in any respect;

                  1.2.6  IMPLIED REFERENCES TO THIS AGREEMENT.

                  article,  section,  subsection,  clause,  schedule and exhibit
references  are to this  Agreement or other Loan  Document,  as the case may be,
unless otherwise specified;

                  1.2.7  PERSONS.

                  reference to any Person includes such Person's  successors and
assigns but, if applicable, only if such successors and assigns are permitted by
this Agreement or such other Loan Document, as the case may be, and reference to
a Person in a particular capacity excludes such Person in any other capacity;

                  1.2.8  MODIFICATIONS TO DOCUMENTS.

                  reference to any agreement  (including  this Agreement and any
other Loan Document together with the schedules and exhibits hereto or thereto),
document or instrument means such agreement,  document or instrument as amended,
modified,  replaced,  substituted for, superseded or restated in accordance with
the applicable provisions thereof and hereof;

                  1.2.9  FROM, TO AND THROUGH.

                  relative to the  determination  of any period of time,  "from"
means "from and  including,"  "to" means "to but excluding," and "through" means
"through and including"; and

                  1.2.10 SHALL; WILL.

                  references to "shall" and "will" are intended to have the same
meaning.

            1.3   ACCOUNTING PRINCIPLES.

            Except as otherwise provided in this Agreement, all computations and
determinations   as  to  accounting  or  financial  matters  and  all  financial
statements to be delivered pursuant to this Agreement shall be made and prepared
in  accordance  with  GAAP   (including   principles  of   consolidation   where
appropriate),  and all  accounting  or  financial  terms shall have the meanings
ascribed to such terms by GAAP;  PROVIDED,  HOWEVER,  that all accounting  terms
used in Section 7.2  [Negative  Covenants]  (and all  defined  terms used in the
definition  of any  accounting  term used in  Section  7.2),  as  applied to the
Borrower and its  Subsidiaries  shall have the meaning  given to such terms (and
defined  terms)  under GAAP as in effect on the date  hereof  applied on a basis
consistent  with those used in preparing  the Annual  Statements  referred to in

                                     - 29 -

Section 5.1.7(i) [Historical  Statements].  In the event of any change after the
date  hereof  in GAAP,  and if such  change  would  result in the  inability  to
determine compliance with the financial covenants set forth in Section 7.2 based
upon the Borrower's  regularly  prepared  financial  statements by reason of the
preceding sentence, then the parties hereto agree to endeavor, in good faith, to
agree upon an  amendment  to this  Agreement  that would  adjust such  financial
covenants  in a manner that would not affect the  substance  thereof,  but would
allow  compliance  therewith to be determined in accordance  with the Borrower's
financial  statements at that time. Nothing in this Section 1.3 will require the
Borrower or any of its Subsidiaries to continue  accounting  methods used by ACC
in preparing the ACC Annual Statements.


      2.    REVOLVING CREDIT, SWING LOAN AND TERM LOAN FACILITIES

            2.1   REVOLVING CREDIT COMMITMENTS.

                  2.1.1   REVOLVING CREDIT LOANS.

                  Subject to the terms and  conditions  hereof and relying  upon
the  representations and warranties herein set forth, each Bank severally agrees
to make Revolving  Credit Loans to the Borrower at any time or from time to time
on or after the date hereof to the  Expiration  Date,  PROVIDED that (subject to
Section 2.9.1 with respect to taking into account  outstanding  Bid Loans) after
giving effect to such  Revolving  Credit Loan the aggregate  amount of Revolving
Credit  Loans from such Bank  shall not  exceed  such  Bank's  Revolving  Credit
Commitment  minus such Bank's  Revolving  Credit Ratable Share of the Letters of
Credit  Outstanding  PROVIDED  FURTHER that the Revolving  Facility Usage at any
time, shall not exceed the Revolving Credit Commitments of all the Banks. Within
such limits of time and  amount,  and  subject to the other  provisions  of this
Agreement,  the Borrower may borrow, repay and reborrow pursuant to this Section
2.1.

                  2.1.2   SWING LOAN COMMITMENT.

                  Subject to the terms and  conditions  hereof and relying  upon
the  representations  and warranties  herein set forth,  PNC Bank agrees to make
Swing Loans (the "Swing Loans") to the Borrower at any time or from time to time
after  the date  hereof  to,  but not  including,  the  Expiration  Date,  in an
aggregate principal amount of up to but not in excess of $50,000,000 (the "Swing
Loan Commitment"), PROVIDED that the Revolving Facility Usage at any time, shall
not exceed the Revolving Credit Commitments of all the Banks. Within such limits
of time and amount and subject to the other  provisions of this  Agreement,  the
Borrower may borrow, repay and reborrow pursuant to this Section 2.1.2.

            2.2   NATURE OF BANKS' OBLIGATIONS WITH RESPECT TO REVOLVING
                  CREDIT LOANS.

            Each Bank shall be  obligated  to  participate  in each  request for
Revolving  Credit Loans  pursuant to Section 2.4 [Loan  Requests] in  accordance
with its Revolving  Credit Ratable Share.  Subject to Section 2.9.1 with respect
to taking into  account  outstanding  Bid Loans,  the  aggregate  of each Bank's
Revolving Credit Loans  outstanding  hereunder to the Borrower at any time shall
never exceed its Revolving Credit  Commitment minus its Revolving Credit Ratable

                                     - 30 -



Share of the  Letters  of  Credit  Outstanding.  The  obligations  of each  Bank
hereunder  are  several.  The  failure  of any Bank to perform  its  obligations
hereunder  shall not affect the  Obligations  of the Borrower to any other party
nor shall any other  party be liable for the failure of such Bank to perform its
obligations  hereunder.  The Banks shall have no  obligation  to make  Revolving
Credit Loans hereunder on or after the Expiration Date.

            2.3   REVOLVING CREDIT FACILITY FEE.

            Accruing  from  the date  hereof  until  the  Expiration  Date,  the
Borrower agrees to pay to the Administrative Agent for the account of each Bank,
as  consideration  for such Bank's  Revolving  Credit  Commitment  hereunder,  a
nonrefundable facility fee (the "Facility Fee") equal to the Applicable Facility
Fee Rate  computed  (on the basis of a year of 365 or 366 days,  as the case may
be, and actual  days  elapsed)  on the amount of such  Bank's  Revolving  Credit
Commitment as the same may be  constituted  from time to time. All Facility Fees
shall be payable in arrears  on the first  Business  Day of each July,  October,
January  and April  after the date  hereof  and on the  Expiration  Date or upon
acceleration of the Loans.

            2.4   LOAN REQUESTS.
                  
                  2.4.1   COMMITTED LOAN REQUESTS.

                  Except as  otherwise  provided  herein,  the Borrower may from
time to time prior to the  Expiration  Date request the Banks to make  Revolving
Credit  Loans,  or renew or convert  the  Interest  Rate  Option  applicable  to
existing  Revolving Credit Loans or Term Loans pursuant to Section 3.2 [Interest
Periods],  by delivering to the Administrative Agent, not later than 10:00 a.m.,
Pittsburgh  time,  (i) three (3) Business  Days prior to the proposed  Borrowing
Date with  respect to the making of the Term  Loans on the  Closing  Date or the
making of Revolving  Credit Loans to which the Euro-Rate  Option  applies or the
conversion  to or the renewal of the Euro-Rate  Option for any Revolving  Credit
Loans or Term Loans;  and (ii) one (1) Business Day prior to either the proposed
Borrowing  Date with respect to the making of the Term Loans on the Closing Date
or the making of a Revolving  Credit Loan to which the Base Rate Option  applies
or the last day of the preceding  Committed Loan Interest Period with respect to
the  conversion  to the Base Rate Option for any  Revolving  Credit Loan or Term
Loan, of a duly completed  Committed Loan Request therefor  substantially in the
form of EXHIBIT  2.4.1 or a  Committed  Loan  Request by  telephone  immediately
confirmed in writing by letter,  facsimile or telex in the form of such Exhibit,
it being understood that the  Administrative  Agent may rely on the authority of
any individual making such a telephonic request without the necessity of receipt
of such written  confirmation.  Each Committed Loan Request shall be irrevocable
and shall specify (i) the proposed  Borrowing Date; (ii) the aggregate amount of
the proposed  Revolving  Credit Loans and Term Loans  comprising  each Borrowing
Tranche,  which shall be in integral  multiples of $5,000,000  and not less than
$10,000,000 for each Borrowing  Tranche to which the Revolving  Credit Euro-Rate
Option  or Term  Loan  Euro-Rate  Option,  as the  case may be,  applies  and in
integral  multiples of $1,000,000  and not less than the lesser of $5,000,000 or
the  maximum  amount  available  for  Borrowing  Tranches to which the Base Rate
Option applies; (iii) whether the Revolving Credit Euro-Rate Option or Revolving
Credit  Base Rate Option  shall apply to the  proposed  Revolving  Credit  Loans
comprising an applicable  Borrowing Tranche; and 

                                     - 31 -


(iv) in the case of a Borrowing Tranche to which the applicable Euro-Rate Option
applies, an appropriate  Committed Loan Interest Period for the Loans comprising
such Borrowing Tranche.

                  2.4.2   SWING LOAN REQUESTS.

                  Except as  otherwise  provided  herein,  the Borrower may from
time to time prior to the Expiration  Date request PNC Bank to make a Swing Loan
by  delivery  to PNC Bank,  not later than 12:00 noon  Pittsburgh  time,  on the
proposed  Borrowing Date of a duly completed  request therefor  substantially in
the form of EXHIBIT 2.4.2 hereto or a request by telephone immediately confirmed
in writing by letter,  facsimile or telex  (each,  a "Swing Loan  Request"),  it
being  understood  that PNC Bank may  rely on the  authority  of any  individual
making  such a  telephonic  request  without  the  necessity  of receipt of such
written  confirmation.  Each Swing Loan Request shall be  irrevocable  and shall
specify (i) the proposed  Borrowing  Date,  (ii) the term of the proposed  Swing
Loan,  which shall be no less than one day and no longer  than three  days,  and
(iii) the  principal  amount of such Swing  Loan,  which  shall be not less than
$1,000,000 and shall be an integral multiple of $100,000.

            2.5   MAKING REVOLVING CREDIT LOANS AND SWING LOANS.

            The  Administrative  Agent shall,  promptly after receipt by it of a
Loan Request  pursuant to Section 2.4.1  [Committed Loan  Requests],  notify the
Banks of its receipt of such Loan Request specifying: (i) the proposed Borrowing
Date and the time and  method of  disbursement  of the  Revolving  Credit  Loans
requested  thereby;  (ii) the amount and type of each such Revolving Credit Loan
and the applicable  Interest Period (if any); and (iii) the apportionment  among
the Banks of such  Revolving  Credit Loans as determined  by the  Administrative
Agent in accordance with Section 2.2 [Nature of Banks' Obligations,  etc.]. Each
Bank shall  remit the  principal  amount of each  Revolving  Credit  Loan to the
Administrative  Agent  such that the  Administrative  Agent is able to,  and the
Administrative Agent shall, to the extent the Banks have made funds available to
it for such purpose and subject to Section 6.2 [Each  Additional  Loan or Letter
of Credit], fund such Revolving Credit Loans to the Borrower in U.S. Dollars and
immediately  available  funds  at the  Principal  Office  prior  to  2:00  p.m.,
Pittsburgh  time, on the applicable  Borrowing  Date,  PROVIDED that if any Bank
fails to remit such funds to the  Administrative  Agent in a timely manner,  the
Administrative Agent may elect in its sole discretion to fund with its own funds
the Revolving  Credit Loans of such Bank on such  Borrowing  Date, and such Bank
shall be subject to the repayment  obligation in Section 9.16  [Availability  of
Funds].

                  2.5.1  MAKING SWING LOANS.

                  PNC Bank shall,  after  receipt by it of a Swing Loan  Request
pursuant to Section 2.4.2,  fund such Swing Loan to the Borrower in U.S. Dollars
and  immediately  available  funds at the  Principal  Office prior to 3:00 p.m.,
Pittsburgh  time, on the Borrowing Date.  Swing Loans shall bear interest at the
Offered Rate Option.

                                     - 32 -


            2.6   SWING LOAN NOTE.

            The obligation of the Borrower to repay the unpaid  principal amount
of the Swing Loans made to it by PNC Bank together  with interest  thereon shall
be evidenced by a demand  promissory note of the Borrower dated the Closing Date
in substantially the form attached hereto as EXHIBIT 1.1(S) payable to the order
of PNC Bank in a face amount equal to the Swing Loan Commitment of PNC Bank.

            2.7   USE OF PROCEEDS.

            The  proceeds of the Loans shall be used to finance the  Acquisition
Transactions,  to refinance the Existing Credit Facility,  for general corporate
purposes and in  accordance  with Section  7.1.9 [Use of  Proceeds].  Subject to
Section 7.2.14 (v),  proceeds of Loans may be used by the Borrower to make loans
to or  investments  in Arch  Western and Letters of Credit may be issued for the
benefit or the use of any member of the Arch Western Group.

            2.8   BORROWINGS TO REPAY SWING LOANS.

            PNC Bank may, at its option,  exercisable at any time for any reason
whatsoever,  demand  repayment  of the Swing  Loans,  and each Bank  shall  make
available to the Administrative Agent, on behalf of PNC Bank, an amount equal to
such Bank's Revolving Credit Ratable Share of the aggregate  principal amount of
the outstanding  Swing Loans,  plus, if PNC Bank so requests,  accrued  interest
thereon, PROVIDED that no Bank shall be obligated in any event to make Revolving
Credit Loans in excess of its Revolving  Credit  Commitment  minus its Revolving
Credit  Ratable  Share of the Letters of Credit  Outstanding.  Revolving  Credit
Loans made  pursuant to the preceding  sentence  shall bear interest at the Base
Rate Option and shall be deemed to have been  properly  requested in  accordance
with Section 2.4.1 without regard to any of the  requirements of that provision.
PNC Bank shall  provide  notice to all of the Banks (which may be  telephonic or
written  notice by  letter,  facsimile  or telex) of the  amount of such  Bank's
Revolving  Credit  Ratable  Share  of  the  aggregate  principal  amount  of the
outstanding Swing Loans, plus accrued interest thereon,  to be made available to
the  Administrative  Agent on behalf of PNC Bank under  this  Section  2.8.  The
Administrative  Agent  shall  promptly  provide  to  each  Bank  notice  of  the
apportionment  thereof among the Banks,  and the Banks shall be  unconditionally
obligated  to fund such  amount  (whether  or not the  conditions  specified  in
Section 2.4.1 are then satisfied) by the time PNC Bank so requests,  which shall
not be earlier than 3:00 p.m.,  Pittsburgh  time, on the Business Day next after
the date the Banks receive such notice of apportionment  from the Administrative
Agent.

            2.9   BID LOAN FACILITY.

                  2.9.1  BID LOAN REQUESTS.

                  Except as  otherwise  provided  herein,  beginning on the date
that the Borrower's  senior unsecured  long-term debt, on a consolidated  basis,
has been  rated  Investment  Grade and during  any  period  thereafter  when the
Borrower's  senior unsecured  long-term debt, on a consolidated  basis, is rated
BBB- or better by Standard & Poor's or Baa3 or better by Moody's,

                                     - 33 -


the Borrower may from time to time prior to the Expiration Date request that the
Banks  make Bid Loans by  delivery  to the  Administrative  Agent not later than
10:00 a.m., Pittsburgh time, of a duly completed request therefor  substantially
in the form of  EXHIBIT  2.9.1  hereto or a  request  by  telephone  immediately
confirmed in writing by letter,  facsimile or telex (each, a "Bid Loan Request")
at least one (1) Business Day prior to the proposed Bid Loan  Borrowing  Date if
Borrower is requesting  Fixed Rate Bid Loans and four (4) Business Days prior to
the proposed Bid Loan  Borrowing  Date if Borrower is  requesting  Euro-Rate Bid
Loans.  The  Administrative  Agent may rely on the  authority of any  individual
making a telephonic  request  referred to in the preceding  sentence without the
necessity of receipt of written  confirmation.  Each Bid Loan  Request  shall be
irrevocable  and shall specify (i) the proposed Bid Loan  Borrowing  Date,  (ii)
whether  Borrower  is  electing  the Bid Loan Fixed Rate  Option or the Bid Loan
Euro-Rate  Option,  (iii)  the term of the  proposed  Bid Loan  (the  "Bid  Loan
Interest Period"),  which may be no less than 7 days and no longer than 270 days
if  Borrower  is  requesting  a Fixed Rate Bid Loan and one,  two,  three or six
Months if Borrower is  requesting  a  Euro-Rate  Bid Loan,  and (iv) the maximum
principal amount (the "Requested  Amount") of such Bid Loan (provided that a Bid
Loan  Interest  Period shall in no event expire later than one (1) Business Days
prior to the  Expiration  Date),  which shall be not less than  $10,000,000  and
shall be an integral  multiple of  $5,000,000.  After giving  effect to such Bid
Loan and any other  Loan  made on or before  the Bid Loan  Borrowing  Date,  the
aggregate  amount  of all  Revolving  Credit  Loans,  Swing  Loans and Bid Loans
outstanding  plus the  Letters  of  Credit  Outstanding  shall  not  exceed  the
aggregate amount of the Revolving Credit  Commitments of the Banks.  There shall
be at least one Business Day between each Bid Loan Borrowing  Date.  There shall
be no  requests  for Bid Loans nor any Bid Loans  made  until the  Business  Day
following the Syndication Date.

                  2.9.2  BIDDING.

                  The Administrative Agent shall promptly after receipt by it of
a Bid Loan Request  pursuant to Section 2.9.1 notify the Banks of its receipt of
such Bid Loan Request  specifying (i) the proposed Bid Loan Borrowing Date, (ii)
whether the proposed Bid Loan shall be a Fixed Rate Bid Loan or a Euro-Rate  Bid
Loan,  (iii) the Bid Loan Interest  Period and (iv) the principal  amount of the
proposed  Bid Loan.  Each Bank may submit a bid (a "Bid") to the  Administrative
Agent not later than 10:00  a.m.,  Pittsburgh  time,  on the  proposed  Bid Loan
Borrowing  Date if  Borrower  is  requesting  a Fixed Rate Bid Loan or three (3)
Business  Days  before the  proposed  Bid Loan  Borrowing  Date if  Borrower  is
requesting a Euro-Rate Bid Loan by telephone  (immediately  confirmed in writing
by letter, facsimile or telex). Each Bid shall specify: (A) the principal amount
of proposed  Bid Loans  offered by such Bank (the  "Offered  Amount")  (such Bid
Loans may be funded by such  Bank's  Designated  Lender as  provided  in Section
2.9.4;  however,  such Bank shall not be  required to specify in its Bid whether
such Bid Loans will be funded by such  Designated  Lender) which (i) may be less
than,  but  shall not  exceed,  the  Requested  Amount,  (ii)  shall be at least
$10,000,000 and shall be an integral multiple of $5,000,000 and (iii) may exceed
such  Bank's  Revolving  Credit  Commitment,  and (B) the Fixed Rate which shall
apply to such  proposed Bid Loan if Borrower has requested a Fixed Rate Bid Loan
or the  Euro-Rate Bid Loan Spread which shall apply to such proposed Bid Loan if
Borrower  has  requested  a  Euro-Rate  Bid Loan.  If any Bid omits  information
required hereunder,  the Administrative Agent may in its sole discretion attempt
to notify the Bank submitting such 

                                     - 34 -


Bid. If the Administrative  Agent so notifies a Bank, such Bank may resubmit its
Bid provided that it does so prior to time set forth in this Section 2.9.2 above
by which such Bank is  required to submit its Bid to the  Administrative  Agent.
The Administrative Agent shall promptly notify the Borrower of the Bids which it
timely received from the Banks. If the Administrative Agent in its capacity as a
Bank shall, in its sole discretion,  make a Bid, it shall notify the Borrower of
such Bid before 9:00 a.m.,  Pittsburgh  time, on the proposed Bid Loan Borrowing
Date if Borrower is requesting a Fixed Rate Bid Loan and three (3) Business Days
before the proposed  Borrowing  Date if Borrower is  requesting a Euro-Rate  Bid
Loan.

                  2.9.3  ACCEPTING BIDS.

                  The  Borrower  shall  irrevocably  accept  or  reject  Bids by
notifying the Administrative  Agent of such acceptance or rejection by telephone
(immediately confirmed in writing by letter,  facsimile or telex) not later than
11:00 a.m., Pittsburgh time, on the proposed Bid Loan Borrowing Date if Borrower
is  requesting  a Fixed  Rate Bid Loan and three (3)  Business  Days  before the
proposed  Borrowing  Date if Borrower is requesting a Euro-Rate Bid Loan. If the
Borrower  elects to accept  any Bids,  its  acceptance  must meet the  following
conditions:  (1) the total amount which Borrower accepts from all Banks must not
be less than $10,000,000 and be in integral  multiples of $5,000,000 and may not
exceed the aggregate  Requested Amount;  (2) the Borrower must accept Bids based
solely on the amount of the Fixed Rates or Euro-Rate  Bid Loan  Spreads,  as the
case may be, which each of the Banks quoted in their Bids in ascending  order of
the amount of Fixed Rates or Euro-Rate  Bid Loan  Spreads;  (3) the Borrower may
not borrow Bid Loans from any Bank (or such Bank's Designated Lender) on the Bid
Loan Borrowing Date in an amount  exceeding such Bank's Offered  Amount;  (4) if
two or more Lenders  make Bids at the same Fixed Rate (if  Borrower  Requested a
Fixed Rate Bid Loan) or  Euro-Rate  Bid Loan  Spread (if  Borrower  Requested  a
Euro-Rate Bid Loan) and the Borrower  desires to accept a portion but not all of
the Bids at such Fixed Rate or Euro-Rate  Bid Loan  Spread,  as the case may be,
the  Borrower  shall  accept a portion  of each Bid equal to the  product of the
Offered  Amount of such Bid times the  fraction  obtained by dividing  the total
amount of Bids which  Borrower is accepting at such Fixed Rate or Euro-Rate  Bid
Loan Spread,  as the case may be, by the sum of the Offered  Amounts of the Bids
at such Fixed Rate or  Euro-Rate  Bid Loan  Spread,  PROVIDED  that the Borrower
shall round the Bid Loans  allocated  to each such Lender  upward or downward as
the Borrower may select to integral multiples of $5,000,000.  The Administrative
Agent shall (i) promptly  notify a Bank that has made a Bid of the amount of its
Bid that was  accepted  or  rejected  by the  Borrower  and (ii) as  promptly as
practical notify all of the Banks which submitted Bids of all Bids submitted and
those which have been accepted.

                  2.9.4  FUNDING BID LOANS.

                  Each Bank whose Bid or portion  thereof is accepted  shall, or
at its option shall cause its Designated  Lender to, remit the principal  amount
of its Bid Loan to the Administrative  Agent by 12:00 noon,  Pittsburgh time, on
the Borrowing Date. The Administrative  Agent shall make such funds available to
the Borrower on or before 1:00 p.m.,  Pittsburgh  time,  on the  Borrowing  Date
PROVIDED that the conditions  precedent to the making of 

                                     - 35 -


such Bid Loan set  forth in  Section  6.2  [Each  Additional  Loan or  Letter of
Credit] have been satisfied not later than 10:00 a.m.,  Pittsburgh  time, on the
proposed  Borrowing Date. If such  conditions  precedent have not been satisfied
prior to such time, then (i) the Administrative  Agent shall not make such funds
available  to the  Borrower,  (ii) the Bid Loan  Request  shall be  deemed to be
canceled,  and (iii) the Administrative Agent shall return the amount previously
funded to the  Administrative  Agent by each applicable Lender no later than the
next  following   Business  Day.  The  Borrower  shall  immediately  notify  the
Administrative  Agent of any failure to satisfy the conditions  precedent to the
making of Bid Loans under Section 6.2. The Administrative  Agent may assume that
Borrower  has  satisfied  such  conditions  precedent  if (i) the  Borrower  has
delivered to the  Administrative  Agent the  documents  required to be delivered
under Section 6.2, (ii) the Borrower has not notified the  Administrative  Agent
that the Loan Parties have not satisfied  any other  conditions  precedent,  and
(iii)  the  Administrative  Agent has no actual  notice of such a  failure.  Any
Designated  Lender  which  funds a Bid Loan  shall on and after the time of such
funding  become  the  obligee  under  such Bid Loan and be  entitled  to receive
payment  thereof when due. A Bank shall be relieved of its  obligation to fund a
Bid Loan upon the  funding  of such Bid Loan by its  Designated  Lender  and not
prior to such time.

                  2.9.5   SEVERAL OBLIGATIONS.

                  The  obligations  of the Banks to make Bid Loans  after  their
Bids have been  accepted  are  several.  No Bank  shall be  responsible  for the
failure of any other Lender to make any Bid Loan which another Lender has agreed
to make.

                  2.9.6   BID NOTES.

                  The  obligation of the Borrower to repay the aggregate  unpaid
principal  amount  of the Bid Loans  made to it by each  Bank or its  Designated
Lender, as the case may be, together with interest  thereon,  shall be evidenced
by a Bid Note dated as of the Closing Date payable to the order of such Bank and
a Bid Note dated as of the date of the applicable Designation Agreement in favor
of the Designated  Lender named in such  Designation  Agreement in a face amount
equal to the aggregate Revolving Credit Commitments of all of the Banks.

                  2.9.7   PAYMENTS AND PREPAYMENTS.

                  The Borrower  shall repay each Bid Loan on the last day of the
Interest  Period with respect to such Bid Loan. The Borrower may not voluntarily
prepay the Bid Loans.

            2.10  LETTER OF CREDIT SUBFACILITY.

                  2.10.1  ISSUANCE OF LETTERS OF CREDIT.

                  Borrower  may request the issuance of a letter of credit (each
a "Letter of Credit") on behalf of itself or another Loan Party by delivering to
the Issuing  Bank  selected by the Borrower  (with a copy to the  Administrative
Agent) a completed  application and agreement for letters of credit in such form
as such  Issuing Bank may specify from time to time by no later 

                                     - 36 -


than 10:00 a.m.,  Pittsburgh  time,  at least three (3) Business  Days,  or such
shorter  period as may be agreed to by the selected  Issuing Bank, in advance of
the proposed  date of issuance.  Each Letter of Credit shall be either a Standby
Letter of Credit or a  Commercial  Letter of  Credit.  Subject  to the terms and
conditions hereof and in reliance on the agreements of the other Banks set forth
in this Section  2.10,  the Issuing Bank will issue a Letter of Credit  PROVIDED
that each  Letter of Credit  shall (A) have a maximum  maturity  of twelve  (12)
Months from the date of issuance, and (B) in no event expire later than ten (10)
Business Days prior to the  Expiration  Date and PROVIDED that in no event shall
(i) the Letters of Credit Outstanding  exceed, at any one time,  $150,000,000 or
(ii) the Revolving  Facility Usage exceed, at any one time, the Revolving Credit
Commitments.  Subject to Section 7.2.14(v),  Letters of Credit may be issued for
the  benefit  or the use of,  directly  or  indirectly,  any  member of the Arch
Western  Group.  No Letters of Credit shall be issued for the benefit or the use
of, directly or indirectly,  any Significant Subsidiary which is a member of the
Arch Coal Group which is not a party to the Guaranty  Agreement  until such time
as such Significant  Subsidiary has joined the Guaranty  Agreement in accordance
with Section 10.18 [Joinder of Guarantors].

                  2.10.2    LETTER OF CREDIT FEES.

                  Subject to the terms and  conditions  of this  Agreement,  any
Issuing  Bank  selected  by the  Borrower  shall issue the  requested  Letter of
Credit.  The Borrower  shall also pay to the Issuing Bank for the Issuing Bank's
sole account the Issuing Bank's then-in-effect customary fees and administrative
expenses  payable  with respect to the Letters of Credit as the Issuing Bank may
generally  charge or incur from time to time in  connection  with the  issuance,
maintenance,   modification   (if  any),   assignment   or  transfer  (if  any),
negotiation,  and administration of Letters of Credit. The Borrower shall pay to
the Administrative Agent for the ratable account of the Banks a fee (the "Letter
of Credit Fee") equal to the Applicable Letter of Credit Fee Rate then in effect
(computed on the basis of a year of 360 days and actual days elapsed), which fee
shall be computed on the daily average  Letters of Credit  Outstanding and shall
be payable  quarterly in arrears  commencing with the first Business Day of each
January, April, July and October following issuance of each Letter of Credit and
on the Expiration Date.

                  2.10.3   PARTICIPATIONS IN LETTERS OF CREDIT; DISBURSEMENTS,
                           REIMBURSEMENT.

                           2.10.3.1  Immediately upon issuance of each Letter of
Credit,  and without  further  action,  each Bank shall be deemed to, and hereby
agrees that it shall,  have irrevocably  purchased,  for such Bank's own account
and risk, from the applicable Issuing Bank an individual  participation interest
in such  Letter of Credit in an amount  equal to such  Bank's  Revolving  Credit
Ratable Share of the maximum amount which is or at any time may become available
to be drawn  thereunder,  and each Bank shall be  responsible  to reimburse such
Issuing  Bank  immediately  for  its  Revolving  Credit  Ratable  Share  of  any
disbursement  under  any  Letter  of Credit  which  has not been  reimbursed  by
Borrower in  accordance  with Section  2.10.3.2 by making its  Revolving  Credit
Ratable  Share of the  Revolving  Credit Loans  referred to in Section  2.10.3.3
available to the Administrative  Agent for the account of the Issuing Bank. Upon
the 

                                     - 37 -


request of any Bank and no less frequently than once in each calendar month,
the  Administrative  Agent  shall  notify each Bank of the amount of such Bank's
participation in Letters of Credit.

                           2.10.3.2  In the event of any  request  for a drawing
under a Letter of Credit by the beneficiary or transferee  thereof,  the Issuing
Bank will promptly notify the Borrower and the  Administrative  Agent.  Provided
that it shall have  received such notice,  the Borrower  shall  reimburse  (such
obligation  to reimburse  the Issuing  Bank shall  sometimes be referred to as a
"Reimbursement  Obligation") the  Administrative  Agent on behalf of the Issuing
Bank prior to 12:00 noon,  Pittsburgh  time, on each date that an amount is paid
by the  Issuing  Bank  under any Letter of Credit  (each  such date,  a "Drawing
Date") in an amount  equal to the  amount so paid by the  Issuing  Bank.  In the
event the Borrower fails to reimburse the Administrative  Agent on behalf of the
Issuing  Bank for the full amount of any  drawing  under any Letter of Credit by
12:00 noon, Pittsburgh time, on the Drawing Date, the Issuing Bank will promptly
notify the Administrative Agent and each Bank thereof, and the Borrower shall be
deemed to have requested that Revolving  Credit Loans be made by the Banks under
the Revolving  Credit Base Rate Option to be disbursed on the Drawing Date under
such  Letter of Credit.  Any  notice  given by the  Administrative  Agent or the
Issuing  Bank  pursuant  to this  Section  2.10.3.2  may be oral if  immediately
confirmed in writing;  PROVIDED that the lack of such an immediate  confirmation
shall not affect the conclusiveness or binding effect of such notice.

                           2.10.3.3  Each Bank shall upon any notice pursuant to
Section  2.10.3.2 make available to the  Administrative  Agent, on behalf of the
Issuing Bank, an amount in  immediately  available  funds equal to its Revolving
Credit Ratable Share of the amount of the drawing,  whereupon the  participating
Banks  shall  each be deemed  to have made a  Revolving  Credit  Loan  under the
Revolving Credit Base Rate Option to the Borrower in that amount. If any Bank so
notified fails to make available to the Administrative  Agent for the account of
the Issuing Bank the amount of such Bank's  Revolving  Credit  Ratable  Share of
such amount by no later than 2:00 p.m.,  Pittsburgh  time,  on the Drawing Date,
then interest  shall accrue on such Bank's  obligation to make such payment from
the Drawing Date to the date on which such Bank makes such payment (i) at a rate
per annum equal to the Federal Funds  Effective Rate during the first three days
following  the  Drawing  Date  and (ii) at a rate  per  annum  equal to the rate
applicable to Revolving Credit Loans under the Revolving Credit Base Rate Option
on and after the fourth day following the Drawing Date; PROVIDED,  however, that
in the event that a Bank does not timely  receive notice in order to so fund its
Revolving Credit Ratable Share to the  Administrative  Agent prior to 2:00 p.m.,
Pittsburgh time, on the Drawing Date, interest, with respect to the Drawing Date
only,  shall not accrue as previously  described in this  sentence.  The Issuing
Bank will promptly give notice to the  Administrative  Agent and each other Bank
of the  occurrence of the Drawing Date,  but failure of the Issuing Bank to give
any such notice on the Drawing Date or in sufficient  time to enable any Bank to
effect such payment on such date shall not relieve such Bank from its obligation
under this Section 2.10.3.3.

                  2.10.4    [INTENTIONALLY OMITTED]

                                     - 38 -


                  2.10.5    DOCUMENTATION.

                  Each  Loan  Party  agrees  to be  bound  by the  terms  of the
selected Issuing Bank's  application and agreement for letters of credit and the
Issuing Bank's written  regulations and customary  practices relating to letters
of credit,  though such  interpretation  may be different from such Loan Party's
own. In the event of a conflict  between such  application or agreement and this
Agreement, this Agreement shall govern. It is understood and agreed that, except
in the case of gross  negligence or willful  misconduct,  neither the Agents nor
any  Issuing  Bank shall be liable for any error,  negligence  and/or  mistakes,
whether of omission or commission, in following any Loan Party's instructions or
those  contained in the Letters of Credit or any  modifications,  amendments  or
supplements thereto.

                  2.10.6    DETERMINATIONS TO HONOR DRAWING REQUESTS.

                  In determining  whether to honor any request for drawing under
any  Letter of Credit by the  beneficiary  thereof,  the  Issuing  Bank shall be
responsible only to determine that the documents and certificates required to be
delivered  under such Letter of Credit have been  delivered and that they comply
on their face with the requirements of such Letter of Credit.

                  2.10.7    NATURE OF PARTICIPATION AND REIMBURSEMENT
                            OBLIGATIONS.

                  Each Bank's  obligation in accordance  with this  Agreement to
participate  in  Letters  of Credit  and make the  Revolving  Credit  Loans,  as
contemplated   by  Section   2.10.3   [Participations   in  Letters  of  Credit;
Disbursements,  Reimbursement],  as a result  of a  drawing  under a  Letter  of
Credit, and the Obligations of the Borrower to reimburse the Issuing Bank upon a
draw under a Letter of Credit, shall be absolute, unconditional and irrevocable,
and shall be  performed  strictly in  accordance  with the terms of this Section
2.10.7 under all circumstances, including the following circumstances:

                           (i)   any set-off, counterclaim,  recoupment, defense
or other right which such Bank may have against any Issuing Bank,  either Agent,
the Borrower or any other Person for any reason whatsoever;

                           (ii)  the  failure  of any Loan  Party  or any  other
Person to comply with the conditions set forth in Sections 2.1 [Revolving Credit
Commitments],  2.4 [Loan Requests], 2.5 [Making Revolving Credit Loans and Swing
Loans] or 6.2 [Each  Additional  Loan or Letter of Credit] or as  otherwise  set
forth in this  Agreement  for the making of a Revolving  Credit  Loan,  it being
acknowledged that such conditions are not required for the making of a Revolving
Credit  Loan  under  Section  2.10.3   [Participations  in  Letters  of  Credit;
Disbursements; Reimbursement];

                           (iii) any lack of validity or  enforceability  of any
Letter of Credit;

                           (iv)  the existence of any claim, set-off, defense or
other  right  which  any Loan  Party or any Bank may have at any time  against a
beneficiary  or any  

                                     - 39 -


transferee of any Letter of Credit (or any Persons for whom any such  transferee
may be acting),  either Agent, any Issuing Bank, or any Bank or any other Person
or, whether in connection with this  Agreement,  the  transactions  contemplated
herein  or any  unrelated  transaction  (including  any  underlying  transaction
between any Loan Party or  Subsidiaries  of a Loan Party and the beneficiary for
which any Letter of Credit was procured);

                            (v)    any  draft,  demand,  certificate   or  other
document presented under any Letter of Credit proving to be forged,  fraudulent,
invalid or insufficient in any respect or any statement  therein being untrue or
inaccurate in any respect even if the Issuing Bank has been notified thereof;

                            (vi)   payment by any Issuing Bank under any  Letter
of Credit  against  presentation  of a  demand,  draft or  certificate  or other
document which does not comply with the terms of such Letter of Credit;

                            (vii)  any   adverse   change   in   the   business,
operations,  properties, assets, condition (financial or otherwise) or prospects
of any Loan Party or Subsidiaries of a Loan Party;

                            (viii) any  breach  of this  Agreement  or any other
Loan Document by any party thereto;

                            (ix)   the   occurrence   or   continuance   of   an
Insolvency Proceeding with respect to any Loan Party;

                            (x)    the  fact  that  an  Event  of  Default  or a
Potential Default shall have occurred and be continuing;

                            (xi)   the fact that the Expiration Date  shall have
passed  or  this  Agreement  or  the  Commitments   hereunder  shall  have  been
terminated; and

                            (xii)  any   other    circumstance    or   happening
whatsoever, whether or not similar to any of the foregoing.

                  2.10.8    INDEMNITY.

                  In  addition  to amounts  payable as  provided  in Section 9.5
[Reimbursement  and  Indemnification  of Agents by the  Borrower],  the Borrower
hereby agrees to protect,  indemnify,  pay and save harmless the Agents and each
Issuing Bank from and against any and all claims, demands, liabilities, damages,
losses,  costs,  charges and expenses  (including  reasonable fees, expenses and
disbursements  of counsel)  which any Agent or any Issuing  Bank may incur or be
subject to as a  consequence,  direct or  indirect,  of (i) the  issuance of any
Letter of Credit,  other than as a result of (A) the gross negligence or willful
misconduct of any Agent or any Issuing Bank as determined by a final judgment of
a court of competent  jurisdiction or (B) subject to the following  clause (ii),
the  wrongful  dishonor by an Issuing  Bank of a proper  demand for payment made
under any Letter of Credit,  or (ii) the  failure of an Issuing  Bank to honor a
drawing  under 

                                     - 40 -


any such Letter of Credit as a result of any act or omission,  whether  rightful
or  wrongful,  of any  present  or  future  de jure or de  facto  government  or
governmental  authority (all such acts or omissions herein called  "Governmental
Acts").

                  2.10.9    LIABILITY FOR ACTS AND OMISSIONS.

                  As between any Loan Party,  each  Issuing Bank and the Agents,
such Loan Party assumes all risks of the acts and omissions of, or misuse of the
Letters of Credit by, the respective beneficiaries of such Letters of Credit. In
furtherance  and not in limitation of the  foregoing,  neither any Agent nor any
Issuing  Bank shall be  responsible  for: (i) the form,  validity,  sufficiency,
accuracy,  genuineness or legal effect of any document submitted by any party in
connection  with the  application  for an issuance of any such Letter of Credit,
even  if it  should  in  fact  prove  to be in  any  or  all  respects  invalid,
insufficient,  inaccurate,  fraudulent or forged (even if the Issuing Bank shall
have been notified thereof);  (ii) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any such Letter of
Credit or the rights or benefits  thereunder or proceeds thereof, in whole or in
part,  which may prove to be invalid or  ineffective  for any reason;  (iii) the
failure of the  beneficiary of any such Letter of Credit,  or any other party to
which  such  Letter of Credit  may be  transferred,  to  comply  fully  with any
conditions  required  in order to draw upon  such  Letter of Credit or any other
claim of any Loan Party against any beneficiary of such Letter of Credit, or any
such  transferee,  or any  dispute  between  or  among  any Loan  Party  and any
beneficiary  of any  Letter  of  Credit  or any such  transferee;  (iv)  errors,
omissions,  interruptions or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher;
(v) errors in  interpretation  of technical terms; (vi) any loss or delay in the
transmission  or otherwise  of any document  required in order to make a drawing
under  any  such  Letter  of  Credit  or of  the  proceeds  thereof;  (vii)  the
misapplication  by the  beneficiary of any such Letter of Credit of the proceeds
of any drawing under such Letter of Credit;  or (viii) any consequences  arising
from causes  beyond the control of any Issuing Bank or any Agent,  including any
Governmental  Acts, and none of the above shall affect or impair, or prevent the
vesting  of,  any of the  Agents'  rights or powers  hereunder  or of any of the
rights or  powers  hereunder  of any  Issuing  Bank.  Nothing  in the  preceding
sentence  shall:  (x) relieve any Agent from  liability  for such Agent's  gross
negligence  or willful  misconduct  in  connection  with  actions  or  omissions
described in such clauses (i) through  (viii) of such  sentence,  or (y) relieve
any Issuing Bank from  liability  for such Issuing  Bank's gross  negligence  or
willful  misconduct  in connection  with actions or omissions  described in such
clauses (i) through (viii) of such sentence.

                  In  furtherance  and  extension  and not in  limitation of the
specific provisions set forth above, any action taken or omitted by any Agent or
any Issuing Bank under or in connection  with the Letters of Credit issued by it
or any documents and certificates  delivered thereunder,  if taken or omitted in
good  faith,  shall not put any Agent or any  Issuing  Bank under any  resulting
liability to the Borrower or any other Bank.

            2.11   [INTENTIONALLY OMITTED].

                                     - 41 -


            2.12   TERM LOAN COMMITMENTS.

            Subject to the terms and  conditions  hereof,  and relying  upon the
representations  and warranties  herein set forth, each Bank severally agrees to
make a term loan (the "Term  Loan") to the  Borrower on the Closing Date in such
principal  amount as the Borrower  shall request up to, but not  exceeding  such
Bank's Term Loan Commitment.

            2.13   NATURE OF BANKS' OBLIGATIONS WITH RESPECT TO TERM LOANS.

            The  obligations  of each  Bank to make Term  Loans to the  Borrower
shall be in the proportion  that such Bank's Term Loan  Commitment  bears to the
Term Loan Commitments of all Banks to the Borrower, but each Bank's Term Loan to
the  Borrower  shall never exceed its Term Loan  Commitment.  The failure of any
Bank to make a Term Loan shall not relieve any other Bank of its  obligations to
make a Term Loan nor shall it impose any additional  liability on any other Bank
hereunder. The Banks shall have no obligation to make Term Loans hereunder after
the  Closing  Date.  The  Term  Loan   Commitments  are  not  revolving   credit
commitments,  and the  Borrower  shall not have the right to  borrow,  repay and
reborrow under Section 2.12 [Term Loan Commitments].

            2.14   TERM LOAN NOTES.

            The Obligation of the Borrower to repay the unpaid  principal amount
of the Term Loans made to it by each Bank, together with interest thereon, shall
be  evidenced by a Term Note dated the Closing Date payable to the order of each
Bank in a face amount equal to the Term Loan of such Bank. The principal  amount
as provided  therein of the Term Notes shall be payable  quarterly in arrears in
installments of $15,000,000 each on the first day of each January,  April,  July
and October  after the Closing Date,  commencing  October 1, 1998 and the entire
outstanding  principal  amount of the Term Notes shall be due and payable on the
Term Loan Expiration Date.

            2.15   USE OF PROCEEDS.

            The  proceeds  of the  Term  Loans  shall  be  used to  finance  the
Acquisition Transaction,  to refinance the Existing Credit Facility, for general
corporate purposes and in accordance with Section 7.1.9 [Use of Proceeds].


                                3. INTEREST RATES

            3.1    INTEREST RATE OPTIONS.

            The Borrower shall pay interest in respect of the outstanding unpaid
principal  amount of the Revolving Credit Loans and Term Loans as selected by it
from the Base  Rate  Option,  Revolving  Credit  Euro-Rate  Option  or Term Loan
Euro-Rate  Option set forth below  applicable to the  Revolving  Credit Loans or
Term  Loans,  it  being  understood  that,  subject  to the  provisions  of this
Agreement, the Borrower may select different Interest Rate Options and different
Interest Periods to apply  simultaneously to the Revolving Credit Loans and Term
Loans 

                                     - 42 -


comprising  different Borrowing Tranches and may convert to or renew one or more
Interest Rate Options with respect to all or any portion of the Revolving Credit
Loans or Term Loans comprising any Borrowing Tranche,  PROVIDED that there shall
not be at any one time outstanding more than nine (9) Borrowing  Tranches in the
aggregate  among  all of the  Revolving  Credit  Loans and Term  Loans  accruing
interest at a Revolving Credit  Euro-Rate Option or Term Loan Euro-Rate  Option,
and PROVIDED  further that only the Offered Rate Option shall apply to the Swing
Loans.  The  Borrower  shall pay interest in respect of the  outstanding  unpaid
principal  amount  of each Bid Loan at the rate  specified  in the  related  Bid
accepted by the  Borrower  with  respect to which a Bid Loan is made.  If at any
time the designated  rate  applicable to any Loan exceeds such Lender's  highest
lawful rate, the rate of interest on such Loan shall be limited to such Lender's
highest lawful rate.

                  3.1.1    INTEREST RATE OPTIONS.

                  (a)   The Borrower shall  have the  right to  select  from the
following  Interest  Rate  Options  applicable  to the  Revolving  Credit  Loans
(subject to the provisions above regarding Swing Loans):

                         (i)   REVOLVING CREDIT BASE RATE OPTION:  A fluctuating
rate per annum  (computed on the basis of a year of 365 or 366 days, as the case
may be, and actual days elapsed)  equal to the Base Rate,  such interest rate to
change  automatically  from time to time  effective as of the effective  date of
each change in the Base Rate; or

                         (ii)  REVOLVING  CREDIT  EURO-RATE  OPTION:  A rate per
annum  (computed  on the basis of a year of 360 days and  actual  days  elapsed)
equal to the Euro-Rate plus the Applicable Margin.

                  (b)   The Borrower shall  have the  right to  select  from the
following Interest Rate Options applicable to the Term Loans:

                         (i)   TERM  LOAN  BASE  RATE OPTION: A fluctuating rate
per annum  (computed on the basis of a year of 365 or 366 days,  as the case may
be, and actual  days  elapsed)  equal to the Base Rate,  such  interest  rate to
change  automatically  from time to time  effective as of the effective  date of
each change in the Base Rate; or

                         (ii)  TERM  LOAN  EURO-RATE  OPTION:  A rate per  annum
(computed on the basis of a year of 360 days and actual days  elapsed)  equal to
the Euro-Rate plus the Applicable Margin.

Notwithstanding the foregoing,  through and including the Initial Delivery Date,
the  Applicable  Margin shall be the amount  determined in  accordance  with the
parameters set forth in SCHEDULE 1.1(A) but shall be no less than the amount set
forth in the pricing grid under Level IV of PART (A) of SCHEDULE  1.1(A).  It is
expressly  agreed  that after the Initial  Delivery  Date until such time as the
Borrower's  senior unsecured  long-term debt, on a consolidated  basis, has been
rated  Investment  Grade,  the Applicable  Margin shall be determined based upon
PART (A) of

                                     - 43 -


SCHEDULE 1.1(A),  and for any period  thereafter when a Debt Rating is in effect
the Applicable  Margin shall be the amount determined under PART (B) of SCHEDULE
1.1(A).

                  3.1.2  RATE QUOTATIONS.

                  The  Borrower may call the  Administrative  Agent on or before
the date on which a  Committed  Loan  Request is to be  delivered  to receive an
indication  of the rates  then in effect as to  Revolving  Credit  Loans or Term
Loans,  but it is acknowledged  that such projection shall not be binding on the
Administrative  Agent  or the  Banks  nor  affect  the  rate of  interest  which
thereafter is actually in effect when the election is made.

                  3.1.3  CHANGE IN FEES OR INTEREST RATES.

                  If the  Applicable  Margin or Applicable  Facility Fee Rate is
increased  or reduced  with  respect to any  period for which the  Borrower  has
already  paid  interest  or  Facility  Fees,  the  Administrative   Agent  shall
recalculate the additional interest or Facility Fees due from or to the Borrower
and shall,  within  fifteen (15) Business  Days after the Borrower  notifies the
Administrative  Agent of such  increase or  decrease,  give the Borrower and the
Banks notice of such recalculation.

                           3.1.3.1  Any additional interest or Facility Fees due
from the Borrower shall be paid to the  Administrative  Agent for the account of
the Banks on the next date on which an interest or fee payment is due; PROVIDED,
however,  that if there  are no Loans  outstanding  or if the  Loans are due and
payable,  such additional interest or Facility Fees shall be paid promptly after
receipt of written request for payment from the Administrative Agent.

                           3.1.3.2  Any interest or Facility  Fees refund due to
the Borrower shall be credited against payments  otherwise due from the Borrower
on the next  interest  or fee payment due date or, if the Loans have been repaid
and the Banks are no longer  committed to lend under this  Agreement,  the Banks
shall pay the Administrative Agent for the account of the Borrower such interest
or  Facility  Fee  refund not later than five (5)  Business  Days after  written
notice from the Administrative Agent to the Banks.

            3.2   INTEREST PERIODS.

            At any time when the Borrower  shall  select,  convert to or renew a
Revolving Credit Euro-Rate  Option or Term Loan Euro-Rate  Option,  the Borrower
shall notify the  Administrative  Agent thereof at least three (3) Business Days
prior to the  effective  date of such  Euro-Rate  Option  by  delivering  a Loan
Request.  The notice  shall  specify an  interest  period (the  "Committed  Loan
Interest  Period")  during which such  Interest  Rate Option  shall apply,  such
Committed Loan Interest  Period to be one, two,  three or six Months;  PROVIDED,
however,  that  prior  to the date  which  is the  Business  Day  following  the
Syndication Date, only such periods as the Administrative Agent and the Borrower
mutually  agree,  not to  exceed  a period  of one  Month,  shall be  available.
Notwithstanding the preceding sentence,  the following provisions shall apply to
any selection of,  renewal of, or  conversion  to a Revolving  Credit  Euro-Rate
Option or Term Loan Euro-Rate Option:

                                     - 44 -


                  3.2.1  ENDING DATE AND BUSINESS DAY.

                  any Interest  Period which would otherwise end on a date which
is not a Business  Day shall be extended  to the next  succeeding  Business  Day
unless such  Business Day falls in the next calendar  month,  in which case such
Interest Period shall end on the next preceding Business Day;

                  3.2.2  AMOUNT OF BORROWING TRANCHE.

                  each Borrowing Tranche of Revolving Credit Loans or Term Loans
to which the Revolving  Credit  Euro-Rate  Option or Term Loan Euro-Rate  Option
applies  shall  be in  integral  multiples  of  $5,000,000  and  not  less  than
$10,000,000;

                  3.2.3  TERMINATION BEFORE  APPLICABLE EXPIRATION DATE.

                  the Borrower shall not select, convert to or renew an Interest
Period for any  portion of the Loans  that would end,  in the case of  Revolving
Credit  Loans or Bid Loans  after the  Expiration  Date,  or in the case of Term
Loans, after the Term Loan Expiration Date; and

                  3.2.4  RENEWALS.

                  in the case of the  renewal of a  Revolving  Credit  Euro-Rate
Option or Term Loan Euro-Rate Option at the end of an Interest Period, the first
day of the new Interest  Period shall be the last day of the preceding  Interest
Period, without duplication in payment of interest for such day.

            3.3    INTEREST AFTER DEFAULT.

            To the extent  permitted by Law, upon the  occurrence of an Event of
Default  and until  such time such  Event of  Default  shall  have been cured or
waived:

                  3.3.1  LETTER OF CREDIT FEES, INTEREST RATE.

                  the Letter of Credit  Fees and the rate of  interest  for each
Loan otherwise  applicable pursuant to Section 2.10.2 [Letter of Credit Fees] or
Section 3.1 [Interest  Rate Options],  respectively,  shall be increased by 2.0%
per annum; and

                  3.3.2  OTHER OBLIGATIONS.

                  each  other  Obligation  hereunder  if not paid when due shall
bear  interest  at a rate per  annum  equal  to the sum of the rate of  interest
applicable under the Base Rate Option plus an additional 2.0% per annum from the
time such Obligation becomes due and payable until it is paid in full.

                                     - 45 -


                  3.3.3  ACKNOWLEDGMENT.

                  The Borrower  acknowledges that the increase in rates referred
to in this Section 3.3 reflects, among other things, the fact that such Loans or
other  amounts  have become a  substantially  greater  risk given their  default
status and that the Banks are entitled to additional compensation for such risk;
and all such interest shall be payable by Borrower upon demand by Administrative
Agent.  Upon  the  occurrence  of an  Event  of  Default,  no Loan  may be made,
converted to or renewed under the Euro-Rate Option.

            3.4   EURO-RATE UNASCERTAINABLE; ILLEGALITY; INCREASED COSTS;
                  DEPOSITS NOT AVAILABLE.

                  3.4.1   UNASCERTAINABLE.

                  If,  on any  date on  which a  Euro-Rate  would  otherwise  be
determined  with respect to  Committed  Loans or Bid Loans,  the  Administrative
Agent shall have determined that:

                           (i)  adequate and  reasonable  means do not exist for
ascertaining such Euro-Rate, or

                           (ii) a contingency has occurred which  materially and
adversely  affects  the  London  interbank  eurodollar  market  relating  to the
Euro-Rate,

then the Administrative Agent shall have the rights specified in Section 3.4.3.

                  3.4.2   ILLEGALITY; INCREASED COSTS; DEPOSITS NOT AVAILABLE.

                  If at any time any Lender shall have determined that:

                           (i)   the making, maintenance or  funding of any Loan
to which a Euro-Rate  Option applies has been made  impracticable or unlawful by
compliance  by such Lender in good faith with any Law or any  interpretation  or
application thereof by any Official Body or with any request or directive of any
such Official Body (whether or not having the force of Law), or

                           (ii)  such  Euro-Rate  Option will not adequately and
fairly  reflect the cost to such Lender of the  establishment  or maintenance of
any such Loan, or

                           (iii) after making all reasonable  efforts,  deposits
of the relevant amount in Dollars for the relevant Interest Period for a Loan to
which a Euro-Rate  Option  applies are not available to such Lender with respect
to such Loan, in the London interbank market,

then the Administrative Agent and the Lenders shall have the rights specified in
Section 3.4.3.

                                     - 46 -


                  3.4.3   ADMINISTRATIVE AGENT'S AND LENDER'S RIGHTS.

                  In the case of any event specified in Section 3.4.1 above, the
Administrative  Agent shall  promptly  so notify the  Lenders  and the  Borrower
thereof,  and in the case of an event  specified in Section  3.4.2  above,  such
Lender  shall  promptly  so  notify  the  Administrative  Agent  and  endorse  a
certificate to such notice as to the specific  circumstances of such notice, and
the  Administrative  Agent  shall  promptly  send  copies  of  such  notice  and
certificate  to the other Lenders and the  Borrower.  Upon such date as shall be
specified  in such notice  (which shall not be earlier than the date such notice
is given),  the obligation of (A) the Lenders,  in the case of such notice given
by the  Administrative  Agent,  or (B) such  Lender,  in the case of such notice
given by such  Lender,  to allow the  Borrower to select,  convert to or renew a
Euro-Rate  Option shall be suspended until the  Administrative  Agent shall have
later  notified  the  Borrower,  or such Lender  shall have later  notified  the
Administrative  Agent, of the  Administrative  Agent's or such Lender's,  as the
case may be,  determination that the circumstances  giving rise to such previous
determination no longer exist. If at any time the  Administrative  Agent makes a
determination  under Section 3.4.1 and the Borrower has previously  notified the
Administrative  Agent  of  its  selection  of,  conversion  to or  renewal  of a
Euro-Rate  Option and such  Interest  Rate Option has not yet gone into  effect,
such  notification  shall be deemed to provide for the termination of Borrower's
Bid Loan Request (without  penalty) for such Loans if the Borrower has requested
Bid Loans under the Bid Loan  Euro-Rate  Option and such  notification  shall be
deemed to provide for the  selection  of,  conversion  to or renewal of the Base
Rate Option  otherwise  available with respect to such Revolving Credit Loans or
Term Loans if the Borrower has requested  the  Euro-Rate  Option with respect to
such  Revolving  Credit  Loans  or  Term  Loans.  If  any  Lender  notifies  the
Administrative Agent of a determination under Section 3.4.2, the Borrower shall,
subject  to the  Borrower's  indemnification  Obligations  under  Section  4.5.2
[Indemnity],  as to any Loan of the Lender to which a Euro-Rate  Option applies,
on the date  specified in such notice either  convert such Loan to the Base Rate
Option  otherwise  available  with  respect to such Loan or prepay  such Loan in
accordance with Section 4.4.1  [Voluntary  Prepayments].  Absent due notice from
the Borrower of  conversion  or  prepayment,  such Loan shall  automatically  be
converted to the Base Rate Option otherwise  available with respect to such Loan
upon such specified date.

            3.5    SELECTION OF INTEREST RATE OPTIONS.

            If the Borrower  fails to select a new  Interest  Period to apply to
any  Borrowing  Tranche of  Revolving  Credit Loans under the  Revolving  Credit
Euro-Rate  Option or of Term Loans under the Term Loan  Euro-Rate  Option at the
expiration of an existing  Interest Period  applicable to such Borrowing Tranche
in  accordance  with the  provisions  of Section  3.2  [Interest  Periods],  the
Borrower  shall be  deemed  to have  converted  such  Borrowing  Tranche  to the
Revolving  Credit Base Rate Option in the case of Revolving Credit Loans or Term
Loan Base Rate Option in the case of Term Loans  commencing upon the last day of
the existing Interest Period.

                                     - 47 -



                                   4. PAYMENTS

            4.1   PAYMENTS.

            All payments  and  prepayments  to be made in respect of  principal,
interest,  Facility Fees, Letter of Credit Fees,  Administrative  Agent's Fee or
other fees or amounts due from the Borrower  hereunder shall be payable prior to
11:00 a.m.,  Pittsburgh time, on the date when due without presentment,  demand,
protest or notice of any kind, all of which are hereby  expressly  waived by the
Borrower,  and without  set-off,  counterclaim or other deduction of any nature,
and an action therefor shall immediately  accrue. Such payments shall be made to
the  Administrative  Agent at the  Principal  Office for the account of PNC Bank
with  respect to the Swing Loans and for the ratable  accounts of the Banks with
respect to the Revolving  Credit Loans and Term Loans and for the account of the
lending Lender with respect to the Bid Loans, in U.S. Dollars and in immediately
available funds,  and the  Administrative  Agent shall promptly  distribute such
amounts to the applicable Lenders in immediately  available funds, PROVIDED that
in the event  payments  are  received by 11:00  a.m.,  Pittsburgh  time,  by the
Administrative  Agent  with  respect  to the  Loans  and such  payments  are not
distributed  to the Lenders (or  applicable  Lender,  as the case may be) on the
same day received by the Administrative  Agent, the  Administrative  Agent shall
pay the Lenders (or  applicable  Lender,  as the case may be) the Federal  Funds
Effective  Rate with respect to the amount of such payments for each day held by
the  Administrative  Agent and not  distributed  to the Lenders  (or  applicable
Lender,  as the case may  be).  The  Administrative  Agent's  and each  Lender's
statement of account,  ledger or other relevant  record shall, in the absence of
manifest error, be conclusive as the statement of the amount of principal of and
interest on the Loans and other amounts owing under this  Agreement and shall be
deemed an "account stated."

            4.2   PRO RATA TREATMENT OF BANKS.

            Each borrowing of Revolving  Credit Loans shall be allocated to each
Bank according to its Revolving Credit Ratable Share (irrespective of the amount
of Bid  Loans  outstanding),  the Term  Loans  shall be  allocated  to each Bank
according to its Term Loan Ratable Share and each selection of, conversion to or
renewal of any Interest Rate Option applicable to Revolving Credit Loans or Term
Loans and each payment or  prepayment  by the Borrower with respect to principal
or interest on the Revolving Credit Loans or Term Loans or Facility Fees, Letter
of Credit  Fees,  or other fees (except for the  Administrative  Agent's Fee) or
amounts  due from the  Borrower  hereunder  to the  Banks  with  respect  to the
Revolving Credit Loans or Term Loans, shall (except as provided in Section 3.4.3
[Administrative  Agent's and Lender's  Rights] in the case of an event specified
in Sections 3.4  [Euro-Rate  Unascertainable,  etc.],  4.4.2  [Replacement  of a
Lender] or 4.5 [Additional  Compensation in Certain  Circumstances])  be made in
proportion to the applicable  Revolving  Credit Loans or Term Loans  outstanding
from each Bank and, if no such Loans are then  outstanding,  in  proportion,  as
applicable, to the Revolving Credit Ratable Share or Term Loan Ratable Share, as
the  case may be,  of each  Bank.  Each  borrowing  of a Bid Loan  shall be made
according to the provisions in Section 2.9 hereof and each payment or prepayment
by the Borrower of principal,  interest, fees or other amounts from the Borrower
with  respect to Bid Loans  shall be made to the  Lenders in  proportion  to the
amounts of such items due to such Lenders. Notwithstanding any of the foregoing,
each  

                                     - 48 -


borrowing or payment or  prepayment  by the Borrower of  principal,  interest or
other  amounts from the Borrower with respect to Swing Loans shall be made by or
to PNC Bank according to Section 2.

            4.3   INTEREST PAYMENT DATES.

            Interest on Swing Loans or Revolving  Credit Loans to which the Base
Rate Option  applies  shall be due and payable in arrears on the first  Business
Day of each July,  October,  January  and April after the date hereof and on the
Expiration  Date or upon  acceleration  of the Loans.  Interest on Term Loans to
which the Base Rate  Option  applies  shall be due and payable in arrears on the
first  Business  Day of each July,  October,  January  and April  after the date
hereof and on the Term Loan Expiration  Date or upon  acceleration of the Loans.
Interest on Committed  Loans (other than Swing Loans) and Bid Loans to which the
Euro-Rate  Option  applies and Bid Loans to which the Bid Loan Fixed Rate Option
applies  shall be due and  payable on the last day of each  Interest  Period for
those Loans and, if such Interest  Period is longer than three (3) Months,  also
on the date that is three (3) months  after the  commencement  of such  Interest
Period  (and  if  applicable,  the  date  that  is  six  (6)  months  after  the
commencement of such Interest Period) of such Interest  Period.  Interest on the
principal  amount of each  Loan or other  monetary  Obligation  shall be due and
payable  on demand  after such  principal  amount or other  monetary  Obligation
becomes due and payable (whether on the stated maturity date, upon  acceleration
or otherwise).

            4.4   PREPAYMENTS.

                  4.4.1   VOLUNTARY PREPAYMENTS.

                  The  Borrower  shall have the right at its option from time to
time to prepay the Committed  Loans in whole or part without  premium or penalty
(except  as  provided  in Section  4.4.2  below or in  Section  4.5  [Additional
Compensation in Certain Circumstances]):

                         (i)   at any time with respect to any Committed Loan to
which the Base Rate Option applies,

                         (ii)  on the last day of the applicable Interest Period
with respect to Committed Loans to which a Euro-Rate Option applies,

                         (iii) on the date  specified  in a notice by any Lender
pursuant to Section 3.4  [Euro-Rate  Unascertainable,  etc.] with respect to any
Committed Loan to which a Euro-Rate Option applies.

Whenever  the Borrower  desires to prepay any part of the  Committed  Loans,  it
shall  provide a  prepayment  notice to the  Administrative  Agent by 1:00 p.m.,
Pittsburgh  time,  at least one (1) Business Day prior to the date of prepayment
of the Committed Loans or no later than 1:00 p.m.,  Pittsburgh time, on the date
of prepayment of Swing Loans setting forth the following information:

                                     - 49 -


                         (x)  the date, which shall be a Business  Day, on which
the proposed prepayment is to be made;

                         (y)  the application of the prepayment  among the Swing
Loans, Term Loans and the Revolving Credit Loans; and

                         (z)  the total  principal  amount  of such  prepayment,
which shall not be less than  $10,000,000 for any Revolving  Credit Loan, and in
increments of $1,000,000 above  $10,000,000,  not less than $10,000,000 for Term
Loans and in  increments  of  $1,000,000  above  $10,000,000,  and not less than
$1,000,000 for Swing Loans, and in increments of $100,000 above $1,000,000.

All  prepayment  notices  shall be  irrevocable.  The  principal  amount  of the
Committed Loans for which a prepayment  notice is given,  together with interest
on such principal  amount  (except with respect to interest on Revolving  Credit
Loans to which the Revolving Credit Base Rate Option applies which shall be paid
in accordance with this Agreement on the next due date for the payment thereof),
shall be due and payable on the date specified in such prepayment  notice as the
date on which the proposed  prepayment is to be made. All Term Loan  prepayments
permitted by this Section 4.4.1 shall be applied to the unpaid  installments  of
principal of the Term Loans in the inverse order of scheduled maturities. Except
as provided in Section 3.4.3  [Administrative  Agent's and Lender's Rights],  if
the  Borrower  prepays a  Committed  Loan but fails to  specify  the  applicable
Borrowing  Tranche  which the Borrower is  prepaying,  the  prepayment  shall be
applied (i) first to Swing Loans,  then (ii) second to Revolving Credit Loans to
which the Revolving  Credit Base Rate Option  applies,  then (iii) third to Term
Loans to which  the Term  Loan Base Rate  Option  applies,  then (iv)  fourth to
Revolving  Credit Loans to which the Revolving  Credit Euro-Rate Option applies,
and then (v)  finally  to Term  Loans to which  the Term Loan  Euro-Rate  Option
applies. Any prepayment hereunder shall be subject to the Borrower's  Obligation
to indemnify  the Banks under Section  4.5.2  [Indemnity].  Bid Loans can not be
voluntarily prepaid by the Borrower.

                  4.4.2   REPLACEMENT OF A LENDER.

                  In the event any Lender (i) gives  notice  under  Section  3.4
[Euro-Rate Unascertainable, etc.] or Section 4.5.1 [Increased Costs, etc.], (ii)
does not fund Revolving Credit Loans, Term Loans or Bid Loans because the making
of such Loans would  contravene  any Law  applicable  to such  Lender,  or (iii)
becomes  subject to the  control of an  Official  Body  (other  than  normal and
customary  supervision),  then the Borrower  shall have the right at its option,
with the consent of the  Administrative  Agent,  which shall not be unreasonably
withheld  (except that during any period when an Event of Default  exists and is
continuing,  the  Administrative  Agent may  withhold  such  consent in its sole
discretion),  to prepay  the Loans of such  Lender in whole,  together  with all
interest accrued thereon,  and terminate such Lender's  Commitment within ninety
(90) days after (x) receipt of such Lender's notice under Section 3.4 [Euro-Rate
Unascertainable,  etc.] or 4.5.1  [Increased  Costs,  Etc.],  (y) the date  such
Lender has failed to fund Revolving Credit Loans or Bid Loans because the making
of such Loans would  contravene Law  applicable to such Lender,  or (z) the date
such Lender became  subject to the control of an 

                                     - 50 -


Official Body, as applicable;  PROVIDED that the Borrower shall also pay to such
Lender at the time of such  prepayment  any amounts  required  under Section 4.5
[Additional  Compensation  in Certain  Circumstances]  (except that the Borrower
shall not be  required  to  indemnify  such  Lender for  liabilities,  losses or
expenses under Section 4.5.2(i) sustained by such Lender as a consequence of the
prepayment of the Loans of such Lender in accordance  with this Section 4.4.2 on
a day other than the last day of an  Interest  Period  with  respect to Loans to
which a Euro-Rate  Option or Bid Loan Fixed Rate Option  applies if the Loans of
such  Lender are being  prepaid  because  such  Lender has  determined  that the
making,  maintenance or funding of such Loans by such Lender under the Euro-Rate
Option has been made  unlawful or because such Lender has become  subject to the
control of an Official Body) and any accrued interest due on such amount and any
related fees; PROVIDED,  however, that the Commitment, any Term Loan and any Bid
Loan of such Lender shall be provided by one or more of the remaining Lenders or
a replacement  bank  acceptable to the Agents and the Issuing  Banks;  PROVIDED,
further,  that the  remaining  Lenders  shall have no  obligation  hereunder  to
increase   their   Commitments   or  provide  the  Bid  Loan  of  such   Lender.
Notwithstanding  the foregoing,  the  Administrative  Agent may only be replaced
subject to the  requirements of Section 9.14  [Successor  Agents] and an Issuing
Bank may only be replaced if all Letters of Credit  issued by such  Issuing Bank
have expired or been terminated or replaced.

                  4.4.3   CHANGE OF LENDING OFFICE.

                  Each  Lender  agrees  that  upon the  occurrence  of any event
giving rise to increased  costs or other  special  payments  under Section 3.4.2
[Illegality, etc.] or 4.5.1 [Increased Costs, etc.] with respect to such Lender,
it will if requested by the Borrower, use reasonable efforts (subject to overall
policy  considerations  of such Lender) to designate  another lending office for
any Loans or  Letters  of Credit  affected  by such  event,  PROVIDED  that such
designation is made on such terms that such Lender and its lending office suffer
no  economic,  legal or  regulatory  disadvantage  on such  Lender's  good faith
determination,  with the object of avoiding the  consequence of the event giving
rise to the  operation  of such  Section.  Nothing in this  Section  4.4.3 shall
affect or  postpone  any of the  Obligations  of the  Borrower or any other Loan
Party or the rights of any Agent or any Lender provided in this Agreement.

                  4.4.4   VOLUNTARY REDUCTION OF COMMITMENTS.

                  The Borrower shall have the right, upon not less than five (5)
Business  Days'  written  irrevocable  notice to the  Administrative  Agent,  to
terminate the Revolving Credit  Commitments or, from time to time, to reduce the
amount of the Revolving Credit Commitments,  which notice shall specify the date
and amount of any such reduction and otherwise be  substantially  in the form of
EXHIBIT 4.4.4 (a "Commitment Reduction Notice").  Any such reduction shall be in
a minimum amount equal to  $10,000,000 or an integral  multiple of $1,000,000 in
excess  thereof,  PROVIDED,  that the Revolving  Credit  Commitments  may not be
reduced  below  the  sum of the  aggregate  principal  amount  of all  Revolving
Facility Usage.  Each reduction of Revolving  Credit  Commitments  shall ratably
reduce the Revolving Credit Commitments of the Banks.

                                     - 51 -


                  4.4.5   MANDATORY PREPAYMENT UPON ISSUANCE OF CERTAIN DEBT AND
                          CERTAIN EQUITY.
 
                  Within five (5) Business  Days of the issuance by the Borrower
or any  Subsidiary of the Borrower  (other than Excluded  Subsidiaries),  of any
debt or  equity  securities  for cash  proceeds  (including  any  hybrid  equity
securities),  the Borrower shall make a mandatory prepayment of principal on the
Term Loans  equal to 75% of the Net Cash  Proceeds  of any debt  securities  and
equal  to 50%  of the  Net  Cash  Proceeds  of any  equity  securities  (each  a
"Mandatory Prepayment") (PROVIDED that no mandatory prepayment shall be required
with  respect  to the  issuance  of debt or equity  securities  by such  Persons
following  the  Closing  Date of up to  $300,000,000  in the  aggregate  of such
securities).  Each Mandatory  Prepayment  shall be applied to payment in full of
the principal amount of the Term Loans by application to the unpaid installments
of  principal  in the inverse  order of  scheduled  maturities.  Any  prepayment
hereunder  shall be subject to the Borrower's  Obligation to indemnify the Banks
under  Section  4.5.2  [Indemnity].  To the extent that a  Mandatory  Prepayment
exceeds the  outstanding  principal  amount of the Term Loans,  such  prepayment
shall be limited to the amount  necessary  to prepay the Term Loans in full.  If
the Borrower's  senior  unsecured  long-term  debt, on a consolidated  basis, is
rated  Investment  Grade,  then at any time  thereafter when the Borrower issues
debt or equity securities if the senior unsecured long-term debt of the Borrower
is rated,  as of the date of  issuance  of such debt or  equity  securities,  by
either  Moody's at Baa3 or better or  Standard  & Poor's at BBB- or  better,  no
Mandatory Prepayment pursuant to this Section 4.4.5 will be required to be made.

                  4.4.6   MANDATORY PREPAYMENT UPON SALE OF ASSETS.

                  Within  five (5)  Business  Days of any sale of  assets by any
member of the Arch Coal Group  authorized by Section  7.2.4(v)  [Disposition  of
Assets or  Subsidiaries],  the  Borrower  shall make a mandatory  prepayment  of
principal  on the Term  Loans  equal to the Net Cash  Proceeds  of such sale (as
estimated in good faith by the Borrower), together with accrued interest on such
principal  amount.  All  prepayments  pursuant  to this  Section  4.4.6 shall be
applied  to  payment  in full of the  principal  amount  of the  Term  Loans  by
application  to the unpaid  installments  of principal  in the inverse  order of
scheduled  maturities.   Any  prepayment  hereunder  shall  be  subject  to  the
Borrower's Obligation to indemnify the Banks under Section 4.5.2 [Indemnity]. If
the Borrower's  senior  unsecured  long-term  debt, on a consolidated  basis, is
rated Investment  Grade, then at any time thereafter when any member of the Arch
Coal Group sells  assets in  accordance  with  Section  7.2.4(v),  if the senior
unsecured  long-term debt of the Borrower is rated, as of the date of such asset
sale,  by either  Moody's at Baa3 or better or by  Standards & Poor's at BBB- or
better,  no  prepayment  pursuant to this  Section  4.4.6 will be required to be
made.

                                     - 52 -


            4.5   ADDITIONAL COMPENSATION IN CERTAIN CIRCUMSTANCES.

                  4.5.1  INCREASED COSTS OR REDUCED RETURN RESULTING FROM TAXES,
                         RESERVES, CAPITAL ADEQUACY REQUIREMENTS, EXPENSES, ETC.

                  If any Law,  guideline or  interpretation or any change in any
Law,  guideline or  interpretation  or application  thereof by any Official Body
charged with the interpretation or administration thereof or compliance with any
request or  directive  (whether  or not having the force of Law) of any  central
bank or other Official Body:

                         (i)   subjects any  Lender  to  any tax  or changes the
basis of taxation with respect to this Agreement, the Committed Loans or the Bid
Loans or payments by the Borrower of  principal,  interest,  Facility  Fees,  or
other amounts due from the Borrower  hereunder  (except for taxes on the overall
net income of such Lender),

                         (ii)  imposes,   modifies  or   deems   applicable  any
reserve,  special deposit or similar  requirement against credits or commitments
to extend credit extended by, or assets (funded or contingent) of, deposits with
or for the account of, or other acquisitions of funds by, any Lender, or

                         (iii) imposes, modifies or deems applicable any capital
adequacy or similar requirement (A) against assets (funded or contingent) of, or
letters of credit,  other credits or commitments  to extend credit  extended by,
any Lender,  or (B) otherwise  applicable to the obligations of any Lender under
this Agreement,

and the result of any of the  foregoing is to increase  the cost to,  reduce the
income receivable by, or impose any expense  (including loss of margin) upon any
Lender with respect to this Agreement, or the making,  maintenance or funding of
any part of the Committed Loans or the Bid Loans (or, in the case of any capital
adequacy  or similar  requirement,  to have the effect of  reducing  the rate of
return  on  any  Lender's  capital,  taking  into  consideration  such  Lender's
customary  policies  with  respect to capital  adequacy) by an amount which such
Lender in its sole discretion deems to be material,  such Lender shall from time
to  time  notify  the  Borrower  and  the  Administrative  Agent  of the  amount
determined in good faith (using any averaging and attribution  methods  employed
in good faith) by such Lender to be necessary to compensate such Lender for such
increase in cost,  reduction  of income,  additional  expense or reduced rate of
return.  Such  notice  shall set forth in  reasonable  detail the basis for such
determination.  Such  amount  shall be due and  payable by the  Borrower to such
Lender ten (10) Business Days after such notice is given.

                  4.5.2  INDEMNITY.

                  In addition  to the  compensation  required  by Section  4.5.1
[Increased  Costs,  etc.],  the Borrower shall indemnify each Lender against all
liabilities,  losses or expenses  (including loss of margin, any loss or expense
incurred in liquidating or employing deposits from third parties and any loss or
expense  incurred  in  connection  with  funds  acquired  by a Lender to 

                                     - 53 -


fund or maintain Loans subject to a Euro-Rate  Option or the Bid Loan Fixed Rate
Option) which such Lender sustains or incurs as a consequence of any

                         (i)   payment, prepayment, conversion or renewal of any
Loan to which a Euro-Rate  Option or the Bid Loan Fixed Rate Option applies on a
day other than the last day of the corresponding Interest Period (whether or not
such payment or prepayment  is mandatory,  voluntary or automatic and whether or
not such payment or prepayment is then due);

                         (ii)  attempt by the Borrower to revoke (expressly,  by
later  inconsistent  notices or  otherwise)  in whole or part any Loan  Requests
under  Section  2.4.1  [Committed  Loan  Requests],  Section  2.4.2  [Swing Loan
Requests],  Section 2.9 [Bid Loan Facility] or Section 3.2 [Interest Periods] or
notice relating to prepayments under Section 4.4.1 [Voluntary Prepayments];

                         (iii) default  by the  Borrower in the  performance  or
observance of any covenant or condition contained in this Agreement or any other
Loan  Document,  including  any  failure  of the  Borrower  to pay  when due (by
acceleration  or otherwise) any principal of or interest on the Committed  Loans
or the Bid Loans, Facility Fees or any other amount due hereunder; or

                         (iv)  payment  or  prepayment  of any Bid Loan on a day
other than the maturity date thereof  (whether or not such payment or prepayment
is mandatory or voluntary).

If any Lender sustains or incurs any such loss or expense, it shall from time to
time notify the Borrower of the amount  determined  in good faith by such Lender
(which  determination  may include such  assumptions,  allocations  of costs and
expenses  and  averaging  or  attribution  methods  as such  Lender  shall  deem
reasonable)  to be necessary to indemnify  such Lender for such loss or expense.
Such  notice  shall  set  forth  in   reasonable   detail  the  basis  for  such
determination.  Such  amount  shall be due and  payable by the  Borrower to such
Lender ten (10) Business Days after such notice is given.

            4.6   NOTES.

            Upon the request of any Bank,  the  Revolving  Credit  Loans or Term
Loans made by such Bank may be evidenced by a Revolving  Credit Note in the form
of EXHIBIT 1.1(R) or a Term Note in the form of EXHIBIT 1.1(T).

            4.7   SETTLEMENT DATE PROCEDURES.

            In order to minimize the transfer of funds between the Banks and the
Administrative  Agent,  the Borrower may borrow,  repay and reborrow Swing Loans
and PNC Bank may make Swing Loans as  provided in Section 2.5 hereof  during the
period between  Settlement  Dates. Not later than 11:00 a.m., on each Settlement
Date, the  Administrative  Agent shall notify each Bank of its Revolving  Credit
Ratable  Share of the total of the  Revolving  Credit  

                                     - 54 -


Loans  and the  Swing  Loans  (each a  "Required  Share").  Prior to 2:00  p.m.,
Pittsburgh   time,  on  such  Settlement  Date,  each  Bank  shall  pay  to  the
Administrative  Agent the amount  equal to the  difference  between its Required
Share and its Revolving Credit Loans, and the Administrative  Agent shall pay to
each  Bank  its  Revolving  Credit  Ratable  Share of all  payments  made by the
Borrower to the Administrative Agent with respect to the Revolving Credit Loans.
The  Administrative  Agent shall also effect  settlement in accordance  with the
foregoing  sentence on the proposed  Borrowing Dates for Revolving  Credit Loans
and may at its  option  effect  settlement  on any  other  Business  Day.  These
settlement  procedures  are  established  solely as a matter  of  administrative
convenience,  and nothing  contained in this Section 4.7 shall relieve the Banks
of their  obligations  to fund  Revolving  Credit  Loans on dates  other  than a
Settlement Date pursuant to Sections 2.1.1 and 2.2. The Administrative Agent may
at any time for any reason  whatsoever  require each Bank to pay  immediately to
the  Administrative  Agent such Bank's  Revolving  Credit  Ratable  Share of the
outstanding  Revolving  Credit Loans,  and each Bank may at any time require the
Administrative  Agent  to pay  immediately  to such  Bank its  Revolving  Credit
Ratable Share of all payments made by the Borrower to the  Administrative  Agent
with respect to the Revolving Credit Loans.

            4.8   TAXES.

                  4.8.1  NO DEDUCTIONS.

                  All payments made by the Borrower hereunder shall be made free
and clear of and  without  deduction  for any present or future  taxes,  levies,
imposts, deductions,  charges, or withholdings, and all liabilities with respect
thereto, excluding taxes imposed on the net income of the Lenders and all income
and  franchise  taxes of the United  States  applicable to the Lenders (all such
non-excluded  taxes,  levies,  imposts  deductions,  charges,  withholdings  and
liabilities being hereinafter referred to as "Taxes").  If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable  under
the Credit Agreement, (i) the sum payable shall be increased as may be necessary
so that after making all required deductions (including deductions applicable to
additional sums payable under this subsection) the Administrative Agent receives
an amount equal to the sum it would have  received had no such  deductions  been
made,  (ii) the Borrower shall make such deductions and (iii) the Borrower shall
timely pay the full  amount  deducted to the  relevant  tax  authority  or other
authority in accordance with applicable law.

                  4.8.2  STAMP TAXES.

                  In addition,  the Borrower agrees to pay any present or future
stamp or documentary  taxes or any other excise or property taxes,  charges,  or
similar  levies  which  arise  from  any  payment  made  hereunder  or from  the
execution,  delivery, or registration,  or otherwise with respect to, the Credit
Agreement (hereinafter referred to as "Other Taxes").

                  4.8.3  INDEMNIFICATION FOR TAXES PAID BY LENDERS.

                  The Borrower  shall  indemnify the Lenders for the full amount
of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed by any  

                                     - 55 -


jurisdiction on amounts payable under this  subsection)  paid by such Lender and
any liability (including penalties, interest, and expenses) arising therefrom or
with respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally  asserted.  This  indemnification  shall be made within 30 days from the
date such Lender makes written demand therefor.

                  4.8.4   CERTIFICATE.

                  Within 30 days  after the date of any  payment of any Taxes by
the Borrower,  the Borrower  shall furnish to the  Administrative  Agent for the
benefit of the Lenders the original or a certified copy of a receipt  evidencing
payment  thereof.  If no Taxes are  payable  in  respect  of any  payment by the
Borrower,  the  Borrower  shall,  if so  requested  by  any  Lender,  provide  a
certificate of an officer of the Borrower to that effect.

                  4.8.5   SURVIVAL.

                  Without  prejudice to the  survival of any other  agreement of
the Borrower hereunder, the agreements and obligations of the Borrower contained
in  subsections  4.8.1  through  4.8.4  shall  survive  the  payment  in full of
principal and interest under any promissory  note made by Borrower to any Lender
under the Credit Agreement.

                  4.8.6   REFUND AND CONTEST.

                  If the  Borrower  determines  in good faith that a  reasonable
basis exists for  contesting  any Taxes or Other Taxes with respect to which the
Borrower  was required to take the actions  specified in the second  sentence of
subsection  4.8.1,  the  relevant  Lender (to the extent such Lender  reasonably
determines in good faith that it will not suffer any adverse  effect as a result
thereof) shall cooperate with the Borrower in challenging the imposition of such
Taxes or Other Taxes at the  Borrower's  expense if so requested by the Borrower
in writing.  If such Lender  receives a refund of Taxes or Other Taxes for which
the payment has been made by the  Borrower  pursuant  to this  Agreement,  which
refund  in the  good  faith  judgment  of such  Lender  is  attributable  to the
Borrower,  then such Lender shall reimburse the Borrower for such amount as such
Lender  determines  to be the  proportion  of the refund as will leave it, after
such reimbursement, in no better or worse position than it would have been in if
the payment had not been  required.  No Lender nor any Agent shall be obliged to
disclose  information  regarding its tax affairs or  computations to Borrower in
connection with this Section 4.8.6 or any other provision of Section 4.8.


                        5. REPRESENTATIONS AND WARRANTIES

            5.1   REPRESENTATIONS AND WARRANTIES.

            The Borrower  represents  and warrants to the Agents and each of the
Lenders as follows:

                                     - 56 -


                  5.1.1  ORGANIZATION AND QUALIFICATION.

                  Each Loan  Party and each  Subsidiary  of each Loan Party is a
corporation,  partnership or limited liability  company duly organized,  validly
existing  and  in  good  standing  under  the  laws  of  its   jurisdiction   of
organization.  Each Loan  Party and each  Subsidiary  of each Loan Party has the
lawful  power to own or lease its  properties  and to engage in the  business it
presently  conducts or proposes to conduct.  Each Loan Party and each Subsidiary
of each Loan Party is duly  licensed or qualified  and in good  standing in each
jurisdiction  where the  property  owned or  leased  by it or the  nature of the
business  transacted  by  it or  both  makes  such  licensing  or  qualification
necessary  and where the failure to so qualify  could  reasonably be expected to
result in a Material Adverse Change.

                  5.1.2  SHARES OF BORROWER; SUBSIDIARIES; AND SUBSIDIARY 
                         SHARES.

                  On the Closing Date, SCHEDULE 5.1.2 states the name of each of
the Borrower's Subsidiaries,  its jurisdiction of incorporation,  its authorized
capital  stock,  the issued and  outstanding  shares  (referred to herein as the
"Subsidiary  Shares")  and  the  owners  thereof  if  it is a  corporation,  its
outstanding  partnership  interests  (the  "Partnership  Interests")  if it is a
partnership and its outstanding  limited liability company interests,  interests
assigned to managers  thereof and the voting rights  associated  therewith  (the
"LLC  Interests")  if it is a limited  liability  company.  On the Closing Date,
SCHEDULE  5.1.2  also  sets  forth  the  jurisdiction  of  incorporation  of the
Borrower,  its authorized  capital stock (the "Borrower  Shares") and the voting
rights  associated  therewith.  The Borrower and each Subsidiary of the Borrower
has  good and  marketable  title to all of the  Subsidiary  Shares,  Partnership
Interests  and LLC  Interests it purports to own, free and clear in each case of
any Lien. All Borrower Shares, Subsidiary Shares,  Partnership Interests and LLC
Interests have been validly  issued,  and all Borrower Shares and all Subsidiary
Shares are fully paid and  nonassessable.  All capital  contributions  and other
consideration required to be made or paid in connection with the issuance of the
Partnership  Interests and LLC Interests have been made or paid, as the case may
be.  On the  Closing  Date,  there  are no  options,  warrants  or other  rights
outstanding to purchase any such Borrower Shares, Subsidiary Shares, Partnership
Interests or LLC Interests except as indicated on SCHEDULE 5.1.2.

                  5.1.3  POWER AND AUTHORITY.

                         (a)  Each  Loan  Party  has full  power to enter  into,
execute,  deliver and carry out this  Agreement and the other Loan  Documents to
which  it is a  party,  to  incur  the  Indebtedness  contemplated  by the  Loan
Documents and to perform its Obligations under the Loan Documents to which it is
a party,  and all such  actions  have  been  duly  authorized  by all  necessary
proceedings on its part. The Borrower and each  Subsidiary of the Borrower party
to the Acquisition Documents has full power to enter into, execute,  deliver and
perform the Acquisition  Documents to which it is a party,  and all such actions
have been duly authorized by all necessary proceedings on its part.

                         (b)  To the knowledge  of the  Borrower  on the Closing
Date,  based on  representations  made to it by or on behalf of the ACC Group in
the Acquisition 

                                     - 57 -


Documents,  each member of the ACC Group has full power to enter into,  execute,
deliver  and perform the  Acquisition  Documents  to which it is a party and all
such actions  have been duly  authorized  by all  necessary  proceedings  on its
respective part.

                  5.1.4   VALIDITY AND BINDING EFFECT.

                  (a) This  Agreement  has been duly and  validly  executed  and
delivered by each Loan Party,  and each other Loan Document which any Loan Party
is  required  to execute  and deliver on or after the date hereof will have been
duly  executed and delivered by such Loan Party on the required date of delivery
of such Loan Document.  This Agreement and each other Loan Document constitutes,
or will  constitute,  legal,  valid and binding  obligations  of each Loan Party
which is or will be a party  thereto on and after its date of delivery  thereof,
enforceable  against such Loan Party in accordance with its terms, except to the
extent  that  enforceability  of any of such Loan  Document  may be  limited  by
bankruptcy,  insolvency,  reorganization,   moratorium  or  other  similar  laws
affecting  the  enforceability  of creditors'  rights  generally or limiting the
right of specific  performance.  The  Acquisition  Documents  have been duly and
validly  executed and  delivered  by the  Borrower and each of its  Subsidiaries
party  thereto.  On the Closing Date,  the  Acquisition  shall be consummated in
accordance  with  the  terms  of  the  Acquisition  Documents.  The  Acquisition
Documents constitute the legal, valid and binding obligation of the Borrower and
each of its Subsidiaries party thereto,  enforceable against each such Person in
accordance with the terms thereof,  except to the extent that  enforceability of
the   Acquisition   Documents   may  be  limited  by   bankruptcy,   insolvency,
reorganization, moratorium or other similar law, affecting the enforceability of
creditors'  rights  generally or limiting the right of specific  performance.  A
complete  copy  of  the   Acquisition   Documents  has  been  delivered  to  the
Administrative Agent.

                  (b) To the  knowledge  of the  Borrower on the  Closing  Date,
based on  representations  made to it by or on  behalf  of the ACC  Group in the
Acquisition  Documents,  each of the  Acquisition  Documents  has been  duly and
validly executed and delivered by each member of the ACC Group party thereto. To
the knowledge of the Borrower on the Closing Date, based on representations made
to it by or on  behalf  of the ACC  Group  in the  Acquisition  Documents,  each
Acquisition Document constitutes the legal, valid and binding obligation of each
member of the ACC Group party thereto,  enforceable  against each such member of
the ACC Group in accordance  with the terms  thereof,  except to the extent that
enforceability  of the  Acquisition  Documents  may be  limited  by  bankruptcy,
insolvency,  reorganization,  moratorium  or other  similar law,  affecting  the
enforceability  of creditors' rights generally or limiting the right of specific
performance.

                  5.1.5  NO CONFLICT.

                  (a) Neither the  execution  and delivery of this  Agreement or
the other Loan Documents by any Loan Party or the  Acquisition  Documents by the
Borrower or any Subsidiary of the Borrower party thereto,  nor the  consummation
of the transactions herein or therein  contemplated or compliance with the terms
and provisions hereof or thereof by any of them will conflict with, constitute a
default  under or result in any  breach of (i) the terms and  

                                     - 58 -


conditions of the certificate of incorporation,  bylaws,  certificate of limited
partnership,  partnership agreement, certificate of formation, limited liability
company agreement or other organizational documents of any Loan Party or, in the
case of the  Acquisition  Documents,  of the Borrower or any  Subsidiary  of the
Borrower  party thereto or (ii) any Law or any material  agreement or instrument
or order,  writ,  judgment,  injunction  or decree to which the  Borrower or any
Subsidiary of the Borrower party to the Acquisition Documents, or any Loan Party
or any  Subsidiary of any Loan Party is a party or by which any of the foregoing
Persons is bound or to which any of the foregoing Persons is subject,  or result
in the creation or  enforcement of any Lien,  charge or  encumbrance  whatsoever
upon any property (now or hereafter  acquired) of the Borrower or any Subsidiary
of the Borrower party to the  Acquisition  Documents or of any Loan Party or any
Subsidiary  of  any  Loan  Party  (other  than  Liens  granted  under  the  Loan
Documents).

                  (b) To the  knowledge  of the  Borrower on the  Closing  Date,
based on  representations  made to it by or on  behalf  of the ACC  Group in the
Acquisition  Documents,  neither the execution  and delivery of the  Acquisition
Documents  by  any  member  of  the  ACC  Group,  nor  the  consummation  of the
transactions  therein  contemplated  or compliance with the terms and provisions
thereof by any of them will conflict with,  constitute a default under or result
in  any  breach  of  (i)  the  terms  and  conditions  of  the   certificate  of
incorporation,   bylaws,   certificate  of  limited   partnership,   partnership
agreement,  certificate of formation,  limited  liability  company  agreement or
other  organizational  documents  of any  such  Person  or  (ii)  any Law or any
material agreement or instrument or order, writ, judgment,  injunction or decree
to which any such Person is a party or by which any of the foregoing  Persons is
bound or to which any of the  foregoing  Persons  is  subject,  or result in the
creation or enforcement of any Lien,  charge or encumbrance  whatsoever upon any
property (now or hereafter acquired) of any such Person.

                  5.1.6   LITIGATION.

                  There are no actions,  suits,  proceedings  or  investigations
pending or, to the  knowledge  of any Loan Party,  threatened  against such Loan
Party or any  Subsidiary of such Loan Party at law or equity before any Official
Body which  individually  or in the  aggregate  could  reasonably be expected to
result in a Material Adverse Change.  None of the Loan Parties or any Subsidiary
of any Loan Party is in violation of any order,  writ,  injunction or any decree
of any Official Body which could  reasonably be expected to result in a Material
Adverse Change.

                  5.1.7   FINANCIAL STATEMENTS.

                  (i)    HISTORICAL STATEMENTS.

                         (a) The  Borrower has  delivered to the  Administrative
Agent copies of its audited  consolidated  year-end financial statements for and
as of  the  end of  the  fiscal  year  ended  December  31,  1997  (the  "Annual
Statements").  In addition,  the Borrower  has  delivered to the  Administrative
Agent copies of its unaudited  consolidated interim financial statements for the
fiscal year to date and as of the end of the fiscal quarter ended March 31, 1998
(the "Interim Statements") (the Annual and Interim Statements being collectively
referred to as the  "Historical  Statements").  The Historical  Statements  were
compiled from the books and records maintained by the Borrower's management, are
correct and complete and fairly represent 

                                     - 59 -


the consolidated  financial condition of the Borrower and its Subsidiaries as of
their dates and the results of operations  for the fiscal periods then ended and
have been prepared in accordance with GAAP consistently applied, subject (in the
case of the  Interim  Statements)  to normal  year-end  audit  adjustments.  The
Borrower  has  delivered  to the  Administrative  Agent  copies  of the  audited
consolidated  year-end  balance  sheet for ACC as of the end of the fiscal years
ended  December  31,  1996 and  December  31,  1997 and  copies  of the  audited
consolidated  statements of income,  of equity  investment and of cash flows for
each of the three years in the period ended December 31, 1997 (collectively, the
"ACC Annual Statements").

                         (b) To the knowledge of the Borrower, as of the Closing
Date,  based on  representations  made to it by or on behalf of the ACC Group in
the  Acquisition  Documents,  the ACC Annual  Statements  were compiled from the
books and records  maintained by ACC's management,  are correct and complete and
fairly represent the consolidated  financial  condition of ACC as of their dates
and the results of  operations  for the fiscal  periods then ended and have been
prepared in accordance with GAAP consistently applied.

                  (ii)  ACCURACY OF FINANCIAL STATEMENTS.

                         (a)  Neither the  Borrower  nor any  Subsidiary  of the
Borrower has on the Closing Date any  liabilities,  contingent or otherwise,  or
forward  or  long-term  commitments  that are not  disclosed  in the  Historical
Statements or in the notes thereto, and except as disclosed therein there are no
unrealized or  anticipated  losses from any  commitments  of the Borrower or any
Subsidiary  of the Borrower  which could  reasonably  be expected to result in a
Material Adverse Change. Since December 31, 1997, no Material Adverse Change has
occurred.

                         (b) To the knowledge of the Borrower, as of the Closing
Date,  based on  representations  made to it by or on behalf of the ACC Group in
the Acquisition Documents,  ACC has no liabilities,  contingent or otherwise, or
forward  or  long-term  commitments  that are not  disclosed  in the ACC  Annual
Statements or in the notes  thereto,  and there are no unrealized or anticipated
losses from any commitments of ACC which could  reasonably be expected to result
in a Material Adverse Change.

                  (iii) FINANCIAL PROJECTIONS. The Borrower has delivered to the
Agents financial projections of the Borrower and its Subsidiaries for the period
January 1, 1998  through and  including  December  31, 2002 derived from various
assumptions of the Borrower's management (the "Financial  Projections").  On the
Closing Date, the Financial Projections represent a reasonable range of possible
results in light of the history of the  business  (in the case of Arch  Western,
taking  into  consideration  the  ACC  Annual  Statements  and  the  history  of
performance of Arch of Wyoming LLC), present and foreseeable  conditions and the
intentions of the Borrower's  management.  The Financial Projections  accurately
reflect the liabilities of the Borrower and its Subsidiaries  upon  consummation
of the Acquisition and of the transactions contemplated hereby as of the Closing
Date.

                                     - 60 -


                  5.1.8  USE OF PROCEEDS; MARGIN STOCK.

                         5.1.8.1 GENERAL.

                         The Loan Parties shall use the proceeds of the Loans in
accordance with Sections 2.7, 2.15 and 7.1.9.

                         5.1.8.2  MARGIN STOCK.

                         None of the Loan Parties nor any Subsidiary of any Loan
Party  engages  or  intends to engage  principally,  or as one of its  important
activities,  in the business of extending  credit for the purpose,  immediately,
incidentally  or ultimately,  of purchasing or carrying margin stock (within the
meaning of  Regulation  U). No part of the proceeds of any Loan has been or will
be used,  immediately,  incidentally  or  ultimately,  to  purchase or carry any
margin  stock or to extend  credit to others for the  purpose of  purchasing  or
carrying any margin stock or to refund Indebtedness originally incurred for such
purpose,  or  for  any  purpose  which  entails  a  violation  of  or  which  is
inconsistent with the provisions of the regulations of the Board of Governors of
the Federal Reserve  System.  None of the Loan Parties nor any Subsidiary of any
Loan Party holds or intends to hold margin  stock in such amounts that more than
25% of the reasonable value of the assets of any Loan Party or Subsidiary of any
Loan Party are or will be represented by margin stock.

                         5.1.8.3  [INTENTIONALLY OMITTED].

                  5.1.9  FULL DISCLOSURE.

                  On the Closing Date, neither this Agreement nor any other Loan
Document,  nor  the  Acquisition  Documents,  nor  any  certificate,  statement,
agreement or other documents furnished to the Administrative Agent or any Lender
in connection  herewith or therewith,  contains with respect to the Borrower and
its  Subsidiaries  and to the  knowledge of the Borrower with respect to the ACC
Group  based on  representations  made to it by or on behalf of the ACC Group in
the Acquisition  Documents,  any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
and  therein,  in light of the  circumstances  under  which they were made,  not
misleading.  On the Closing Date, there is no fact known to any Loan Party which
materially  adversely  affects the business,  financial  condition or results of
operations of the Borrower and its  Subsidiaries  taken as a whole which has not
been set forth in this Agreement or in the certificates,  statements, agreements
or other  documents  furnished  in writing to the  Administrative  Agent and the
Banks  prior to or at the  date  hereof  in  connection  with  the  transactions
contemplated hereby.

                  5.1.10  TAXES.

                  All federal,  state,  local and other tax returns  required to
have been filed with respect to each Loan Party and each Subsidiary of each Loan
Party have been filed,  and payment or adequate  provision has been made for the
payment of all taxes,  fees,  assessments and other  governmental  charges which
have or may become due  pursuant  to said  returns or to  

                                     - 61 -

assessments  received,  except to the extent that such taxes, fees,  assessments
and other charges are being  contested in good faith by appropriate  proceedings
diligently   conducted  and  for  which  such  reserves  or  other   appropriate
provisions, if any, as shall be required by GAAP shall have been made. There are
no  agreements  or  waivers   extending  the  statutory  period  of  limitations
applicable  to any federal  income tax return of any Loan Party or Subsidiary of
any Loan Party for any period.

                  5.1.11  CONSENTS AND APPROVALS.

                  No consent, approval, exemption, order or authorization of, or
a registration or filing with, any Official Body or any other Person is required
by any Law or any  agreement  in  connection  with the  execution,  delivery and
carrying out of this  Agreement and the other Loan  Documents by any Loan Party,
except as listed on SCHEDULE  5.1.11,  all of which shall have been  obtained or
made on or prior to the Closing Date except as  otherwise  indicated on SCHEDULE
5.1.11. All material consents,  approvals,  exemptions,  orders or authorization
of, or  registration  or filing with,  any Official  Body or any other Person as
required by any Law or any agreement in connection with the execution,  delivery
and carrying out of the Acquisition in accordance with the Acquisition Documents
have been obtained or made on or prior to the Closing Date,  except as otherwise
indicated on SCHEDULE 5.1.11.

                  5.1.12  NO EVENT OF DEFAULT; COMPLIANCE  WITH  INSTRUMENTS AND
                          MATERIAL CONTRACTS.

                  No event  has  occurred  and is  continuing  and no  condition
exists or will exist after giving effect to the  borrowings or other  extensions
of credit to be made on the Closing Date under or pursuant to the Loan Documents
which  constitutes  an Event of Default or Potential  Default.  None of the Loan
Parties or any  Subsidiary  of any Loan Party is in violation of (i) any term of
its certificate of incorporation,  bylaws,  certificate of limited  partnership,
partnership  agreement,  certificate  of formation,  limited  liability  company
agreement or other  organizational  documents or (ii) any material  agreement or
instrument to which it is a party or by which it or any of its properties may be
subject or bound where such violation could  reasonably be expected to result in
a Material Adverse Change. All Material  Contracts  described in clauses (ii) or
(iii) of the  definition of "Material  Contracts" to which any Loan Party or any
Subsidiary of any Loan Party is a party or by which any Loan Party or Subsidiary
of any Loan Party is bound are valid,  binding  and  enforceable  upon such Loan
Party or Subsidiary  and to the best  knowledge of the Borrower upon each of the
other parties thereto in accordance with their respective terms, and there is no
default by any Loan Party or any Subsidiary of any Loan Party under any Material
Contract  nor,  to the Loan  Parties'  knowledge,  any default  thereunder  with
respect to parties  thereto  other than any Loan Party or  Subsidiary  of a Loan
Party  except in each  case to the  extent  the same  could  not  reasonably  be
expected to result in a Material  Adverse  Change.  None of the Loan  Parties or
their  Subsidiaries  is bound by any contractual  obligation,  or subject to any
restriction in any organization  document, or any requirement of Law which could
reasonably be expected to result in a Material Adverse Change.

                                     - 62 -


                  5.1.13  INSURANCE.

                  No notice has been given or claim made and no grounds exist to
cancel or avoid any  insurance  policies or bonds to which the Loan  Parties are
subject,  or to reduce the coverage  provided  thereby.  Such policies and bonds
provide  adequate  coverage from  reputable and  financially  sound  insurers in
amounts  sufficient  to insure  the assets and risks of each Loan Party and each
Subsidiary of each Loan Party in accordance  with prudent  business  practice in
the industry of the Loan Parties and their Subsidiaries.

                  5.1.14  COMPLIANCE WITH LAWS.

                  The Loan Parties and their  Subsidiaries  are in compliance in
all material  respects with all applicable Laws (other than  Environmental  Laws
which are specifically  addressed in Section 5.1.18 [Environmental  Matters]) in
all  jurisdictions  in which any Loan Party or  Subsidiary  of any Loan Party is
doing  business  except  where  the  failure  to do so could not  reasonably  be
expected to result in a Material Adverse Change.

                  5.1.15  INVESTMENT COMPANIES; REGULATED ENTITIES.

                  None of the Loan Parties or any Subsidiaries of any Loan Party
is an  "investment  company"  registered or required to be registered  under the
Investment Company Act of 1940 or under the "control" of an "investment company"
as such terms are  defined in the  Investment  Company Act of 1940 and shall not
become such an "investment  company" or under such  "control."  None of the Loan
Parties or any  Subsidiary  of any Loan Party is subject to any other Federal or
state  statute or  regulation  limiting  its ability to incur  Indebtedness  for
borrowed money.

                  5.1.16   PLANS AND BENEFIT ARRANGEMENTS.

                           (i) The  Borrower  and each other member of the ERISA
Group are in compliance in all material respects with any applicable  provisions
of ERISA with respect to all Benefit  Arrangements and Plans.  There has been no
Prohibited  Transaction with respect to any Benefit  Arrangement or any Plan or,
to the best knowledge of the Borrower, with respect to any Multiemployer Plan or
Multiple  Employer  Plan,  which could result in any  material  liability of the
Borrower or any other  member of the ERISA  Group.  The  Borrower  and all other
members of the ERISA Group have made when due any and all  payments  required to
be made  under any  agreement  relating  to a  Multiemployer  Plan or a Multiple
Employer  Plan or any Law  pertaining  thereto.  With  respect  to each Plan and
Multiemployer  Plan,  the  Borrower and each other member of the ERISA Group (i)
have  fulfilled in all material  respects  their  obligations  under the minimum
funding  standards of ERISA,  (ii) have not  incurred any  liability to the PBGC
(other than premium payments),  and (iii) have not had asserted against them any
penalty for failure to fulfill the minimum funding  requirements  of ERISA.  All
Plans and Benefit  Arrangements  have been administered in all material respects
with their terms and applicable Law.

                                     - 63 -


                           (ii)   No event requiring notice  to the  PBGC  under
Section  302(f)(4)(A)  of ERISA has occurred or is reasonably  expected to occur
with  respect to any Plan,  and no amendment  with respect to which  security is
required  under Section 307 of ERISA has been made or is reasonably  expected to
be made to any Plan.

                           (iii)  Neither the  Borrower  nor any other member of
the  ERISA  Group has  incurred  or  reasonably  expects  to incur any  material
withdrawal  liability under ERISA to any Multiemployer Plan or Multiple Employer
Plan.  Neither  the  Borrower  nor any other  member of the ERISA Group has been
notified  by  any  Multiemployer  Plan  or  Multiple  Employer  Plan  that  such
Multiemployer  Plan or Multiple  Employer  Plan has been  terminated  within the
meaning of Title IV of ERISA and,  to the best  knowledge  of the  Borrower,  no
Multiemployer  Plan or  Multiple  Employer  Plan is  reasonably  expected  to be
reorganized or terminated, within the meaning of Title IV of ERISA.

                  5.1.17   EMPLOYMENT MATTERS.

                  Each of the Loan Parties and each of their  Subsidiaries is in
substantial  compliance  with the Labor  Contracts and all  applicable  federal,
state and local  labor and  employment  Laws  including  those  related to equal
employment  opportunity and affirmative action,  labor relations,  minimum wage,
overtime,  child labor,  medical insurance  continuation,  worker adjustment and
relocation   notices,   immigration   controls   and  worker  and   unemployment
compensation, where the failure to comply could reasonably be expected to result
in a Material Adverse Change. There are no outstanding  grievances,  arbitration
awards or appeals  therefrom  arising out of the Labor  Contracts  or current or
threatened strikes, picketing,  handbilling or other work stoppages or slowdowns
at facilities of any of the Loan Parties or any of their  Subsidiaries  which in
any case could reasonably be expected to result in a Material Adverse Change.

                  5.1.18  ENVIRONMENTAL MATTERS.

                  The Loan Parties and their  Subsidiaries  are and have been in
substantial  compliance with all Environmental Laws, except where the failure to
so comply  could not  reasonably  be  expected  to result in a Material  Adverse
Change.  Neither any  property of any Loan Party or any  Subsidiary  of any Loan
Party nor their respective  operations  conducted  thereon violates any order of
any court of governmental  authority made pursuant to Environmental  Laws except
for noncompliance with respect thereto which could not reasonably be expected to
result  in a  Material  Adverse  Change . There  are no  threatened  or  pending
Environmental  Claims against any Loan Party or any Subsidiary of any Loan Party
which  could  reasonably  be expected  to result in a Material  Adverse  Change.
Neither any Loan Party nor any  Subsidiary  of any Loan Party has  received  any
notice  from any  governmental  or  regulatory  authority  regarding  actual  or
contingent liability in connection with any release or threatened release of any
Hazardous  Substance into the environment  which actual or contingent  liability
could reasonably be expected to result in a Material Adverse Change.

                                     - 64 -


                  5.1.19  SENIOR DEBT STATUS.

                  The Obligations of each Loan Party under this  Agreement,  the
Guaranty  Agreement and each of the other Loan  Documents to which it is a party
do rank and will rank at least PARI PASSU in priority of payment  with all other
Indebtedness  of such Loan Party except  Indebtedness  of such Loan Party to the
extent secured by Permitted Liens.  There is no Lien upon or with respect to any
of the  properties  or income of any Loan Party or  Subsidiary of any Loan Party
which  secures  indebtedness  or other  obligations  of any  Person  except  for
Permitted Liens.

                  5.1.20  TITLE TO PROPERTIES.

                  Each Loan  Party and each  Subsidiary  of each Loan  Party has
good and  marketable  title  to or  valid  leasehold  interest  in all  material
properties,  assets and other  rights which it purports to own or lease or which
are reflected as owned or leased on its books and records, free and clear of all
Liens and  encumbrances  except  Permitted  Liens,  and subject to the terms and
conditions  of the  applicable  leases.  On the Closing Date,  Arch Western,  in
accordance with the Purchase  Agreement and the  Contribution  Agreement,  shall
have received as a contribution  to its capital such assets as are necessary for
the  operation of the  Business,  including,  without  limitation,  all material
assets set forth in the ACC  Balance  Sheet  (other  than  assets  permitted  to
otherwise  be  sold  or  transferred  by ACC in  accordance  with  the  Purchase
Agreement  or  Contribution  Agreement  prior to the Closing Date and other than
those assets which,  in accordance  with the Purchase  Agreement or Contribution
Agreement, are not to be transferred by ACC to Arch Western).

                  5.1.21  BLACK LUNG.

                  As of the Closing Date, the Historical Statements, in the case
of the Borrower and its Subsidiaries,  and to the knowledge of the Borrower,  on
the Closing Date, based on representations made to it by or on behalf of the ACC
Group in the  Acquisition  Documents,  the ACC Annual  Statements in the case of
ACC,  contain  reasonably  adequate  reserves  in  accordance  with GAAP for the
respective  black lung  liabilities of the Borrower and its Subsidiaries and for
ACC.

                  5.1.22  COASTAL AGREEMENT.

                  Canyon  Fuel  is  a  "Buyer   Indemnitee"  under  the  Coastal
Agreement  and,  as such,  has the rights of an  "Indemnified  Party"  under the
Coastal Agreement.  Consummation of the Acquisition will not alter the rights of
Canyon Fuel under the Coastal Agreement.

            5.2   CONTINUATION OF REPRESENTATIONS.

            Except as to those  representations  and warranties limited by their
terms to the Closing Date, the Borrower makes the representations and warranties
in this  Section  5 on the  date  hereof  and on the  Closing  Date,  each  date
thereafter  on which a Loan is made or a Letter of Credit is issued as  provided
in and subject to Sections 6.1 [First Loans and Letters of Credit] and 

                                     - 65 -


6.2 [Each  Additional Loan or Letter of Credit] and on the  Syndication  Date as
provided in and subject to Section 6.3 [Syndication].


           6. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT

      The  obligation  of each Lender to make Loans and of the Issuing  Banks to
issue Letters of Credit  hereunder is subject to the performance by the Borrower
of its  Obligations  to be performed  hereunder at or prior to the making of any
such Loans or issuance of such Letters of Credit and to the  satisfaction of the
following further conditions:

            6.1   FIRST LOANS AND LETTERS OF CREDIT.

            On the Closing Date:

                  6.1.1  OFFICER'S CERTIFICATE.

                  The  representations  and warranties of the Borrower contained
in Section 5 and of each Loan Party in each of the other Loan Documents shall be
true and accurate on and as of the Closing  Date (with each such  representation
and  warranty  to be  made  after  giving  effect  to  the  consummation  of the
Acquisition) with the same effect as though such  representations and warranties
had been  made on and as of such date  (except  representations  and  warranties
which  relate  solely to an  earlier  date or time,  which  representations  and
warranties  shall be true and correct on and as of the  specific  dates or times
referred to therein),  and each of the Loan  Parties  shall have  performed  and
complied  with all  covenants  and  conditions  hereof and thereof,  no Event of
Default or Potential  Default  shall have  occurred and be  continuing  or shall
exist; and there shall be delivered to the Administrative  Agent for the benefit
of each Lender a certificate  of the Borrower  dated the Closing Date and signed
by the Chief  Executive  Officer,  President or Chief  Financial  Officer of the
Borrower to each such effect.

                  6.1.2  SECRETARY'S CERTIFICATE.

                  There shall be delivered to the  Administrative  Agent for the
benefit of each Lender a  certificate  dated the Closing  Date and signed by the
Secretary or an Assistant  Secretary of each of the Loan Parties,  certifying as
appropriate as to:

                         (i)   all action taken by each Loan Party in connection
with this Agreement and the other Loan Documents;

                         (ii)  the  names of  the officer or officers authorized
to sign this Agreement and the other Loan  Documents and the true  signatures of
such officer or officers and specifying the Authorized Officers permitted to act
on  behalf  of each  Loan  Party for  purposes  of this  Agreement  and the true
signatures of such officers,  on which the Administrative  Agent and each Lender
may conclusively rely; and

                         (iii) in  the  case  of  the  Borrower,  copies  of its
organizational documents,  including its certificate of incorporation and bylaws
as in  effect  on the  Closing  Date  

                                     - 66 -


and,  in  the  case  of  the  certificate  of  incorporation  certified  by  the
appropriate  state  official  where such  documents are filed in a state office,
together  with  certificates  from the  appropriate  state  officials  as to the
continued  existence  and good  standing  of the  Borrower  in the  state of its
formation and the state of its principal place of business.

                  6.1.3  DELIVERY OF GUARANTY AGREEMENT.

                  The  Guaranty  Agreement  shall  have been duly  executed  and
delivered to the Administrative Agent for the benefit of the Lenders.

                  6.1.4  OPINION OF COUNSEL.

                  There shall be delivered to the  Administrative  Agent for the
benefit of each Lender a written  opinion of  Kirkpatrick  & Lockhart LLP and of
Jeffry  Quinn,  the General  Counsel for the Loan  Parties  (who may rely on the
opinions  of such  other  counsel  as may be  acceptable  to the  Administrative
Agent),  dated the Closing Date and in form and  substance  satisfactory  to the
Administrative Agent and its counsel:

                         (i)   as to the matters set forth in EXHIBIT 6.1.4; and

                         (ii)  as  to  such  other   matters   incident  to  the
transactions  contemplated  herein as the  Administrative  Agent may  reasonably
request.

There shall also be delivered to the Administrative  Agent a copy of the opinion
of John R. Lucas, Associate General Counsel to ARCO.

                  6.1.5  LEGAL DETAILS.

                  All legal  details  and  proceedings  in  connection  with the
transactions contemplated by this Agreement and the other Loan Documents and the
Acquisition  Documents  shall  be in  form  and  substance  satisfactory  to the
Administrative  Agent  and  counsel  for  the  Administrative   Agent,  and  the
Administrative Agent shall have received all such other counterpart originals or
certified or other copies of such documents and  proceedings in connection  with
such  transactions,  in form and substance  satisfactory  to the  Administrative
Agent  and  said  counsel,  as the  Administrative  Agent  or said  counsel  may
reasonably request.

                  6.1.6  PAYMENT OF FEES.

                  The  Borrower  shall  have  paid or  caused  to be paid to the
Arrangers all fees required to be paid by the Borrower to the Arrangers,  to the
Administrative Agent for itself and for the account of the Lenders to the extent
not  previously  paid the Facility  Fees,  all other  commitment  and other fees
accrued  through  the  Closing  Date and the  costs and  expenses  for which the
Arrangers and the Lenders are entitled to be reimbursed.

                                     - 67 -


                  6.1.7   CONSENTS.

                  All material  consents required to effectuate the transactions
contemplated by the Loan Documents and by the  Acquisition  Documents shall have
been obtained.

                  6.1.8   OFFICER'S CERTIFICATE  REGARDING  NO MATERIAL  ADVERSE
                          CHANGE AND SOLVENCY.

                  Since December 31, 1997, no Material Adverse Change shall have
occurred; since December 31, 1997 and through the Closing Date, there shall have
been no material change in the management of the Borrower;  and there shall have
been  delivered  to the  Administrative  Agent for the  benefit of each Lender a
certificate  dated the Closing Date, in form and substance  satisfactory  to the
Agents and signed by the Chief Executive  Officer,  President or Chief Financial
Officer of the  Borrower  to each such effect and  further  certifying  that the
Borrower  and its  Subsidiaries,  on a  consolidated  basis are  Solvent and the
accuracy of all  representations  and  warranties  by the Loan Parties under the
Loan  Documents,  the compliance with all covenants under the Loan Documents and
the  absence  of  any  Event  of  Default  or   Potential   Default,   with  all
certifications after giving effect to the Acquisition.

                  6.1.9   NO VIOLATION OF LAWS.

                  The making of the Loans, the issuance of the Letters of Credit
and the consummation of the Acquisition and of the transactions  contemplated by
the  Acquisition  Documents  shall not contravene any Law applicable to any Loan
Party or any of the Lenders.

                  6.1.10  NO ACTIONS OR PROCEEDINGS.

                  No   action,   proceeding,   investigation,    regulation   or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin,  restrain or prohibit,  or to
obtain  damages in respect of, this  Agreement,  the other Loan  Documents,  the
Acquisition,  the Acquisition  Documents or the consummation of the transactions
contemplated  hereby or thereby or which,  in the  Administrative  Agent's  sole
discretion,   would  make  it  inadvisable   to  consummate   the   transactions
contemplated  by this  Agreement or any of the other Loan  Documents or which in
the good faith judgment of the Agents could adversely  affect the syndication of
the Loans.

                  6.1.11  ACQUISITION.

                  Any  material  changes to the  Contribution  Agreement  or the
Purchase Agreement, and any changes to the forms of the Tax Sharing Agreement or
the LLC Agreements  delivered to the Arrangers at or about the time of execution
of the Purchase Agreement,  shall be reasonably satisfactory to the Arrangers in
their sole discretion.  The  organization and capital  structure of Arch Western
shall be satisfactory to the Agents in their sole discretion.  All conditions to
closing shall have been satisfied under the  Acquisition  Documents or waived to
the satisfaction of the Agents.  The Acquisition  shall have been consummated in
accordance  with  the  

                                     - 68 -


terms of the Acquisition  Documents,  and an Authorized  Officer of the Borrower
shall certify the foregoing to the Administrative  Agent for the benefit of each
Lender.

                  6.1.12  FINANCIAL PROJECTIONS.

                  The Financial  Projections  shall be  satisfactory in form and
substance to the Agents.

                  6.1.13  ARCH WESTERN CAPITAL AND FINANCING.

                  Contributions  to the equity of Arch  Western  shall have been
consummated  on  terms  and  conditions  and  in  the  amounts  required  by the
Acquisition Documents. All conditions to closing shall have been satisfied under
the Arch Western Credit Facility.

                  6.1.14  INSURANCE.

                  The Borrower  shall have  delivered to the Agents  evidence of
the insurance required under the Loan Documents.

                  6.1.15  PAYOFF OF EXISTING CREDIT FACILITY.

                  On or before the Closing Date,  the Borrower shall have repaid
the Existing  Credit  Facility  and shall have  terminated  the Existing  Credit
Facility  and  all  commitments  to  make  loans  or  issue  letters  of  credit
thereunder,  and  the  Borrower  shall  have  provided  evidence  of  all of the
foregoing to the Agents to the satisfaction of the Agents.

                  6.1.16  NON-OCCURRENCE OF CERTAIN EVENTS.

                  No disruption or change in the  financial,  banking or capital
markets  shall  have  occurred  or shall be  pending  which,  in the good  faith
judgment of the Agents, could adversely affect the syndication of the Loans.

            6.2   EACH ADDITIONAL LOAN OR LETTER OF CREDIT.

            At the time of making  any Loans or  issuing  any  Letters of Credit
other than Loans made or Letters of Credit  issued on the Closing Date and after
giving effect to the proposed  extensions  of credit:  the  representations  and
warranties of the Borrower contained in Section 5 and of the Loan Parties in the
other Loan Documents shall be true on and as of the date of such additional Loan
or Letter of Credit  with the same  effect as though  such  representations  and
warranties  had been made on and as of such  date  (except  representations  and
warranties  which  expressly  relate  solely to an earlier  date or time,  which
representations  and  warranties  shall  be true  and  correct  on and as of the
specific  dates or times  referred  to  therein)  and the  Borrower  shall  have
performed and complied with all covenants  and  conditions  hereof;  no Event of
Default or Potential  Default  shall have  occurred and be  continuing  or shall
exist;  the making of the Loans or issuance  of such Letter of Credit  shall not
contravene  any Law applicable to the Borrower or any Subsidiary of the Borrower
or  any  of  the  Lenders;   and  the  Borrower  shall  have  delivered  to  the
Administrative  Agent  (and the  Issuing  Banks in the case of a  request  for a
Letter of Credit, 

                                     - 69 -


and PNC Bank in the case of a  request  for a Swing  Loan) a duly  executed  and
completed Loan Request or application for a Letter of Credit as the case may be.

            6.3   SYNDICATION.

                  6.3.1  SYNDICATION DATE REPRESENTATIONS AND WARRANTIES.

                  (a)  On  the  Syndication   Date,  the   representations   and
warranties of the Borrower contained in Section 5 and of the Loan Parties in the
other  Loan  Documents  shall be true  with  the  same  effect  as  though  such
representations   and   warranties   had  been   made  on  such   date   (except
representations  and warranties which expressly relate solely to an earlier date
or time, which  representations  and warranties shall be true and correct on and
as of the specific  dates or times  referred to therein) and the Borrower  shall
have  performed and complied with all covenants and  conditions  hereof,  and no
Event of Default or Potential  Default  shall have occurred and be continuing or
shall exist.

                  (b)  On  the  Syndication Date, the Loan Parties shall deliver
to the  Administrative  Agent for the benefit of the  Lenders  (i) an  Officer's
Certificate  dated as of the  Syndication  Date with  respect to the matters set
forth in  Sections  6.3.1(a),  (ii) a  Secretary's  Certificate  dated as of the
Syndication  Date with  respect to the  matters  set forth in Section  6.1.2 and
stating  that there have been no changes in the charter  documents  or bylaws of
the  Borrower or any other Loan Party since the Closing  Date,  (iii)  Revolving
Credit Notes,  Term Notes and Bid Notes dated as of the  Syndication  Date which
give effect to the syndication on the Syndication Date of the Commitments of the
Banks  which  originally  executed  the Credit  Agreement  in  exchange  for the
original  Revolving  Credit  Notes,  Term  Notes  and Bid  Notes  issued to such
Lenders,  (iv) written opinions of the counsel to the Loan Parties identified in
Section  6.1.4 with  respect to such  matters  as the  Administrative  Agent may
request,  and (v)  acknowledgments  dated as of the Syndication Date to the Loan
Documents in form and substance satisfactory to the Administrative Agent.

                  6.3.2  SYNDICATION COOPERATION.

                  The  Borrower  will use all  reasonable  efforts to assist the
Agents in syndicating the credit facilities, including participating in meetings
with potential  syndicate  members.  The Borrower  agrees that it will cooperate
with the  Agents  in  syndicating  the  credit  facilities,  including,  without
limitation, by consenting to reasonable amendments to this Agreement (other than
changes  in  pricing)  and the other Loan  Documents  which may be  required  by
potential syndicate members.


                                  7. COVENANTS

            7.1  AFFIRMATIVE COVENANTS.

            The Borrower  covenants and agrees that until payment in full of the
Loans  and  Reimbursement  Obligations  and  interest  thereon,   expiration  or
termination of all Letters of Credit,  satisfaction  of all of the Loan Parties'
other  Obligations  under the Loan Documents and

                                     - 70 -


termination of the Commitments,  the Borrower shall, and shall cause each of its
Subsidiaries to, comply at all times with the following affirmative covenants:

                  7.1.1  PRESERVATION OF EXISTENCE, ETC.

                  The Borrower shall,  and shall cause Arch Western to, maintain
its legal existence as a corporation or limited liability  company,  as the case
may be. The  Borrower  shall  cause each of its  Subsidiaries  (other  than Arch
Western,  which is subject  to the  previous  sentence)  to  maintain  its legal
existence as a corporation, limited partnership or limited liability company, as
the case may be,  except as  otherwise  expressly  permitted  in  Section  7.2.3
[Liquidations,  Mergers, etc.]. The Borrower shall, and shall cause Arch Western
to, maintain its license or qualification and good standing in each jurisdiction
in which its ownership or lease of property or the nature of its business  makes
such license or qualification necessary,  except where the failure to so qualify
or maintain such  qualification  could be corrected  without a material  adverse
effect on the Borrower or Arch  Western.  The  Borrower  shall cause each of its
Subsidiaries  (other  than  Arch  Western,  which  is  subject  to the  previous
sentence) to maintain  its license or  qualification  and good  standing in each
jurisdiction  in which its  ownership  or lease of property or the nature of its
business makes such license or qualification necessary, except where the failure
to so qualify could not  reasonably be expected to result in a Material  Adverse
Change.

                  7.1.2  PAYMENT OF LIABILITIES, INCLUDING TAXES, ETC.

                  The Borrower shall,  and shall cause each of its  Subsidiaries
to, duly pay and discharge all taxes,  assessments and  governmental  charges or
levies  imposed  upon it or upon its income or profits,  or upon any  properties
belonging to it, prior to the date on which penalties  attach  thereto,  and all
lawful claims which, if unpaid after becoming due, might become a lien or charge
upon any properties of the Borrower or any Subsidiary of the Borrower,  PROVIDED
that neither the Borrower nor any  Subsidiary of the Borrower  shall be required
to pay any such tax, assessment,  charge, levy or claim which is being contested
in good faith and by proper  proceedings  and with  respect  to which  there are
proper reserves as required by GAAP.

                  7.1.3  MAINTENANCE OF INSURANCE.

                  The Borrower shall,  and shall cause each of its  Subsidiaries
to,  insure its  properties  and assets  against loss or damage by fire and such
other insurable  hazards as such assets are commonly  insured  (including  fire,
extended coverage, property damage, workers' compensation,  public liability and
business  interruption  insurance) and against other risks (including errors and
omissions)  in such  amounts as  similar  properties  and assets are  insured by
prudent companies in similar circumstances  carrying on similar businesses,  and
with reputable and financially sound insurers,  including  self-insurance to the
extent customary.

                  7.1.4  MAINTENANCE OF PROPERTIES AND LEASES.

                  The Borrower shall,  and shall cause each of its  Subsidiaries
to, maintain and preserve all of its respective material  properties,  necessary
or  useful  in the  proper  conduct  of 

                                     - 71 -


the business of the Borrower or such Subsidiary of the Borrower, in good working
order and condition, ordinary wear and tear excepted.

                  7.1.5  VISITATION RIGHTS.

                  The Borrower shall,  and shall cause each of its  Subsidiaries
to, permit any of the officers or authorized employees or representatives of the
Administrative  Agent or any of the Banks to visit  and  inspect  during  normal
business  hours any of its  properties and to examine and make excerpts from its
books and records and discuss its business  affairs,  finances and accounts with
its  officers,  all in such  detail and at such times and as often as any of the
Banks may reasonably request, PROVIDED that each Bank shall provide the Borrower
and the  Administrative  Agent  with  reasonable  notice  prior to any  visit or
inspection. In the event any Bank desires to conduct an audit of the Borrower or
any  Subsidiary  of the  Borrower,  such Bank shall make a reasonable  effort to
conduct  such  audit  contemporaneously  with any audit to be  performed  by the
Administrative Agent.

                  7.1.6  KEEPING OF RECORDS AND BOOKS OF ACCOUNT.

                  The Borrower  shall,  and shall cause each  Subsidiary  of the
Borrower to,  maintain and keep proper books of record and account  which enable
the Borrower and its  Subsidiaries to issue  financial  statements in accordance
with GAAP and as otherwise  required by  applicable  Laws of any  Official  Body
having jurisdiction over the Borrower or any Subsidiary of the Borrower,  and in
which full, true and correct  entries shall be made in all material  respects of
all its dealings and business and financial affairs.

                  7.1.7  PLANS AND BENEFIT ARRANGEMENTS.

                  The Borrower  shall,  and shall cause each other member of the
ERISA  Group  to,  comply  with  ERISA,  the  Internal  Revenue  Code and  other
applicable Laws applicable to Plans and Benefit  Arrangements  except where such
failure, alone or in conjunction with any other failure, could not reasonably be
expected to result in a Material Adverse Change. Without limiting the generality
of the  foregoing,  the  Borrower  shall  cause  all of its  Plans and all Plans
maintained by any member of the ERISA Group to be funded in accordance  with the
minimum  funding  requirements of ERISA and shall make, and cause each member of
the ERISA Group to make, in a timely  manner,  all  contributions  due to Plans,
Benefit Arrangements and Multiemployer Plans.

                  7.1.8  COMPLIANCE WITH LAWS.

                  The Borrower shall,  and shall cause each of its  Subsidiaries
to, comply with all applicable Laws,  including all  Environmental  Laws, in all
respects, PROVIDED that it shall not be deemed to be a violation of this Section
7.1.8 if any  failure  to  comply  with  any Law  would  not  result  in  fines,
penalties,  remediation  costs,  other similar  liabilities or injunctive relief
which in the  aggregate  could  reasonably  be  expected to result in a Material
Adverse Change.  Without limiting the generality of the foregoing,  the Borrower
shall,   and  shall  cause  each  of  its   Subsidiaries  to,  comply  with  all
Environmental  Permits applicable to their respective operations and properties;
obtain  and renew  all  Environmental  Permits  necessary  for their  respective
operations 

                                     - 72 -


and  properties;  and  manage,  use  and  handle  all  Hazardous  Substances  in
compliance with all applicable Environmental Laws, in each case, except for such
non-compliance  which would not or could not reasonably be expected to result in
a Material Adverse Change.

                  7.1.9   USE OF PROCEEDS.

                  The  Borrower  will use the Letters of Credit and the proceeds
of the Loans only for (i) general corporate purposes and for working capital for
the Borrower and its Subsidiaries,  (ii) to finance the Acquisition Transactions
or (iii) to refinance the Existing  Credit  Facility.  The Borrower's use of the
Letters of Credit and the  proceeds  of the Loans  shall not be for any  purpose
which contravenes any applicable Law or any provision hereof.

                  7.1.10  OPERATION OF MINES.

                  The Borrower shall,  and shall cause each of its  Subsidiaries
to, operate their mines in all material  respects in accordance  with sound coal
mining  practices and all applicable  Federal,  state and local laws,  rules and
regulations,  including,  without limitation,  laws and regulations  relating to
land reclamation, pollution control and mine safety.

                  7.1.11  MAINTENANCE OF MATERIAL CONTRACTS.

                  The Borrower shall,  and shall cause each of its  Subsidiaries
to,  comply with the  provisions of and to maintain in full force and effect all
Material Contracts to which any such Person is a party, except where the failure
to so maintain in full force and effect a license, permit or a Material Contract
could not be reasonably expected to result in a Material Adverse Change.

            7.2   NEGATIVE COVENANTS.

            The Borrower  covenants and agrees that until payment in full of the
Loans  and  Reimbursement  Obligations  and  interest  thereon,   expiration  or
termination of all Letters of Credit,  satisfaction  of all of the Loan Parties'
other  Obligations  hereunder and termination of the  Commitments,  the Borrower
shall,  and shall cause each of its  Subsidiaries  to, comply with the following
negative covenants:

                  7.2.1  INDEBTEDNESS.

                  The  Borrower  shall  not,  and  shall not  permit  any of its
Subsidiaries  to,  at any time  create,  incur,  assume  or  suffer to exist any
Indebtedness, except:

                         (i)  Indebtedness under the Loan Documents;

                         (ii) additional  Indebtedness  of  the  Borrower or any
other Loan Party incurred after the Closing Date (not to exceed  $300,000,000 in
the  aggregate  outstanding  for all Loan  Parties at any time during any period
prior to the date on which the senior unsecured  long-term debt of the Borrower,
on a  consolidated  basis,  has been rated 

                                     - 73 -


Investment  Grade)  so long as,  both  before  and  after  giving  effect to any
proposed additional Indebtedness:

                                 (y) the Borrower and its Subsidiaries  shall be
in compliance  with Section  7.2.10  [Maximum  Leverage  Ratio],  Section 7.2.11
[Minimum Fixed Charge  Coverage  Ratio],  and Section 7.2.12 [Minimum Net Worth]
determined on a pro forma basis (in the case of the Fixed Charge Coverage Ratio,
the  Minimum Net Worth test and the  Leverage  Ratio as of the end of the fiscal
quarter most recently ended and as if such proposed additional  Indebtedness was
outstanding as of the first day of such fiscal quarter), and

                                 (z) the  covenants  and defaults  applicable in
respect of such  proposed  additional  Indebtedness  are not,  taken as a whole,
materially more  restrictive  with respect to the Borrower and its  Subsidiaries
than the covenants and defaults under this Agreement;

                         (iii) Indebtedness of Arch Western payable to Borrower,
subject to the limitations of Section 7.2.14(v);

                         (iv)  Indebtedness of Arch Western and its Subsidiaries
pursuant to the Arch Western Credit Facility;

                         (v)   Indebtedness of any  Subsidiary  of the  Borrower
which is a member of the Arch Coal Group payable to the Borrower or to any other
member of the Arch Coal Group;

                         (vi)  Indebtedness  of the  Borrower  payable  to  Arch
Western; and

                         (vii) Indebtedness of the Borrower and its Subsidiaries
reflected in the Historical Statements (other than Indebtedness  refinanced with
the proceeds of the Loans) and any  refinancings  thereof or amendments  thereto
that do not increase the amount of such Indebtedness  beyond an amount otherwise
permitted by this Agreement.

                  7.2.2  LIENS.

                  The Borrower shall not, and shall not permit any member of the
Arch Coal  Group to, at any time  create,  incur,  assume or suffer to exist any
Lien on any of its respective  property or assets,  tangible or intangible,  now
owned or  hereafter  acquired,  or  agree  or  become  liable  to do so,  except
Permitted  Liens so long as the  aggregate  amount of all  payments  by any such
Person in respect of all  Indebtedness  secured by such Permitted Liens does not
at any time exceed  seven and  one-half  percent (7 1/2%) of the total assets of
the Arch Coal Group  (exclusive  of Investment  in the Arch Western  Group),  as
determined and consolidated in accordance with GAAP.

                                     - 74 -


                  7.2.3  LIQUIDATIONS, MERGERS, CONSOLIDATIONS, ACQUISITIONS.

                  The  Borrower  shall  not,  and  shall not  permit  any of its
Subsidiaries to, dissolve,  liquidate or wind-up its affairs,  or become a party
to any merger or consolidation,  or acquire by purchase,  lease or otherwise all
or  substantially  all of the  assets  or  capital  stock of any  other  Person,
PROVIDED that

                  (1) any Subsidiary of the Borrower may  consolidate  or merge
into  any  other   Subsidiary   of  the   Borrower   (except  for  the  Excluded
Subsidiaries),

                  (2) the Borrower and Arch Western may complete the Acquisition
in accordance with the Acquisition Documents, and

                  (3) any Loan  Party may  acquire,  whether by  purchase  or by
merger,   (A)  all  of  the  ownership   interests  of  another  Person  or  (B)
substantially  all of assets of another  Person or of a business  or division of
another  Person  (each a  "Permitted  Acquisition"),  PROVIDED  that each of the
following requirements is met:

                         (i)   the board  of  directors   or  other   equivalent
governing body of such Person shall have approved such Permitted Acquisition;

                         (ii)  the business acquired,  or the business conducted
by the Person whose ownership interests are being acquired, as applicable, shall
be substantially the same as one or more line or lines of business  conducted by
the Loan Parties and shall comply with Section 7.2.7  [Continuation of or Change
in Business];

                         (iii) no  Potential  Default or Event of Default  shall
exist   immediately   prior  to  and  after  giving  effect  to  such  Permitted
Acquisition;

                         (iv)  the  Borrower  and its  Subsidiaries  shall be in
compliance with the covenants  contained in Sections  7.2.10  [Maximum  Leverage
Ratio],  7.2.11 [Minimum Fixed Charge Coverage  Ratio],  and 7.2.12 [Minimum Net
Worth]  determined  on a pro forma basis after giving  effect to such  Permitted
Acquisition  (including in such  computation  Indebtedness or other  liabilities
assumed or incurred in connection  with such  Permitted  Acquisition  as if such
liabilities  were  incurred  as of the  first  day of the  applicable  period of
determination).

                  7.2.4  DISPOSITIONS OF ASSETS OR SUBSIDIARIES.

                  The  Borrower  shall  not,  and  shall not  permit  any of its
Subsidiaries to, sell, convey,  assign,  lease, abandon or otherwise transfer or
dispose of,  voluntarily  or  involuntarily,  any of its  properties  or assets,
tangible  or  intangible   (including  sale,   assignment,   discount  or  other
disposition of accounts,  contract  rights,  chattel paper,  equipment,  general
intangibles with or without  recourse or of capital stock,  shares of beneficial
interest,  partnership  interests or limited  liability  company  interests of a
Subsidiary of the Borrower), except:

                                     - 75 -


                         (i)   transactions involving the  sale of  inventory in
the ordinary course of business;

                         (ii)  any  sale,  transfer or lease  of  assets  by any
Subsidiary of the Borrower which is a member of the Arch Coal Group to any other
member of the Arch Coal  Group or any sale,  transfer  or lease of assets by any
Subsidiary  of Arch Western  which is a member of the Arch Western  Group to any
other member of the Arch Western Group;

                         (iii) any sale of assets if and to the  extent  the Net
Cash Proceeds  thereof are applied  within 90 days of the  consummation  of such
sale to the  purchase by the  Borrower or a  Subsidiary  of  substitute  assets;
PROVIDED that the Borrower  shall have delivered to the  Administrative  Agent a
certificate (a "Replacement  Sales  Certificate") of the chief financial officer
or the  treasurer of the  Borrower,  certifying as to (x) the amount of such Net
Cash  Proceeds and (y) the fact that the  Borrower or a Subsidiary  shall invest
such Net Cash  Proceeds in  substitute  assets  within 90 days after the date of
consummation  of such sale; and PROVIDED  FURTHER that if and to the extent such
Net Cash Proceeds are not so applied to the purchase of substitute assets within
such 90-day period,  such sale shall be deemed to have been made on the last day
of such period pursuant to clause (v) below;

                         (iv)  any sale, transfer or lease  (including any lease
transaction under Section 7.2.9 [Off Balance Sheet Financing]) of assets,  other
than those  specifically  excepted  pursuant to clauses (i) through (iii) above,
PROVIDED  that (a) at the time of any  disposition,  no Event of  Default  shall
exist  or  shall  result  from  such  disposition,  (b)  the  Borrower  and  its
Subsidiaries  shall be in compliance  with the  covenants  contained in Sections
7.2.10 [Maximum  Leverage Ratio],  7.2.11 [Minimum Fixed Charge Coverage Ratio],
and 7.2.12  [Minimum  Net Worth]  determined  on a pro forma basis after  giving
effect to each such sale, transfer or lease of assets, and (c) the aggregate net
book value of all assets so sold by the Borrower and its Subsidiaries  shall not
exceed in any  calendar  year the greater of (x)  $100,000,000  or (y) 5% of the
total assets of the Arch Coal Group (exclusive of investment in the Arch Western
Group) (as of the last day of such calendar year),  determined and  consolidated
in accordance with GAAP; (v) any sale,  transfer or lease of assets,  other than
those specifically excepted pursuant to clauses (i) through (iv) above or clause
(vi)  below,  so  long as the Net  Cash  Proceeds  are  applied  as a  mandatory
prepayment of the Term Loans in accordance with the provisions of Section 4.4.6;

                         (vi)  any transfer  of assets by the  Borrower  to Arch
Western as contemplated by the Contribution Agreement; or

                         (vii) any  transfer of assets by any member of the Arch
Western Group permitted by the Arch Western Credit Facility, as in effect on the
Closing Date.

                                     - 76 -


                  7.2.5  AFFILIATE TRANSACTIONS.

                  The  Borrower  shall  not,  and  shall not  permit  any of its
Subsidiaries to, enter into or carry out any transaction  (including  purchasing
property or services from or selling property or services to) with any Affiliate
of the Borrower  unless such  transaction  is not  otherwise  prohibited by this
Agreement  and is entered into in the ordinary  course of business upon fair and
reasonable arm's length terms and conditions.

                  7.2.6  SUBSIDIARIES, PARTNERSHIPS AND JOINT VENTURES.

                  The  Borrower  shall  not,  and  shall not  permit  any of its
Subsidiaries  to, own or create  directly or indirectly any  Subsidiaries  other
than (i) the Excluded  Subsidiaries,  (ii) any Significant  Subsidiary which has
joined the  Guaranty  Agreement  as  Guarantor  on the Closing  Date;  (iii) any
Significant Subsidiary formed or acquired after the Closing Date which becomes a
Guarantor in accordance  with Section 10.18  [Joinder of  Guarantors];  (iv) any
Subsidiary  which after the Closing Date becomes a  Significant  Subsidiary  and
which upon becoming a Significant  Subsidiary  becomes a Guarantor in accordance
with Section 10.18 [Joinder of Guarantors] and (v) any Subsidiary which is not a
Significant  Subsidiary.  The Borrower shall cause any of its Subsidiaries which
at any time becomes a Significant Subsidiary to become a Guarantor in accordance
with  Section  10.18  [Joinder  of  Guarantors].  Neither the  Borrower  nor any
Subsidiary  of the  Borrower  shall  become or agree to become  (1) a general or
limited  partner in any  general or limited  partnership,  except  that the Loan
Parties may be general or limited  partners in other Loan Parties or may make an
Investment in a Permitted Joint Venture;  PROVIDED,  HOWEVER, that the aggregate
permitted  Investments  in all Permitted  Joint  Ventures  shall not at any time
exceed, for all Loan Parties and their Subsidiaries,  $50,000,000, or (2) become
a member or  manager  of, or hold a limited  liability  company  interest  in, a
limited  liability  company,  except  that the Loan  Parties  may be  members or
managers of, or hold limited  liability company interests in, other Loan Parties
and except that the Borrower may hold a limited  liability  company  interest in
Arch Western and Arch Western may hold limited  liability  company  interests in
its Subsidiaries which are members of the Arch Western Group.

                  7.2.7  CONTINUATION OF OR CHANGE IN BUSINESS.

                  The  Borrower  shall  not,  and  shall not  permit  any of its
Subsidiaries to, engage in any business other than the business substantially as
conducted  and  operated by the  Borrower or such  Subsidiary  as of the date of
consummation of the Acquisition and any business  substantially related thereto,
and neither the Borrower  nor any  Subsidiary  of the Borrower  shall permit any
material change in such business.

                  7.2.8  PLANS AND BENEFIT ARRANGEMENTS.

                  The  Borrower  shall  not,  and  shall not  permit  any of its
Subsidiaries  to,  engage in a  Prohibited  Transaction  with any Plan,  Benefit
Arrangement or Multiemployer  Plan which, alone or in conjunction with any other
circumstances  or set of  circumstances  results in liability  under ERISA which
could reasonably be expected to result in a Material Adverse Change.

                                     - 77 -


                  7.2.9   OFF-BALANCE SHEET FINANCING.

                  The  Borrower  shall  not,  and  shall not  permit  any of its
Subsidiaries  to,  engage  in  any  off-balance  sheet  transaction  (i.e.,  the
liabilities  in  respect  of which do not  appear on the  liability  side of the
balance sheet) providing the functional  equivalent of borrowed money (including
asset   securitizations   [other   than   accounts   receivable   or   inventory
securitizations],  sale/leasebacks,  or  Synthetic  Leases),  in excess,  in the
aggregate for the Borrower and its Subsidiaries as of any date of determination,
of 7.5% of the sum, without duplication, of (y) the total assets of the Borrower
and its Subsidiaries,  determined and consolidated in accordance with GAAP as of
the date of determination,  and (z) with respect to each Special Subsidiary,  an
amount equal to the  Appropriate  Percentage  multiplied  by the total assets of
such Person,  determined in accordance  with GAAP.  For purposes of this Section
7.2.9, (a) "Synthetic  Lease" shall mean any lease  transaction  under which the
parties intend that (i) the lease will be treated as an "operating lease" by the
lessee  pursuant to  Statement  of  Financial  Accounting  Standards  No. 13, as
amended, and (ii) the lessee will be entitled to various tax benefits ordinarily
available to owners (as opposed to lessees) of like  property and (b) the amount
of any  lease  which is not a  capital  lease  in  accordance  with  GAAP is the
aggregate  amount of minimum  lease  payments due pursuant to such lease for any
noncancelable portion of its term.

                  7.2.10  MAXIMUM LEVERAGE RATIO.

                  The Borrower  shall not at any time permit the Leverage  Ratio
to exceed the ratio set forth below for the periods specified below:

                  PERIOD                           RATIO

       Closing Date through and including
          December 31, 1998                    4.50 TO 1.00
                                               ------------
       January 1, 1999 through and
          including December 31, 1999          4.25 TO 1.00
                                               ------------
       January 1, 2000 through and
          including December 31, 2000          4.00 TO 1.00
                                               ------------
       January 1, 2001 through and
          including December 31, 2001          3.50 TO 1.00
                                               ------------
       
       January 1, 2002 and thereafter          3.00 TO 1.00
                                               ------------
          
                  7.2.11  MINIMUM FIXED CHARGE COVERAGE RATIO.

                  The Borrower shall not permit the Fixed Charge Coverage Ratio,
to be less than the ratio set forth below for the periods specified below:


                                     - 78 -




                  PERIOD                            RATIO
       Closing Date through and including 
          December 31, 1998                     2.50 TO 1.00
                                                ------------
       January 1, 1999 through and  
          including December 31, 1999           2.75 TO 1.00
                                                ------------
       January 1, 2000 through and
          including December 31, 2000           3.00 TO 1.00
                                                ------------

       January 1, 2001 and thereafter           3.25 TO 1.00
                                                ------------
 
                  7.2.12  MINIMUM NET WORTH.

                  The  Borrower  shall  not  at  any  time  permit  Consolidated
Tangible Net Worth to be less than the Base Net Worth.

                  7.2.13  NO RESTRICTION ON DIVIDENDS.

                  The  Borrower  shall  not,  and  shall not  permit  any of its
Subsidiaries  to,  enter into or be bound by any  agreement  which  prohibits or
restricts, in any manner, the payment of dividends (whether in cash, securities,
property or otherwise),  other than restrictions  applicable to the Arch Western
Group set forth in the Arch Western  Credit  Facility,  other than  restrictions
applicable to Arch Western set forth in the Arch Western LLC Agreement and other
than  restrictions  applicable  to Canyon  Fuel set forth in the Canyon Fuel LLC
Agreement.

                  7.2.14  LOANS AND INVESTMENTS.

                  The  Borrower  shall  not,  and  shall not  permit  any of its
Subsidiaries  to, at any time make or suffer to remain  outstanding  any loan or
advance to, or purchase,  acquire or own any stock,  bonds  (other than,  in the
ordinary course of business,  royalty bonds or bonds securing performance by the
Borrower or a Subsidiary of the Borrower under bonus bids),  notes or securities
of,  or any  partnership  interest  (whether  general  or  limited)  or  limited
liability  company  interest in, or any other Investment or interest in, or make
any  capital  contribution  to, any other  Person (an  "investment"),  or agree,
become or remain liable to do any of the foregoing, except:

                         (i)   trade  credit  extended  on  usual  and customary
terms in the ordinary course of business;

                         (ii)  investments by  the Borrower in its  Subsidiaries
which are members of the Arch Coal Group;

                         (iii) Permitted Investments;

                                     - 79 -


                         (iv)  investments  in   Permitted   Joint  Ventures  in
accordance with Section 7.2.6 [Subsidiaries, Partnerships and Joint Ventures];

                         (v)   investments by the Borrower in, or  reimbursement
obligations  by the  Borrower to an Issuing  Bank with  respect to any Letter of
Credit issued for the direct or indirect benefit of, Arch Western  (collectively
the  "Permitted  Investments  in Arch  Western");  PROVIDED,  HOWEVER,  that the
Borrower shall not make any Permitted  Investment in Arch Western if at the time
such  investment is proposed to be made and after giving effect  thereto (x) the
aggregate  amount of the  Permitted  Investments  in Arch  Western  would exceed
$100,000,000 and (y) the Leverage Ratio would be greater than 3.00 to 1.00; and

                         (vi)  loans and advances permitted by Section 7.2.1(v).

                  7.2.15  NO AMENDMENTS TO ACQUISITION DOCUMENTS.

                  The  Borrower  shall  not,  and  shall not  permit  any of its
Subsidiaries  to,  enter  into any  amendment  or  modification  to or waiver or
consent under (or solicit any such amendment,  modification,  waiver or consent)
any of the Acquisition Documents or the Coastal Agreement which could reasonably
be expected to be material  and adverse to the Banks  without the prior  written
consent of the Agents.

            7.3   REPORTING REQUIREMENTS.

            The Borrower  covenants and agrees that until payment in full of the
Loans  and  Reimbursement  Obligations,  and  interest  thereon,  expiration  or
termination of all Letters of Credit,  satisfaction  of all of the Loan Parties'
other  Obligations  hereunder and under the other Loan Documents and termination
of the  Commitments,  the Borrower  will furnish or cause to be furnished to the
Administrative Agent and each of the Banks:

                  7.3.1  QUARTERLY FINANCIAL STATEMENTS.

                  As soon as available and in any event within  forty-five  (45)
calendar  days after the end of each of the first three fiscal  quarters in each
fiscal  year,  financial  statements  of  the  Borrower  and  its  Subsidiaries,
consisting of a consolidated  and  consolidating  balance sheet as of the end of
such fiscal quarter, related consolidated and consolidating statements of income
and stockholders'  equity and related  consolidated  statement of cash flows for
the fiscal  quarter  then ended and the fiscal year  through  that date,  all in
reasonable detail and certified  (subject to normal year-end audit  adjustments)
by the Chief  Executive  Officer,  President or Chief  Financial  Officer of the
Borrower as having been prepared in accordance with GAAP,  consistently applied,
and setting forth in comparative  form the respective  financial  statements for
the corresponding date and period in the previous fiscal year. The Borrower will
be deemed to have  complied with the delivery  requirements  with respect to the
consolidated  financial  statements  required to be delivered under this Section
7.3.1 if within  forty-five (45) days after the end of its fiscal  quarter,  the
Borrower delivers to the  Administrative  Agents and each of the Banks a copy of
the  Borrower's  Form 10-Q as filed  with the SEC and the  financial  statements
contained therein meet the requirements described in this Section.

                                     - 80 -


                  7.3.2  ANNUAL FINANCIAL STATEMENTS.

                  As soon as available  and in any event within ninety (90) days
after the end of each fiscal year of the Borrower,  financial  statements of the
Borrower and its  Subsidiaries  consisting of a consolidated  and  consolidating
balance  sheet  as of the end of such  fiscal  year,  related  consolidated  and
consolidating   statements  of  income  and  stockholders'  equity  and  related
consolidated  statement  of cash flows for the fiscal  year then  ended,  all in
reasonable detail and setting forth in comparative form the financial statements
as of the end of and for the preceding  fiscal year, and certified,  in the case
of the  consolidated  financial  statements,  by  independent  certified  public
accountants of nationally recognized standing satisfactory to the Administrative
Agent. The certificate or report of accountants  shall be free of qualifications
(other than any consistency  qualification  that may result from a change in the
method used to prepare the  financial  statements  as to which such  accountants
concur)  and shall not  indicate  the  occurrence  or  existence  of any  event,
condition or contingency  which would materially  impair the prospect of payment
or performance of any covenant, agreement or duty of any Loan Party under any of
the Loan  Documents.  The  Borrower  will be  deemed to have  complied  with the
delivery  requirements  with respect to the  consolidated  financial  statements
required to be  delivered  under this Section  7.3.2 if within  ninety (90) days
after the end of its fiscal year,  the Borrower  delivers to the  Administrative
Agent and each of the Banks a copy of the Borrower's Annual Report and Form 10-K
as filed with the SEC and the financial  statements and  certification of public
accountants contained therein meet the requirements described in this Section.

                  7.3.3  CERTIFICATE OF THE BORROWER.

                  Concurrently  with the  financial  statements  of the Borrower
furnished  to the  Administrative  Agent and to the Banks  pursuant  to Sections
7.3.1 [Quarterly Financial Statements] and 7.3.2 [Annual Financial  Statements],
a certificate of the Borrower signed by the Chief Executive  Officer,  President
or Chief Financial Officer of the Borrower, in the form of EXHIBIT 7.3.3, to the
effect that, except as described  pursuant to Section 7.3.4 [Notice of Default],
(i) the  representations  and warranties of the Borrower  contained in Section 5
and in the  other  Loan  Documents  are  true  on and  as of the  date  of  such
certificate with the same effect as though such  representations  and warranties
had been  made on and as of such date  (except  representations  and  warranties
which expressly relate solely to an earlier date or time which shall be true and
correct on and as of the  specific  dates or times  referred to therein) and the
Loan Parties have  performed  and complied  with all  covenants  and  conditions
hereof,  (ii) no Event of Default or Potential  Default exists and is continuing
on the date of such certificate and (iii) containing  calculations in sufficient
detail to  demonstrate  compliance as of the date of such  financial  statements
with all financial covenants contained in Section 7.2 [Negative Covenants].

                  7.3.4  NOTICE OF DEFAULT.

                  Promptly  after any officer of the Borrower has learned of the
occurrence of an Event of Default or Potential  Default, a certificate signed by
the  Chief  Executive  Officer,  President  or Chief  Financial  Officer  of the
Borrower setting forth the details of such Event of 

                                     - 81 -


Default or Potential  Default and the action which the Borrower proposes to take
with respect thereto.


                  7.3.5  NOTICE OF LITIGATION.

                  Promptly after the commencement  thereof or promptly after the
determination   thereof,   notice  of  all  actions,   suits,   proceedings   or
investigations  before or by any Official  Body or any other Person  against any
Loan Party or any  Subsidiary  of any Loan Party,  which (x) involve or could be
reasonably  expected  to  involve  assessments  against  any  Loan  Party or any
Subsidiary of any Loan Party in excess of  $20,000,000,  individually  or in the
aggregate,  or (y)  involve  a claim or  series  of  claims  which if  adversely
determined could reasonably be expected to result in a Material Adverse Change.

                  7.3.6  NOTICE OF CHANGE IN DEBT RATING.

                  Within  five (5)  Business  Days  after  Standard  & Poor's or
Moody's announces a change in the Borrower's Debt Rating, notice of such change.
Borrower  will  deliver  together  with  such  notice  a  copy  of  any  written
notification which Borrower received from the applicable rating agency regarding
such change of Debt Rating.

                  7.3.7  NOTICES REGARDING PLANS AND BENEFIT ARRANGEMENTS.

                         7.3.7.1 CERTAIN EVENTS.

                         Promptly upon becoming aware of the occurrence thereof,
notice  (including the nature of the event and, when known,  any action taken or
threatened by the Internal Revenue Service or the PBGC with respect thereto) of:

                         (i)   any Reportable Event with respect to the Borrower
or any other member of the ERISA Group which has not been waived by the PBGC,

                         (ii)  any  Prohibited  Transaction  which could subject
the Borrower or any other member of the ERISA Group to a civil penalty  assessed
pursuant  to Section  502(i) of ERISA or a tax  imposed  by Section  4975 of the
Internal  Revenue Code in connection  with any Plan, any Benefit  Arrangement or
any trust created thereunder but only if the assessment of such civil penalty or
tax could reasonably be expected to result in a Material Adverse Change,

                         (iii) any  assertion of material  withdrawal  liability
with respect to any Multiemployer Plan,

                         (iv)  any  partial  or  complete   withdrawal   from  a
Multiemployer  Plan by the Borrower or any other member of the ERISA Group under
Title IV of ERISA (or  assertion  thereof),  where such  withdrawal is likely to
result in material withdrawal liability,

                                     - 82 -


                         (v)    any cessation  of operations (by the Borrower or
any  other  member  of the  ERISA  Group)  at a  facility  in the  circumstances
described  in Section  4062(e) of ERISA where such  cessation of  operations  is
likely to result in a material liability under ERISA Sections 4060 or 4064,

                         (vi)   withdrawal by the  Borrower  or any other member
of the ERISA Group from a Multiple Employer Plan where such withdrawal is likely
to result in material withdrawal liability,

                         (vii)  a failure by the Borrower or any other member of
the ERISA Group to make a payment to a Plan  required to avoid  imposition  of a
Lien under Section 302(f) of ERISA,

                         (viii) the adoption of an amendment to a Plan requiring
the provision of security to such Plan pursuant to Section 307 of ERISA, or

                         (ix)   any  change  in  the  actuarial  assumptions  or
funding  methods  used for any  Plan,  where  the  effect  of such  change is to
materially  increase  the  unfunded  benefit  liability  or  obligation  to make
periodic contributions.

                         7.3.7.2  NOTICES OF INVOLUNTARY  TERMINATION AND ANNUAL
                                  REPORTS.

                         As soon as available  or within  thirty (30) days after
receipt thereof, copies of (a) all notices received by the Borrower or any other
member  of  the  ERISA  Group  of  the  PBGC's  intent  to  terminate  any  Plan
administered  or maintained by the Borrower or any member of the ERISA Group, or
to have a trustee  appointed to administer any such Plan; and (b) at the request
of the  Administrative  Agent or any Lender,  each annual  report (IRS Form 5500
series) and all accompanying  schedules,  the most recent actuarial reports, the
most recent financial  information  concerning the financial status of each Plan
administered  or  maintained  by the  Borrower or any other  member of the ERISA
Group, and schedules showing the amounts  contributed to each such Plan by or on
behalf of the  Borrower  or any other  member of the ERISA Group in which any of
their  personnel  participate or from which such personnel may derive a benefit,
and each  Schedule B (Actuarial  Information)  to the annual report filed by the
Borrower  or any other  member  of the ERISA  Group  with the  Internal  Revenue
Service with respect to each such Plan.

                         7.3.7.3  NOTICE OF VOLUNTARY TERMINATION.

                         Promptly upon the filing thereof,  copies of any notice
of standard  termination  with the PBGC, or any  successor or  equivalent  form,
filed with the PBGC in connection with the termination of any Plan.

                                     - 83 -


                  7.3.8  OTHER INFORMATION.

                  Promptly following request therefor, such other information as
any Agent or Lender may reasonably request.


                                   8. DEFAULT

            8.1   EVENTS OF DEFAULT.

            An Event of Default  shall mean the  occurrence  or existence of any
one or more of the following events or conditions  (whatever the reason therefor
and whether voluntary, involuntary or effected by operation of Law):

                  8.1.1  PAYMENTS UNDER LOAN DOCUMENTS.

                  The Borrower  shall fail to pay (i) any  principal of any Loan
(including scheduled  installments,  mandatory prepayments or the payment due at
maturity) or  Reimbursement  Obligation  when such principal is due hereunder or
(ii) any interest on any Loan or  Reimbursement  Obligation  or any other amount
owing hereunder or under the other Loan Documents within three (3) Business Days
after such  interest or other amount  becomes due in  accordance  with the terms
hereof or thereof;

                  8.1.2  BREACH OF WARRANTY.

                  (a)  Any representation  or warranty  made by the  Borrower in
Sections  5.1.3(b),  5.1.4(b),  5.1.5(b),  5.1.7(i)(b),  5.1.7(ii)(b)  or,  with
respect to the ACC Group, in Section 5.1.9 hereof shall prove to have been false
or misleading as of the time it was made by the Borrower  without  giving effect
to the  qualification  in each such  Section  that the  Borrower was making such
representation or warranty "to the knowledge of the Borrower", to an extent that
could reasonably be expected to result in a Material Adverse Change;

                  (b)  Any other representation  or warranty made at any time by
the Borrower herein or by any of the Loan Parties in any other Loan Document, or
in any  certificate,  other  instrument or statement  furnished  pursuant to the
provisions  hereof or thereof,  shall prove to have been false or  misleading in
any material respect as of the time it was made or furnished;

                  8.1.3  BREACH OF NEGATIVE COVENANTS OR VISITATION RIGHTS.

                  Any of the Loan Parties  shall  default in the  observance  or
performance  of any covenant  contained in Section  7.1.5  [Visitation  Rights],
Section 7.2 [Negative Covenants] or 7.3.4 [Notice of Default];

                  8.1.4  BREACH OF OTHER COVENANTS.

                  (a)  Any of the Loan Parties shall fail to timely  perform the
covenants set forth in Sections 7.3.1,  7.3.2 or 7.3.3 [Reporting  Requirements]
and such default shall continue

                                     - 84 -


unremedied  for a period of thirty (30)  Business  Days after any officer of any
Loan Party becomes aware of the occurrence thereof;

                  (b) Any of the Loan Parties shall default in the observance or
performance of any other covenant, condition or provision hereof or of any other
Loan Document and such default shall continue  unremedied for a period of thirty
(30)  Business  Days after any  officer of any Loan Party  becomes  aware of the
occurrence  thereof (such grace period to be  applicable  only in the event such
default can be remedied by  corrective  action of the Loan Parties as determined
by the Administrative Agent in its sole discretion);

                  8.1.5  DEFAULTS IN OTHER AGREEMENTS OR INDEBTEDNESS.

                  A default  or event of default  shall  occur at any time under
the terms of any other  agreement  involving  borrowed money or the extension of
credit or any other Indebtedness or any Derivatives  Obligations under which any
Loan Party or Subsidiary  of any Loan Party (other than  Excluded  Subsidiaries)
may be  obligated as a borrower or  guarantor  in excess of  $20,000,000  in the
aggregate,  and such breach, default or event of default consists of the failure
to pay (beyond  any period of grace  permitted  with  respect  thereto,  whether
waived  or not) any  indebtedness  when due  (whether  at  stated  maturity,  by
acceleration  or otherwise)  or if such breach or default  permits or causes (or
with the giving of notice or the passage of time or both would  permit or cause)
the acceleration of any indebtedness  (whether or not such right shall have been
waived) or the termination of any commitment to lend;

                  8.1.6  JUDGMENTS OR ORDERS.

                  Any  judgments or orders for the payment of money in excess of
$20,000,000  in the  aggregate  shall be entered  against  any Loan Party or any
Subsidiary  of any Loan Party by a court having  jurisdiction  in the  premises,
which  judgment is not  discharged,  vacated,  bonded or stayed  pending  appeal
within a period of thirty (30) days from the date of entry;  PROVIDED,  however,
that any such  judgment  or order  shall not be an Event of  Default  under this
Section  8.1.6 if and for so long as (i) the amount of such judgment or order in
excess of  $20,000,000  is covered by a valid and  binding  policy of  insurance
between the defendant  and the insurer  covering  payment  thereof and (ii) such
insurer,  which  shall  be rated at least  "A" by A.M.  Best  Company,  has been
notified  of, and has not  disputed the claim made for payment of, the amount of
such judgment or order;

                  8.1.7  LOAN DOCUMENT UNENFORCEABLE.

                  Any of the Loan Documents  shall cease to be legal,  valid and
binding agreements enforceable against any Loan Party executing the same or such
party's  successors  and  assigns (as  permitted  under the Loan  Documents)  in
accordance  with the respective  terms thereof or shall in any way be terminated
(except in accordance  with its terms) or become or be declared  ineffective  or
inoperative  or shall in any way be  challenged or contested or cease to give or
provide the respective Liens,  security interests,  rights,  titles,  interests,
remedies, powers or privileges intended to be created thereby;

                                     - 85 -


                  8.1.8   UNINSURED LOSSES; PROCEEDINGS AGAINST ASSETS.

                  Any of the Loan Parties' or any of their Subsidiaries'  assets
are attached, seized, levied upon or subjected to a writ or distress warrant; or
such come within the possession of any receiver,  trustee, custodian or assignee
for the benefit of creditors  and the same is not cured within  thirty (30) days
thereafter;

                  8.1.9   NOTICE OF LIEN OR ASSESSMENT.

                  A notice of Lien or assessment in excess of $20,000,000  which
is not a Permitted  Lien is filed of record  with  respect to all or any part of
any of the Loan  Parties'  or any of their  Subsidiaries'  assets by the  United
States, or any department,  agency or instrumentality  thereof, or by any state,
county, municipal or other governmental agency, including the PBGC, or any taxes
or  debts  owing  at any time or  times  hereafter  to any one of these  becomes
payable and the same is not paid within  thirty (30) days after the same becomes
payable;

                  8.1.10  INSOLVENCY.

                  The Borrower and its Subsidiaries, taken as a whole, cease
to be Solvent;

                  8.1.11  EVENTS RELATING TO PLANS AND BENEFIT ARRANGEMENTS.

                  Any of the following occurs:  (i) any Reportable Event,  which
the  Administrative  Agent determines in good faith constitutes  grounds for the
termination  of any  Plan  by  the  PBGC  or the  appointment  of a  trustee  to
administer or liquidate any Plan,  shall have occurred and be  continuing;  (ii)
proceedings  shall have been  instituted  or other action taken to terminate any
Plan,  or a  termination  notice shall have been filed with respect to any Plan;
(iii) a trustee shall be appointed to administer or liquidate any Plan; (iv) the
PBGC shall give notice of its intent to institute  proceedings  to terminate any
Plan or Plans or to appoint a trustee to administer or liquidate any Plan;  and,
in the  case  of  the  occurrence  of  (i),  (ii),  (iii)  or  (iv)  above,  the
Administrative  Agent determines in good faith that the amount of the Borrower's
liability is likely to exceed 10% of its  Consolidated  Tangible Net Worth;  (v)
the  Borrower  or any  member  of  the  ERISA  Group  shall  fail  to  make  any
contributions  when due to a Plan or a Multiemployer  Plan; (vi) the Borrower or
any other  member of the ERISA  Group  shall make any  amendment  to a Plan with
respect to which  security is  required  under  Section 307 of ERISA;  (vii) the
Borrower or any other  member of the ERISA Group shall  withdraw  completely  or
partially from a Multiemployer  Plan; (viii) the Borrower or any other member of
the ERISA Group shall  withdraw  (or shall be deemed  under  Section  4062(e) of
ERISA to withdraw) from a Multiple  Employer Plan; or (ix) any applicable Law is
adopted,  changed  or  interpreted  by any  Official  Body  with  respect  to or
otherwise   affecting  one  or  more  Plans,   Multiemployer  Plans  or  Benefit
Arrangements  and,  with respect to any of the events  specified  in (v),  (vi),
(vii),  (viii) or (ix), the  Administrative  Agent determines in good faith that
any such  occurrence  would be  reasonably  likely to  materially  and adversely
affect the total enterprise represented by the Borrower and the other members of
the ERISA Group;

                                     - 86 -


                  8.1.12  CESSATION OF BUSINESS.

                  The Loan  Parties,  taken as a whole,  cease to conduct  their
business as  contemplated,  except as expressly  permitted  under  Section 7.2.3
[Liquidations,   Mergers,   etc.]  or  7.2.4   [Dispositions   of   Assets   and
Subsidiaries],  or are  enjoined,  restrained  or in any way  prevented by court
order  from  conducting  all or any  material  part of their  business  and such
injunction,  restraint or other  preventive order is not dismissed within thirty
(30) days after the entry thereof;

                  8.1.13  CHANGE OF CONTROL.

                          (i) Any person or group of persons (within the meaning
of Sections 13(d) or 14(a) of the  Securities  Exchange Act of 1934, as amended)
other than Ashland Inc. shall have acquired beneficial  ownership of (within the
meaning of Rule 13d-3  promulgated by the SEC under said Act) 35% or more of the
voting  capital  stock of the  Borrower;  or (ii) within a period of twelve (12)
consecutive  calendar months,  individuals who were directors of the Borrower on
the first day of such period  shall cease to  constitute a majority of the board
of directors of the Borrower;

                  8.1.14  INVOLUNTARY PROCEEDINGS.

                  A  proceeding  shall have been  instituted  in a court  having
jurisdiction in the premises  seeking a decree or order for relief in respect of
any Loan Party or any Material Subsidiary of a Loan Party in an involuntary case
under any applicable bankruptcy, insolvency, reorganization or other similar law
now or hereafter in effect,  or for the  appointment of a receiver,  liquidator,
assignee, custodian, trustee, sequestrator, conservator (or similar official) of
any Loan Party or any Material  Subsidiary  of a Loan Party for any  substantial
part of its property,  or for the winding-up or liquidation of its affairs,  and
such proceeding shall remain  undisguised or unseated and in effect for a period
of thirty  (30)  consecutive  days or such court  shall  enter a decree or order
granting any of the relief sought in such proceeding; or

                  8.1.15  VOLUNTARY PROCEEDINGS.

                  Any Loan  Party or any  Material  Subsidiary  of a Loan  Party
shall  commence a voluntary case under any  applicable  bankruptcy,  insolvency,
reorganization or other similar law now or hereafter in effect, shall consent to
the entry of an order for relief in an  involuntary  case under any such law, or
shall consent to the appointment or taking possession by a receiver, liquidator,
assignee,  custodian,  trustee,  sequestrator,  conservator  (or  other  similar
official) of itself or for any substantial  part of its property or shall make a
general assignment for the benefit of creditors,  or shall fail generally to pay
its debts as they become due, or shall take any action in  furtherance of any of
the foregoing.

                                     - 87 -


            8.2   CONSEQUENCES OF EVENT OF DEFAULT.

                  8.2.1    EVENTS OF DEFAULT OTHER THAN BANKRUPTCY,
                           INSOLVENCY OR REORGANIZATION PROCEEDINGS.

                  If an Event of Default  specified under Sections 8.1.1 through
8.1.13  shall occur and be  continuing,  the Banks,  the  Issuing  Banks and the
Administrative  Agent  shall be under no further  obligation  to make  Revolving
Credit Loans,  Swing Loans or Bid Loans or issue Letters of Credit,  as the case
may be (and the Administrative  Agent shall not make any Swing Loans without the
consent of the  Required  Banks nor shall any  Issuing  Bank issue any Letter of
Credit without consent of the Required Banks), and the Administrative Agent may,
and upon the  request of the  Required  Banks  shall,  by written  notice to the
Borrower,  take  one or  both  of  the  following  actions:  (i)  terminate  the
Commitments and thereupon the Commitments  shall be terminated and of no further
force and effect,  or (ii) declare the unpaid  principal amount of the Revolving
Credit Loans,  Term Loans,  Bid Loans and Swing Loans then  outstanding  and all
interest  accrued  thereon,  any unpaid fees and all other  Indebtedness  of the
Borrower  to the  Lenders  hereunder  and  thereunder  to be  forthwith  due and
payable,  and the same shall thereupon become and be immediately due and payable
to the  Administrative  Agent for the benefit of each Bank without  presentment,
demand,  protest  or any  other  notice of any  kind,  all of which  are  hereby
expressly  waived,  and (iii)  require the Borrower  to, and the Borrower  shall
thereupon,  deposit in a  non-interest-bearing  account with the  Administrative
Agent,  as cash  collateral for its  Obligations  under the Loan  Documents,  an
amount equal to the maximum amount currently or at any time thereafter available
to be drawn on all  outstanding  Letters  of  Credit,  and the  Borrower  hereby
pledges  to  the  Administrative   Agent  and  the  Banks,  and  grants  to  the
Administrative  Agent and the Banks a  security  interest  in,  all such cash as
security for such Obligations. Upon the curing of all existing Events of Default
to the satisfaction of the Required Banks, the Administrative Agent shall return
such cash collateral to the Borrower; and

                  8.2.2  BANKRUPTCY, INSOLVENCY OR REORGANIZATION PROCEEDINGS.

                  If  an  Event  of  Default   specified  under  Section  8.1.14
[Involuntary  Proceedings] or 8.1.15  [Voluntary  Proceedings]  shall occur, the
Commitments shall automatically terminate and be of no further force and effect,
the Lenders shall be under no further obligation to make Revolving Credit Loans,
Swing Loans or Bid Loans  hereunder or to issue Letters of Credit and the unpaid
principal amount of the Loans then outstanding and all interest accrued thereon,
any  unpaid  fees and all other  Indebtedness  of the  Borrower  to the  Lenders
hereunder  and  thereunder  shall  be  immediately  due  and  payable,   without
presentment,  demand,  protest  or notice of any kind,  all of which are  hereby
expressly waived; and

                  8.2.3  SET-OFF.

                  If an Event of  Default  shall  occur and be  continuing,  any
Lender to whom any  Obligation is owed by any Loan Party  hereunder or under any
other  Loan  Document  or any  participant  of such  Lender  which has agreed in
writing to be bound by the provisions of Section 9.13  [Equalization of Lenders]
and any branch,  Subsidiary or Affiliate of such Lender or participant  anywhere
in the world shall have the right,  in addition to all other rights and remedies


                                     - 88 -


available to it, without notice to such Loan Party, to set-off against and apply
to the then  unpaid  balance of all the Loans and all other  Obligations  of the
Borrower and the other Loan Parties  hereunder or under any other Loan  Document
any debt owing to, and any other  funds held in any manner for the  account  of,
the Borrower or such other Loan Party by such Lender or  participant  or by such
branch,  Subsidiary  or Affiliate,  including all funds in all deposit  accounts
(whether time or demand,  general or special,  provisionally credited or finally
credited,  or  otherwise)  now or hereafter  maintained  by the Borrower or such
other Loan Party for its own account (but not including  funds held in custodian
or trust accounts) with such Lender or participant or such branch, Subsidiary or
Affiliate.   Such  right  shall   exist   whether  or  not  any  Lender  or  the
Administrative  Agent  shall have made any demand  under this  Agreement  or any
other  Loan  Document,  whether  or not such debt owing to or funds held for the
account of the  Borrower or such other Loan Party is or are matured or unmatured
and  regardless  of the  existence  or  adequacy  of any  Guaranty  or any other
security,  right or remedy available to any Lender or the Administrative  Agent;
and

                  8.2.4  SUITS, ACTIONS, PROCEEDINGS.

                  If an Event of  Default  shall  occur and be  continuing,  and
whether or not the  Administrative  Agent shall have accelerated the maturity of
the Committed Loans pursuant to any of the foregoing  provisions of this Section
8.2, the Agents or any Lender, if owed any amount with respect to the Loans, may
proceed  to protect  and  enforce  its  rights by suit in equity,  action at law
and/or other appropriate proceeding, whether for the specific performance of any
covenant or agreement  contained in this Agreement or the other Loan  Documents,
including  as  permitted  by  applicable  Law  the  obtaining  of the  EX  PARTE
appointment  of a  receiver,  and,  if such  amount  shall have  become  due, by
declaration  or otherwise,  proceed to enforce the payment  thereof or any other
legal or equitable right of any Agent or such Lender; and

                  8.2.5  APPLICATION OF PROCEEDS.

                  From and  after  the date on which  the  Administrative  Agent
shall  have  taken  any  action  pursuant  to this  Section  8.2 and  until  all
Obligations  of the Loan  Parties  have been paid in full,  any and all proceeds
received  by the  Administrative  Agent from the  exercise  of any remedy by the
Administrative Agent shall be applied as follows:

                         (i)   first, to reimburse the Administrative  Agent and
the Lenders for  out-of-pocket  costs,  expenses  and  disbursements,  including
reasonable  attorneys' and paralegals' fees and legal expenses,  incurred by the
Administrative  Agent  or the  Lenders  in  connection  with  collection  of any
Obligations of any of the Loan Parties under any of the Loan Documents;

                         (ii)  second, to the repayment of all Indebtedness then
due and unpaid of the Loan Parties to the Lenders  incurred under this Agreement
or any of the other  Loan  Documents,  whether  of  principal,  interest,  fees,
expenses or otherwise,  in such manner as the Administrative Agent may determine
in its discretion; and

                         (iii) the balance, if any, as required by Law.

                                     - 89 -


                  8.2.6  OTHER RIGHTS AND REMEDIES.

                  In addition  to all of the rights and  remedies  contained  in
this Agreement or in any of the other Loan Documents,  the Administrative  Agent
shall have all of the rights and  remedies  under  applicable  Law, all of which
rights  and  remedies  shall be  cumulative  and  non-exclusive,  to the  extent
permitted  by Law.  The  Administrative  Agent may,  and upon the request of the
Required  Banks  shall,   exercise  all  post-default   rights  granted  to  the
Administrative Agent and the Lenders under the Loan Documents or applicable Law.

            8.3  RIGHT OF COMPETITIVE BID LOAN LENDERS.

            If any Event of Default shall occur and be  continuing,  the Lenders
which  have any Bid  Loans  then  outstanding  to the  Borrower  (the  "Bid Loan
Lenders")  shall not be  entitled to  accelerate  payment of the Bid Loans or to
exercise any right or remedy  related to the  collection  of the Bid Loans until
the Commitments shall be terminated hereunder pursuant to Section 8.2. Upon such
a  termination  of the  Commitments,  references  to  Revolving  Credit Loans in
Section  8.2  shall be  deemed  to apply  also to the Bid Loans and the Bid Loan
Lenders  shall be  entitled  to all  enforcement  rights  given to a holder of a
Revolving Credit Loan in Section 8.2.


                                  9. THE AGENTS

            9.1  APPOINTMENT.

            Each Lender hereby designates, appoints and authorizes: (i) PNC Bank
to act as  Administrative  Agent for such Lender  under this  Agreement  and the
other Loan  Documents  for such Lender under this  Agreement  and to execute and
deliver or accept on behalf of each of the Lenders the other Loan Documents, and
(ii)  authorizes  each of PNC Bank and  Morgan to act as Agent  for such  Lender
under  this   Agreement.   Each  Lender  hereby   irrevocably   authorizes   the
Administrative  Agent to take such action on its behalf under the  provisions of
this  Agreement  and the other  Loan  Documents  and any other  instruments  and
agreements  referred to herein,  and to exercise such powers and to perform such
duties hereunder as are specifically delegated to or required of the Agents, the
Administrative  Agent or any of them by the  terms  hereof,  together  with such
powers  as are  reasonably  incidental  thereto.  PNC Bank  agrees to act as the
Administrative  Agent on behalf of the  Lenders to the extent  provided  in this
Agreement,  and each of PNC Bank and Morgan  agrees to act as Agent on behalf of
the Banks to the extent provided in this Agreement.

            9.2  DELEGATION OF DUTIES.

            The Agents and the  Administrative  Agent may  perform  any of their
respective  duties  hereunder by or through  agents or employees  (provided such
delegation does not constitute a relinquishment  of their  respective  duties as
Agents or the Administrative Agent, as the case may be) and, subject to Sections
9.5  [Reimbursement  and  Indemnification  of  Agents by the  Borrower]  and 9.6
[Exculpatory Provisions;  Limitation of Liability],  shall be entitled to engage
and pay for the  advice  or  services  of any  attorneys,  accountants  or other
experts  concerning all matters  pertaining to its duties  hereunder and to rely
upon any advice so obtained.

                                     - 90 -


            9.3  NATURE OF DUTIES; INDEPENDENT CREDIT INVESTIGATION.

            Neither  the  Agents  nor the  Administrative  Agent  shall have any
duties or  responsibilities  except those  expressly set forth in this Agreement
and no implied covenants, functions,  responsibilities,  duties, obligations, or
liabilities  shall be read into this Agreement or otherwise exist. The duties of
the   Administrative   Agent  and  of  the  Agents  shall  be   mechanical   and
administrative in nature;  neither the Administrative Agent nor the Agents shall
have by reason of this Agreement a fiduciary or trust relationship in respect of
any Lender; and nothing in this Agreement,  expressed or implied, is intended to
or shall be so construed as to impose upon the Administrative Agent or any Agent
any  obligations  in respect of this  Agreement  except as  expressly  set forth
herein.  Without  limiting the generality of the foregoing,  the use of the term
"Agents" in this Agreement with reference to the Agents or Administrative Agent,
as the case may be, is not intended to connote any  fiduciary  or other  implied
(or express)  obligations  arising under agency  doctrine of any applicable Law.
Instead,  such term is used merely as a matter of market custom, and is intended
to create or reflect only an  administrative  relationship  between  independent
contracting  parties.  Each Lender  expressly  acknowledges (i) that neither the
Administrative Agent nor any Agent has made any representations or warranties to
it and that no act by the  Administrative  Agent or any Agent  hereafter  taken,
including any review of the affairs of any of the Loan Parties,  shall be deemed
to constitute any representation or warranty by the Administrative  Agent or any
Agent to any Lender;  (ii) that it has made and will  continue to make,  without
reliance  upon  the  Administrative  Agent  or any  Agent,  its own  independent
investigation  of the  financial  condition and affairs and its own appraisal of
the  creditworthiness  of each of the  Loan  Parties  in  connection  with  this
Agreement  and the  making and  continuance  of the Loans  hereunder;  and (iii)
except as expressly provided herein,  that neither the Administrative  Agent nor
any  Agent  shall  have any duty or  responsibility,  either  initially  or on a
continuing  basis,  to provide any Lender  with any credit or other  information
with respect  thereto,  whether coming into its possession  before the making of
any  Loan,  the  issuance  of any  Letter  of  Credit  or at any  time or  times
thereafter.

            9.4  ACTIONS IN DISCRETION OF AGENTS; INSTRUCTIONS FROM THE BANKS.

            The  Administrative  Agent and each Agent  agrees,  upon the written
request of the Required  Banks, to take or refrain from taking any action of the
type  specified  as being  within the  Administrative  Agent's  or such  Agent's
rights,  powers or discretion  herein,  PROVIDED that neither the Administrative
Agent nor any Agent  shall be  required  to take any action  which  exposes  the
Administrative  Agent or any Agent to personal liability or which is contrary to
this Agreement or any other Loan Document or applicable Law. In the absence of a
request by the Required  Banks,  the  Administrative  Agent and each Agent shall
have  authority,  in  their  sole  discretion,  to take or not to take  any such
action, unless this Agreement  specifically requires the consent of the Required
Banks or all of the Banks.  Any action  taken or failure to act pursuant to such
instructions or discretion shall be binding on the Banks, subject to Section 9.6
[Exculpatory  Provisions,  etc.].  Subject to the  provisions of Section 9.6, no
Lender  shall have any right of action  whatsoever  against  the  Administrative
Agent or any Agent as a result of the  Administrative  Agent or any Agent acting
or refraining from acting  hereunder in accordance with 

                                     - 91 -


the instructions of the Required Banks, or in the absence of such  instructions,
in the absolute  discretion of the  Administrative  Agent or the Agents,  as the
case may be.

            9.5  REIMBURSEMENT AND INDEMNIFICATION OF AGENTS BY THE Borrower.

            The  Borrower   unconditionally  agrees  to  pay  or  reimburse  the
Administrative  Agent and each Agent and hold the Administrative  Agent and each
Agent  harmless  against  (a)  liability  for  the  payment  of  all  reasonable
out-of-pocket costs, expenses and disbursements,  including fees and expenses of
outside  counsel,  appraisers  and  environmental  consultants,  incurred by the
Administrative  Agent or any  Agent  (i) in  connection  with  the  development,
negotiation,  preparation,  printing,  execution,  administration,  syndication,
interpretation  and  performance of this Agreement and the other Loan Documents,
(ii) relating to any requested  amendments,  waivers or consents pursuant to the
provisions hereof, (iii) in connection with the enforcement of this Agreement or
any other Loan  Document or collection of amounts due hereunder or thereunder or
the proof and  allowability  of any claim  arising  under this  Agreement or any
other Loan  Document,  whether in  bankruptcy  or  receivership  proceedings  or
otherwise,  and (iv) in any workout or  restructuring  or in connection with the
protection,  preservation, exercise or enforcement of any of the terms hereof or
of any rights  hereunder or under any other Loan Document or in connection  with
any foreclosure,  collection or bankruptcy proceedings, and (b) all liabilities,
obligations,  losses,  damages,  penalties,  actions,  judgments,  suits, costs,
expenses or disbursements of any kind or nature  whatsoever which may be imposed
on, incurred by or asserted  against the  Administrative  Agent or any Agent, in
its capacity as such, in any way relating to or arising out of this Agreement or
any other Loan  Documents or any action  taken or omitted by the  Administrative
Agent or any Agent hereunder or thereunder, PROVIDED that the Borrower shall not
be liable for any portion of such  liabilities,  obligations,  losses,  damages,
penalties,  actions,  judgments,  suits, costs, expenses or disbursements if the
same results from the Administrative  Agent's or any Agent's gross negligence or
willful misconduct, or if the Borrower was not given notice of the subject claim
and the  opportunity  to  participate  in the  defense  thereof,  at its expense
(except that the Borrower shall remain liable to the extent such failure to give
notice does not result in a loss to the Borrower), or if the same results from a
compromise  or  settlement  agreement  entered  into  without the consent of the
Borrower, which shall not be unreasonably withheld.

            9.6  EXCULPATORY PROVISIONS; LIMITATION OF LIABILITY.

            Neither  the  Administrative  Agent,  any  Agent  nor  any of  their
respective directors, officers, employees, agents, attorneys or Affiliates shall
(a) be liable to any Lender for any action taken or omitted to be taken by it or
them  hereunder,  or in  connection  herewith  including  pursuant  to any  Loan
Document,  unless  caused  by its or  their  own  gross  negligence  or  willful
misconduct,  (b) be  responsible  in any  manner to any of the  Lenders  for the
effectiveness,  enforceability,  genuineness,  validity or the due  execution of
this Agreement or any other Loan  Documents or for any recital,  representation,
warranty, document, certificate, report or statement herein or made or furnished
under or in connection with this Agreement or any other Loan  Documents,  or (c)
be under any  obligation  to any of the Lenders to ascertain or to inquire as to
the  performance  or  observance  of any of the terms,  covenants or  conditions
hereof or thereof on 

                                     - 92 -


the part of the Loan Parties, or the financial condition of the Loan Parties, or
the  existence  or  possible  existence  of any Event of  Default  or  Potential
Default.  No  claim  may be made by any of the Loan  Parties,  any  Lender,  the
Administrative  Agent  or any  Agent  or any of  their  respective  Subsidiaries
against  the  Administrative  Agent,  any  Agent,  any  Lender  or any of  their
respective directors,  officers,  employees, agents, attorneys or Affiliates, or
any of them,  for any  special,  indirect  or  consequential  damages or, to the
fullest  extent  permitted by Law,  for any  punitive  damages in respect of any
claim or cause of action (whether based on contract,  tort, statutory liability,
or any other ground) based on, arising out of or related to any Loan Document or
the transactions  contemplated hereby or any act, omission or event occurring in
connection therewith, including the negotiation,  documentation,  administration
or collection  of the Loans,  and the Borrower (for itself and on behalf of each
of its  Subsidiaries),  the  Administrative  Agent,  each Agent and each  Lender
hereby  waives,  releases  and  agrees  never to sue upon any claim for any such
damages, whether such claim now exists or hereafter arises and whether or not it
is now known or suspected to exist in its favor. Each Lender agrees that, except
for notices,  reports and other documents  expressly required to be furnished to
the Lenders by the  Administrative  Agent or any Agent hereunder or given to the
Administrative  Agent or any Agent for the  account  of or with  copies  for the
Lenders,  the  Administrative  Agent,  each  Agent and each of their  respective
directors,  officers,  employees, agents, attorneys or Affiliates shall not have
any duty or  responsibility  to  provide  any  Lender  with any  credit or other
information concerning the business, operations,  property, condition (financial
or otherwise),  prospects or creditworthiness of the Loan Parties which may come
into the  possession  of the  Administrative  Agent,  any  Agent or any of their
directors, officers, employees, agents, attorneys or Affiliates.

            9.7  REIMBURSEMENT AND INDEMNIFICATION OF AGENTS BY THE LENDERS.

            Each Lender agrees to reimburse  and  indemnify  the  Administrative
Agent and each Agent (to the extent not  reimbursed  by the Borrower and without
limiting the Obligation of the Borrower to do so) in proportion to its Revolving
Credit  Ratable Share and/or Term Loan Ratable Share,  as  applicable,  from and
against all  liabilities,  obligations,  losses,  damages,  penalties,  actions,
judgments,  suits,  reasonable  costs,  expenses  or  disbursements,   including
attorneys'  fees and  disbursements,  and costs of appraisers and  environmental
consultants,  of any kind or nature whatsoever which may be imposed on, incurred
by or asserted against the  Administrative  Agent, the Agents, or any of them in
their  respective  capacities  as such, in any way relating to or arising out of
this Agreement or any other Loan Documents or any action taken or omitted by the
Administrative  Agent or any Agent  hereunder or  thereunder,  PROVIDED  that no
Lender shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties,  actions, judgments, suits, costs, expenses or disbursements
(a) if the same results  from the  Administrative  Agent's or any Agent's  gross
negligence or willful misconduct,  as the case may be, or (b) if such Lender was
not given notice of the subject claim and the  opportunity to participate in the
defense thereof,  at its expense (except that such Lender shall remain liable to
the extent such failure to give notice does not result in a loss to the Lender),
or (c) if the same results from a compromise  and settlement  agreement  entered
into  without  the  consent  of such  Lender,  which  shall not be  unreasonably
withheld. In addition,  each Lender agrees promptly upon demand to reimburse the
Administrative  Agent  and each  Agent  (to the  extent  not  reimbursed  by the
Borrower  and  without  limiting  the  Obligation  of the  Borrower to do so) in

                                     - 93 -


proportion  to its  Revolving  Credit  Ratable  Share and its Term Loan  Ratable
Share,  as  applicable,  for all amounts due and payable by the  Borrower to the
Administrative  Agent or the Agents,  as the case may be in connection  with the
periodic audit of the Loan Parties'  books,  records and business  properties by
the Administrative Agent or the Agents.

            9.8   RELIANCE BY AGENTS.

            The  Administrative  Agent and each Agent  shall be entitled to rely
upon any  writing,  telegram,  telex or teletype  message,  resolution,  notice,
consent, certificate,  letter, cablegram,  statement, order or other document or
conversation by telephone or otherwise  believed by it to be genuine and correct
and to have been signed, sent or made by the proper Person or Persons,  and upon
the advice and opinions of counsel and other  professional  advisers selected by
the Administrative  Agent or any Agent. The Administrative  Agent and each Agent
shall be fully  justified  in failing or refusing  to take any action  hereunder
unless it shall first be indemnified to its  satisfaction by the Lenders against
any and all  liability  and  expense  which may be  incurred  by it by reason of
taking or continuing to take any such action.

            9.9   NOTICE OF DEFAULT.

            Neither  the  Administrative  Agent nor any Agent shall be deemed to
have knowledge or notice of the occurrence of any Potential  Default or Event of
Default  unless  such  person has  received  written  notice  from a Bank or the
Borrower referring to this Agreement, describing such Potential Default or Event
of Default and stating that such notice is a "notice of default."

            9.10  NOTICES.

            Each of the  Administrative  Agent and each Agent agrees to promptly
send to each Bank a copy of all notices  received from the Borrower  pursuant to
the  provisions  of this  Agreement or the other Loan  Documents  promptly  upon
receipt thereof. The Administrative Agent shall promptly notify the Borrower and
the other Banks of each change in the Base Rate and the effective date thereof.

            9.11  BANKS IN THEIR INDIVIDUAL CAPACITIES.

            With  respect  to  its  Revolving  Credit   Commitment,   Term  Loan
Commitment,  the Revolving  Credit Loans,  the Term Loans,  the Swing Loans, the
issuance  of any  Letter  of Credit  and any Bid Loans  made by it and any other
rights and powers given to it as a Bank hereunder or under any of the other Loan
Documents,  the  Administrative  Agent and each Agent shall have the same rights
and powers  hereunder  as any other Bank and may  exercise the same as though it
were not the Administrative  Agent or an Agent, as the case may be, and the term
"Banks"   shall,   unless  the   context   otherwise   indicates,   include  the
Administrative Agent and each Agent in its individual capacity. PNC Bank and its
Affiliates,  Morgan and its Affiliates, each other Agent and its Affiliates, and
each of the Lenders and their respective  Affiliates may,  without  liability to
account,  except as  prohibited  herein,  make loans to, accept  deposits  from,
discount drafts for, act as trustee under indentures of, and generally engage in
any  kind of  banking  or  trust  business  with  

                                     - 94 -


the Loan Parties and their Affiliates,  in the case of the Administrative  Agent
or any Agent, as though it were not acting as Administrative  Agent or Agent, as
the case may be, hereunder and in the case of each Lender, as though such Lender
were not a Lender  hereunder.  The Lenders  acknowledge  that,  pursuant to such
activities,  the  Administrative  Agent or its  Affiliates  or any  Agent or its
respective  Affiliates  may (i) receive  information  regarding the Loan Parties
(including  information  that may be subject to  confidentiality  obligations in
favor of the Loan Parties) and acknowledge that neither the Administrative Agent
nor any Agent shall be under any obligation to provide such information to them,
and (ii) accept fees and other  consideration from the Loan Parties for services
in connection  with this  Agreement and otherwise  without having to account for
the same to the Lenders.

            9.12  HOLDERS OF NOTES.

            The Administrative Agent and each Agent may deem and treat any payee
of any Note as the  owner  thereof  for all  purposes  hereof  unless  and until
written notice of the assignment or transfer  thereof shall have been filed with
the Administrative  Agent and the Agents.  Any request,  authority or consent of
any Person who at the time of making such  request or giving such  authority  or
consent  is the  holder  of any Note  shall be  conclusive  and  binding  on any
subsequent  holder,  transferee or assignee of such Note or of any Note or Notes
issued in exchange therefor.

            9.13  EQUALIZATION OF LENDERS.

            The Lenders and the holders of any participations in any Commitments
or Loans or other  rights  or  obligations  of a Lender  hereunder  agree  among
themselves  that, with respect to all amounts received by any Lender or any such
holder  for   application  on  any  Obligation   hereunder  or  under  any  such
participation,  whether  received by  voluntary  payment,  by  realization  upon
security,  by the  exercise  of the  right  of  set-off  or  banker's  lien,  by
counterclaim or by any other non-pro rata source,  equitable  adjustment will be
made in the manner stated in the following sentence so that, in effect, all such
excess  amounts  will be shared  ratably  among the Lenders and such  holders in
proportion  to their  interests  in payments on the Loans,  except as  otherwise
provided in Sections 3.4.3 [Administrative  Agent's and Lender's Rights],  4.4.2
[Replacement   of  a  Lender]  or  4.5   [Additional   Compensation  in  Certain
Circumstances].  The Lenders or any such holder  receiving any such amount shall
purchase  for cash from each of the other  Lenders an interest in such  Lender's
Loans in such amount as shall result in a ratable  participation  by the Lenders
and each such holder in the aggregate unpaid amount of the Loans,  PROVIDED that
if all or any portion of such excess  amount is  thereafter  recovered  from the
Lender or the holder making such purchase,  such purchase shall be rescinded and
the  purchase  price  restored  to the extent of such  recovery,  together  with
interest or other amounts, if any, required by law (including court order) to be
paid by the Lender or the holder making such purchase.

            9.14  SUCCESSOR AGENTS.

            Any Agent or the  Administrative  Agent  (i) may  resign as Agent or
Administrative  Agent,  as  the  case  may  be or  (ii)  shall  resign  if  such
resignation is requested by the Required  Banks (if the Agent or  Administrative
Agent is a Bank,  such Agent's or  Administrative  Agent's 

                                     - 95 -


Loans and  Commitment  shall be considered in  determining  whether the Required
Banks have requested such resignation) or required by Section 4.4.2 [Replacement
of a Lender],  in either case of (i) or (ii) by giving not less than thirty (30)
days' prior written notice to the Borrower.  If any Agent or the  Administrative
Agent shall resign  under this  Agreement,  then either (a) the  Required  Banks
shall  appoint from among the Banks a successor to such Agent or  Administrative
Agent,  as the  case  may be,  for the  Banks,  subject  to the  consent  of the
Borrower,  such consent not to be  unreasonably  withheld  (PROVIDED,  THAT,  no
consent of the  Borrower  shall be  required  during any period when an Event of
Default exists and is continuing), or (b) if a successor Agent or Administrative
Agent shall not be so appointed  and approved  within the thirty (30) day period
following an Agent's or the  Administrative  Agent's notice, as the case may be,
to the Banks of its  resignation,  then the  resigning  Administrative  Agent or
resigning  Agent,  as the case may be,  shall  appoint,  with the consent of the
Borrower,  such consent not to be  unreasonably  withheld  (PROVIDED,  THAT,  no
consent of the  Borrower  shall be  required  during any period when an Event of
Default exists and is  continuing),  a successor who shall be a Bank shall serve
as  Administrative  Agent or Agent,  as the case may be,  until such time as the
Required  Banks  appoint  and the  Borrower  consents  to the  appointment  of a
successor to such resigning  Administrative Agent or Agent. Upon its appointment
pursuant to either clause (a) or (b) above, such successor  Administrative Agent
or Agent  shall  succeed  to the  rights,  powers  and  duties of the  resigning
Administrative  Agent or Agent,  as the case may be, and the terms  "Agent"  and
"Administrative  Agent" shall mean such successor Agent or Administrative Agent,
as  the  case  may  be,   effective  upon  its   appointment,   and  the  former
Administrative  Agent's  or  Agent's  rights,  powers  and duties as an Agent or
Administrative  Agent  shall be  terminated  without any other or further act or
deed on the  part of such  former  Agent or  Administrative  Agent or any of the
parties to this Agreement.  After the resignation of the Administrative Agent or
any Agent hereunder, the provisions of this Section 9 shall inure to the benefit
of such  former  Administrative  Agent and each  former  Agent,  and such former
Administrative  Agent  and  each  former  Agent  shall  not by  reason  of  such
resignation be deemed to be released from liability for any actions taken or not
taken by it while it was Administrative Agent or an Agent under this Agreement.

            9.15  ADMINISTRATIVE AGENT'S FEES.

            The Borrower shall pay to the  Administrative  Agent a nonrefundable
fee (the "Bid Loan Processing  Fee") in connection with processing Bid Loans and
a nonrefundable fee (the  "Administrative  Agent's Fee") for the  Administrative
Agent's  services  hereunder  under the terms of a letter  (the  "Administrative
Agent's Letter") between the Borrower and the  Administrative  Agent, as amended
from time to time.

            9.16  AVAILABILITY OF FUNDS.

            The  Administrative  Agent may assume  that each  Lender has made or
will make the proceeds of a Loan  available to the  Administrative  Agent unless
the  Administrative  Agent shall have been  notified by such Lender on or before
the  later of (1) the  close of  Business  on the  Business  Day  preceding  the
Borrowing  Date with  respect  to such Loan or two (2) hours  before the time on
which the  Administrative  Agent actually funds the proceeds of such Loan to the
Borrower  (whether  using its own funds  pursuant to this  Section 9.16 or using
proceeds deposited 

                                     - 96 -


with the  Administrative  Agent by the Lenders and whether such  funding  occurs
before or after the time on which  Lenders are  required to deposit the proceeds
of such Loan with the Administrative  Agent).  The Administrative  Agent may, in
reliance upon such  assumption (but shall not be required to), make available to
the Borrower a corresponding amount. If such corresponding amount is not in fact
made available to the  Administrative  Agent by such Lender,  the Administrative
Agent shall be  entitled to recover  such amount on demand from such Lender (or,
if such  Lender  fails to pay such  amount  forthwith  upon such demand from the
Borrower)  together  with  interest  thereon,  in respect of each day during the
period commencing on the date such amount was made available to the Borrower and
ending on the date the Administrative  Agent recovers such amount, at a rate per
annum equal to (i) the Federal Funds  Effective  Rate during the first three (3)
days after such interest shall begin to accrue and (ii) the applicable  interest
rate in respect of such Loan after the end of such three-day period.

            9.17  CALCULATIONS.

            In the  absence  of gross  negligence  or  willful  misconduct,  the
Administrative  Agent shall not be liable for any error in computing  the amount
payable to any Lender whether in respect of the Loans, fees or any other amounts
due to the Lenders under this Agreement.  In the event an error in computing any
amount payable to any Lender is made, the Administrative Agent, the Borrower and
each affected  Lender shall,  forthwith upon discovery of such error,  make such
adjustments  as shall be required to correct  such error,  and any  compensation
therefor will be calculated at the Federal Funds Effective Rate.

            9.18  BENEFICIARIES.

            Except as expressly  provided herein, the provisions of this Section
9 are solely for the  benefit of the  Administrative  Agent,  each Agent and the
Lenders,  and the Loan  Parties  shall not have any rights to rely on or enforce
any of the provisions  hereof. In performing its functions and duties under this
Agreement,  the  Administrative  Agent and each  Agent  shall act  solely as the
Administrative  Agent or Agent,  as the case may be, of the  Lenders  and do not
assume  and  shall  not be  deemed  to have  assumed  any  obligation  toward or
relationship of agency or trust with or for any of the Loan Parties.


                                10. MISCELLANEOUS

            10.1  MODIFICATIONS, AMENDMENTS OR WAIVERS.

            With the written consent of the Required Banks,  the  Administrative
Agent, acting on behalf of all the Lenders,  and the Borrower,  on behalf of the
Loan Parties,  may from time to time enter into written  agreements  amending or
changing  any  provision  of this  Agreement  or any other Loan  Document or the
rights of the Lenders or the Loan Parties hereunder or thereunder,  or may grant
written  waivers or  consents  to a departure  from the due  performance  of the
Obligations  of the Loan Parties  hereunder or thereunder.  Any such  agreement,
waiver or consent made with such written  consent shall be effective to bind all
the Lenders and the Loan Parties;  PROVIDED,  that no such agreement,  waiver or
consent may be made which will:

                                     - 97 -


                  10.1.1 INCREASE OF REVOLVING CREDIT COMMITMENTS; EXTENSION
                         OF EXPIRATION DATE; MODIFICATION OF TERMS OF PAYMENT.

                  Without  the  written  consent of the  Required  Banks and all
Banks  which have a  Revolving  Credit  Commitment,  increase  the amount of the
Revolving Credit  Commitment of any Bank hereunder,  extend the Expiration Date,
whether or not any Revolving Credit Loans are  outstanding,  extend the time for
payment of principal or interest of any Revolving  Credit Loan, the Facility Fee
or any other fee  payable to any Bank which has a Revolving  Credit  Commitment,
reduce the  principal  amount of or the rate of interest  borne by any Revolving
Credit Loan, reduce the rate of the Facility Fee or any other fee payable to any
Bank which has a Revolving Credit Commitment;

                  10.1.2 INCREASE OF TERM LOAN COMMITMENTS; EXTENSION OF TERM
                         LOAN EXPIRATION DATE; MODIFICATION OF TERMS OF PAYMENT.

                  Without  the  written  consent of the  Required  Banks and all
Banks which have a Term Loan  Commitment,  increase  the amount of the Term Loan
Commitment of any Bank hereunder,  extend the Term Loan Expiration Date, whether
or not any Term Loans are outstanding,  extend the time for payment of principal
or  interest  of any Term Loan,  or any fee payable to any Bank which has a Term
Loan Commitment, reduce the principal amount of or the rate of interest borne by
any Term Loan,  reduce the rate of the  Facility Fee or any other fee payable to
any Bank which has a Term Loan Commitment;

                  10.1.3 RELEASE OF GUARANTOR.

                  Without  the  written  consent  of  all  Banks,   release  any
Guarantor  from its  Obligations  under  the  Guaranty  Agreement  or any  other
security for any of the Loan Parties' Obligations, other than, prior to an Event
of Default upon the request by the Borrower to the Administrative Agent, release
from the Guaranty  Agreement of any Subsidiary  which is no longer a Significant
Subsidiary  (which request shall be accompanied by evidence  satisfactory to the
Administrative  Agent  in its sole  discretion  that the  Subsidiary  which  the
Borrower is requesting be so released from the Guaranty Agreement is no longer a
Significant  Subsidiary and that at the time of the requested release no Letters
of Credit  are  outstanding  directly  or  indirectly  for the  benefit  of such
Subsidiary  nor  are  any  Reimbursement  Obligations  due  and  owing  by  such
Subsidiary),  which  release  from the Guaranty  Agreement of a non  Significant
Subsidiary  may be  granted  solely  by the  Administrative  Agent  without  the
approval of any Bank; or

                  10.1.4 MISCELLANEOUS.

                  Without the written  consent of all Banks,  amend Sections 4.2
[Pro Rata  Treatment  of  Banks],  9.6  [Exculpatory  Provisions,  etc.] or 9.13
[Equalization  of Lenders] or this Section 10.1,  alter any provision  regarding
the pro rata treatment of the Lenders,  change the definition of Required Banks,
or change any  requirement  providing  for the  Lenders,  all the Lenders or the
Required  Banks to  authorize  the  taking of any  action  hereunder;  PROVIDED,
further, that no agreement,  waiver or consent which would modify the interests,
rights or obligations  of any Agent in its capacity  shall be effective  without
the written consent of such Agent;  no 

                                     - 98 -


agreement,  waiver or  consent  which  would  modify  the  interests,  rights or
obligations  of the  Administrative  Agent in its  capacity  shall be  effective
without the  written  consent of the  Administrative  Agent;  and no  agreement,
waiver or consent which would modify the interests, rights or obligations of any
Issuing Bank as the issuer of Letters of Credit  shall be effective  without the
written consent of such Issuing Bank.

            10.2  NO IMPLIED WAIVERS; CUMULATIVE REMEDIES; WRITING REQUIRED.

            No course of dealing  and no delay or failure of the  Administrative
Agent,  any Agent or any  Lender  in  exercising  any  right,  power,  remedy or
privilege under this Agreement or any other Loan Document shall affect any other
or future exercise thereof or operate as a waiver thereof,  nor shall any single
or partial  exercise  thereof or any abandonment or  discontinuance  of steps to
enforce such a right,  power,  remedy or privilege preclude any further exercise
thereof  or of any other  right,  power,  remedy or  privilege.  The  rights and
remedies of the  Administrative  Agent,  each Agent and the  Lenders  under this
Agreement and any other Loan  Documents are  cumulative and not exclusive of any
rights or remedies which they would otherwise have. Any waiver,  permit, consent
or approval of any kind or  character on the part of any Lender of any breach or
default under this Agreement or any such waiver of any provision or condition of
this  Agreement  must be in writing  and shall be  effective  only to the extent
specifically set forth in such writing.

            10.3  REIMBURSEMENT AND  INDEMNIFICATION OF LENDERS BY THE BORROWER;
                  TAXES.

            The Borrower agrees  unconditionally upon demand to pay or reimburse
to each Lender (other than the Administrative  Agent and the Agents, as to which
the  Borrower's  Obligations  are set forth in Section  9.5  [Reimbursement  and
Indemnification  of Agents by the  Borrower])  and to save such Lender  harmless
against (i) liability  for the payment of all  reasonable  out-of-pocket  costs,
expenses and disbursements  (including fees and expenses of outside counsel) for
each Lender (except with respect to (A) and (B) below),  incurred by such Lender
(a) in connection with the  administration and interpretation of this Agreement,
and other instruments and documents to be delivered  hereunder,  (b) relating to
any amendments,  waivers or consents pursuant to the provisions  hereof,  (c) in
connection with the enforcement of this Agreement or any other Loan Document, or
collection of amounts due hereunder or thereunder or the proof and  allowability
of any claim arising under this Agreement or any other Loan Document, whether in
bankruptcy or receivership  proceedings or otherwise,  and (d) in any workout or
restructuring  or in connection with the protection,  preservation,  exercise or
enforcement  of any of the terms hereof or of any rights  hereunder or under any
other  Loan  Document  or in  connection  with any  foreclosure,  collection  or
bankruptcy proceedings, or (ii) all liabilities,  obligations,  losses, damages,
penalties,  actions,  judgments,  suits, costs, expenses or disbursements of any
kind or nature  whatsoever  which may be imposed  on,  incurred  by or  asserted
against such Lender,  in its capacity as such, in any way relating to or arising
out of this Agreement or any other Loan Documents or any action taken or omitted
by such Lender hereunder or thereunder,  PROVIDED that the Borrower shall not be
liable  for any  portion  of such  liabilities,  obligations,  losses,  damages,
penalties,  actions,  judgments,  suits, costs, expenses or disbursements (A) if
the same results from such Lender's gross negligence or willful  misconduct,  

                                     - 99 -


or (B) if the  Borrower  was not  given  notice  of the  subject  claim  and the
opportunity to participate in the defense  thereof,  at its expense (except that
the Borrower  shall remain liable to the extent such failure to give notice does
not  result  in a loss  to the  Borrower),  or (C) if the  same  results  from a
compromise  or  settlement  agreement  entered  into  without the consent of the
Borrower,  which shall not be unreasonably withheld. The Lenders will attempt to
minimize  the fees and  expenses  of legal  counsel  for the  Lenders  which are
subject to reimbursement by the Borrower hereunder by considering the use of one
law firm to represent the Lenders,  the Administrative  Agent, and the Agents if
appropriate under the circumstances.  The Borrower agrees unconditionally to pay
all stamp,  document,  transfer,  recording  or filing taxes or fees and similar
impositions now or hereafter  determined by the Administrative  Agent, any Agent
or any Lender to be payable in connection  with this Agreement or any other Loan
Document,  and the Borrower agrees  unconditionally  to save the  Administrative
Agent,  each Agent and the Lenders harmless from and against any and all present
or future  claims,  liabilities  or losses with respect to or resulting from any
omission to pay or delay in paying any such taxes, fees or impositions.

            10.4  HOLIDAYS.

            Whenever  payment of a Loan to be made or taken  hereunder  shall be
due on a day which is not a Business  Day, such payment shall be due on the next
Business Day and such extension of time shall be included in computing  interest
and fees,  except that the  Revolving  Credit  Loans,  Bid Loans and Swing Loans
shall be due on the Business Day preceding the Expiration Date if the Expiration
Date is not a Business  Day and the Term Loans shall be due on the  Business Day
preceding the Term Loan  Expiration Date if the Term Loan Expiration Date is not
a Business  Day.  Whenever  any payment or action to be made or taken  hereunder
(other  than  payment of the Loans)  shall be stated to be due on a day which is
not a Business  Day,  such  payment or action shall be made or taken on the next
following  Business  Day (except as provided in Section 3.2  [Interest  Periods]
with respect to Interest Periods under the Euro-Rate Option), and such extension
of time  shall  not be  included  in  computing  interest  or fees,  if any,  in
connection with such payment or action.

            10.5  FUNDING BY BRANCH, SUBSIDIARY OR AFFILIATE.

                  10.5.1  NOTIONAL FUNDING.

                  Each  Lender  shall have the right from time to time,  without
notice to the Borrower,  to deem any branch,  Subsidiary or Affiliate (which for
the  purposes of this  Section 10.5 shall mean any  corporation  or  association
which is directly or  indirectly  controlled  by or is under  direct or indirect
common control with any corporation or association  which directly or indirectly
controls such Lender) of such Lender to have made, maintained or funded any Loan
to which the Euro-Rate  Option  applies at any time,  provided that  immediately
following (on the  assumption  that a payment were then due from the Borrower to
such other  office),  and as a result of such change,  the Borrower would not be
under any greater  financial  obligation  pursuant  to Section  4.5  [Additional
Compensation in Certain Circumstances] than it would have been in the absence of
such change.  Notional  funding  offices may be selected by each Lender  without
regard to such Lender's  actual  methods of making,  maintaining  or funding the
Loans or any sources of funding actually used by or available to such Lender.

                                    - 100 -


                  10.5.2  ACTUAL FUNDING.

                  Each Lender  shall have the right from time to time to make or
maintain any Loan by  arranging  for a branch,  Subsidiary  or Affiliate of such
Lender  to make or  maintain  such Loan  subject  to the last  sentence  of this
Section 10.5.2.  If any Lender causes a branch,  Subsidiary or Affiliate to make
or maintain any part of the Loans  hereunder,  all terms and  conditions of this
Agreement  shall,  except  where the  context  clearly  requires  otherwise,  be
applicable  to such part of the Loans to the same  extent as if such  Loans were
made or  maintained  by such  Lender,  but in no event shall any Lender's use of
such a branch, Subsidiary or Affiliate to make or maintain any part of the Loans
hereunder cause such Lender or such branch, Subsidiary or Affiliate to incur any
cost or expenses  payable by the  Borrower  hereunder or require the Borrower to
pay any other  compensation  to any Lender  (including any expenses  incurred or
payable   pursuant  to  Section   4.5   [Additional   Compensation   in  Certain
Circumstances]) which would otherwise not be incurred.

            10.6  NOTICES.

            All notices, requests,  demands, directions and other communications
(as used in this Section 10.6,  collectively  referred to as "notices") given to
or made upon any party hereto under the provisions of this Agreement shall be by
telephone  or in writing  (including  telex or facsimile  communication)  unless
otherwise  expressly permitted hereunder and shall be delivered or sent by telex
or facsimile to the  respective  parties at the  addresses and numbers set forth
under their respective names on SCHEDULE 1.1(B) hereof or in accordance with any
subsequent unrevoked written direction from any party to the others. All notices
shall,  except as otherwise  expressly herein provided,  be effective (a) in the
case of telex or facsimile,  when  received,  (b) in the case of  hand-delivered
notice,  when  hand-delivered,  (c) in the case of telephone,  when  telephoned,
PROVIDED,  however,  that in order to be effective,  telephonic  notices must be
confirmed  in writing no later than the next day by letter,  facsimile or telex,
(d) if given by mail, four (4) days after such communication is deposited in the
mail with first-class  postage  prepaid,  return receipt  requested,  and (e) if
given by any other means (including by air courier),  when delivered;  provided,
that notices to the Agents or to the Administrative Agent shall not be effective
until   received.   Any  Lender   giving  any  notice  to  the  Borrower   shall
simultaneously  send a  copy  thereof  to  the  Administrative  Agent,  and  the
Administrative  Agent shall promptly  notify the other Lenders of the receipt by
it of any such notice.  Each Designated  Lender appoints its Designating Bank as
its agent for the purpose of delivering  and receiving all notices  hereunder as
more  fully set forth in  Section  10.11  [Successors  and  Assigns]  and in its
Designation  Agreement with such  Designating  Bank. Any notice delivered to the
Borrower  shall be deemed to be notice to the Loan  Parties and shall be binding
upon all of the Loan Parties.

            10.7  SEVERABILITY.

            The  provisions of this  Agreement are intended to be severable.  If
any provision of this Agreement shall be held invalid or  unenforceable in whole
or in part in any jurisdiction,  such provision shall, as to such  jurisdiction,
be ineffective to the extent of such invalidity or  unenforceability  without in
any  manner  affecting  the  validity  or  enforceability  thereof  in any other
jurisdiction or the remaining provisions hereof in any jurisdiction.

                                    - 101 -


            10.8   GOVERNING LAW.

            Each   Letter  of  Credit  and  Section   2.10   [Letter  of  Credit
Subfacility]   shall  be  subject  to  the  Uniform  Customs  and  Practice  for
Documentary   Credits  (1993  Revision),   International   Chamber  of  Commerce
Publication  No. 500,  as the same may be revised or amended  from time to time,
and  to  the  extent  not  inconsistent  therewith,  the  internal  laws  of the
Commonwealth of Pennsylvania  without regard to its conflict of laws principles,
and the  balance of this  Agreement  shall be deemed to be a contract  under the
Laws of the  Commonwealth of Pennsylvania and for all purposes shall be governed
by and  construed  and  enforced in  accordance  with the  internal  laws of the
Commonwealth of Pennsylvania without regard to its conflict of laws principles.

            10.9   PRIOR UNDERSTANDING.

            This  Agreement  and the other Loan  Documents  supersede  all prior
understandings  and  agreements,  whether  written or oral,  between the parties
hereto and thereto relating to the transactions provided for herein and therein,
including any prior confidentiality agreements and commitments.

            10.10  DURATION; SURVIVAL.

            All  representations and warranties of the Borrower contained herein
or made by any Loan Party in  connection  herewith  shall  survive the making of
Loans and issuance of Letters of Credit and shall not be waived by the execution
and delivery of this Agreement,  any investigation by the Administrative  Agent,
any Agent or the Lenders, the making of Loans, issuance of Letters of Credit, or
payment in full of the Loans.  All  covenants  and  agreements  of the  Borrower
contained in Sections 7.1 [Affirmative Covenants],  7.2 [Negative Covenants] and
7.3 [Reporting Requirements] herein shall continue in full force and effect from
and after the date hereof so long as the Borrower may borrow or request  Letters
of Credit hereunder and until termination of the Commitments and payment in full
of the Loans and  expiration  or  termination  of all  Letters  of  Credit.  All
covenants  and  agreements  of the  Borrower  contained  herein  relating to the
payment of principal,  interest,  premiums,  additional compensation or expenses
and  indemnification,  including  those set forth in  Section 4  [Payments]  and
Sections 9.5 [Reimbursement and Indemnification of Agents by the Borrower],  9.7
[Reimbursement and Indemnification of Agents by Lenders] and 10.3 [Reimbursement
and Indemnification of Lenders by the Borrower,  etc.], shall survive payment in
full of the  Loans,  expiration  or  termination  of the  Letters  of Credit and
termination of the Commitments.

            10.11 SUCCESSORS AND ASSIGNS.

                  10.11.1  BINDING EFFECT; ASSIGNMENTS BY BORROWER.

                  This  Agreement  shall be binding  upon and shall inure to the
benefit of the Lenders, the Agents, the Administrative Agent, the Issuing Banks,
the  Borrower  and their  respective  successors  and  assigns,  except that the
Borrower may not assign or transfer any of its rights and Obligations  hereunder
or any interest  herein without the 



                                    - 102 -


consent  of all of the  Banks  (each  on its own  behalf  and on  behalf  of any
Designated Lenders of such Bank).

                  10.11.2  ASSIGNMENTS AND PARTICIPATIONS BY BANKS OTHER THAN
                           ASSIGNMENTS OF BID LOANS AMONG DESIGNATING BANKS AND
                           DESIGNATED LENDERS.

                  This Section shall apply to any assignment or participation by
a Lender of its Loans,  Letters of Credit  Outstanding or Commitments except for
assignments or designations of Bid Loans among  Designating  Banks or Designated
Lenders  described  in Section  10.11.3.  Each Bank may,  at its own cost,  make
assignments of all or any part of its Revolving Credit  Commitment and Revolving
Credit Loans,  Term Loan Commitment and Term Loans,  Bid Loans and its Revolving
Credit  Ratable Share of Letters of Credit  Outstanding  to one or more banks or
other entities,  subject to the consent of the Borrower (which consent shall not
be  required  during  any  period  in which an Event  of  Default  exists),  the
applicable  Issuing  Banks,  and the  Administrative  Agent with  respect to any
assignee,  such  consents not to be  unreasonably  withheld,  and PROVIDED  that
assignments  may  not be made in  amounts  less  than  $5,000,000  (unless  such
assignment is an assignment of all of a Banks Loans or Commitments) and a Lender
may assign a Bid Loan to another Person only if either such Lender is a Bank and
is simultaneously  assigning all or a portion of its Revolving Credit Commitment
to such Person, or the assignee is already a Bank hereunder. Each Lender may, at
its own cost,  grant  participations  in all or any part of its Revolving Credit
Commitment and the Revolving Credit Loans,  Term Loan Commitment and Term Loans,
and Bid Loans made by it and of its Revolving Credit Ratable Share of Letters of
Credit  Outstanding to one or more banks or other entities,  without the consent
of any party  hereto.  In the case of an  assignment  of all or any portion of a
Term Loan  Commitment  or a Revolving  Credit  Commitment,  upon  receipt by the
Administrative  Agent of the Assignment and Assumption  Agreement,  the assignee
shall  have,  to the  extent  of  such  assignment  (unless  otherwise  provided
therein),  the same rights,  benefits and obligations as it would have if it had
been a  signatory  Bank  hereunder,  the  Commitments  in  Section  2.1 shall be
adjusted  accordingly,  and upon surrender of any Revolving  Credit Note or Term
Note subject to such  assignment,  the Borrower  shall execute and deliver a new
Revolving  Credit Note or Term Note to the  assignee  in an amount  equal to the
amount of the Revolving Credit Commitment or Term Loan Commitment  assumed by it
and a new Revolving  Credit Note or Term Note to the assigning Bank in an amount
equal to the Revolving Credit Commitment or Term Loan Commitment  retained by it
hereunder.  The assigning Lender shall surrender its Bid Note if it is assigning
all of its Revolving Credit  Commitment.  The Borrower shall execute and deliver
to the assignee a Bid Note in the form of EXHIBIT 1.1(B).  Any assigning  Lender
shall pay to the Administrative  Agent a service fee in the amount of $3,500 for
each  assignment,  which  amount  shall  not  be  subject  to  reimbursement  or
indemnification by the Borrower. In the case of a participation, the participant
shall  have  only  the  rights   specified  in  Section  8.2.3   [Set-Off]  (the
participant's rights against the selling Lender in respect of such participation
to be those set forth in the  agreement  executed by such Lender in favor of the
participant  relating  thereto and not to include any voting  rights except with
respect  to  changes  of the type  referenced  in  Sections  10.1.1,  10.1.2 and
10.1.3), all of such Lender's obligations under this Agreement or any other Loan
Document  shall  remain  unchanged,  and all  amounts  payable by any Loan Party
hereunder 

                                    - 103 -


or  thereunder  shall  be  determined  as if  such  Lender  had  not  sold  such
participation.  Any assignee or participant which is not incorporated  under the
Laws of the United  States of America or a state  thereof  shall  deliver to the
Borrower  and the  Administrative  Agent the form of  certificate  described  in
Section  10.17  relating  to federal  income tax  withholding.  Each  Lender may
furnish any  publicly  available  information  concerning  any Loan Party or its
Subsidiaries  and  any  other  information  concerning  any  Loan  Party  or its
Subsidiaries in the possession of such Lender from time to time to assignees and
participants  (including  prospective assignees or participants),  PROVIDED that
such assignees and  participants  agree to be bound by the provisions of Section
10.12.

                  10.11.3  ASSIGNMENTS OF BID LOANS AMONG DESIGNATING 
                           BANKS AND DESIGNATED LENDERS.

                           10.11.3.1  ASSIGNMENTS TO DESIGNATED LENDERS.

                           Any Bank (each a "Designating Bank") may at any time,
subject to the consent of the Borrower,  which consent shall not be unreasonably
withheld,  and subject to the terms of this Section 10.11.3.1,  designate one or
more Designated Lenders to fund Bid Loans which the Designating Bank is required
to fund.  The provisions of Section  10.11.2  [Assignments  and  Participations,
etc.] shall not apply to any such designation. No Bank shall be entitled to make
more than two such  designations.  The  parties to each such  designation  shall
execute  and  deliver  to  the  Administrative  Agent,  for  its  acceptance,  a
Designation   Agreement.   Upon  its  receipt  of  an  appropriately   completed
Designation  Agreement  executed by a Designating Bank, a designee  representing
that it is a Designated Lender and the Borrower,  the Administrative  Agent will
accept such Designation Agreement. From and after the later of the date on which
the  Administrative  Agent receives the executed  Designation  Agreement and the
effective date specified in the  Designation  Agreement,  the Designated  Lender
shall  become  a party  to this  Agreement  with a right to make any Bid Loan on
behalf of its  Designating  Bank  pursuant to Section 2.9 after the Borrower has
accepted a Bid (or a portion  thereof) of the Designating  Bank. The Designating
Bank shall not be obligated to designate its  Designated  Lender to fund any Bid
Loan,  and such  Designated  Lender shall not be obligated to fund any Bid Loan,
each such designation being subject to the agreement of the Designating Bank and
its  Designated  Lender  and to be made at the time  that such Bid Loan is made.
Each  Designating  Bank shall  serve as the agent of the  Designated  Lender for
purposes of giving and receiving all  communications  and notices and taking all
actions  hereunder,  including  without  limitation votes,  approvals,  waivers,
consents and  amendments  under or relating to this  Agreement or the other Loan
Documents. Any such notice,  communication,  vote, approval,  waiver, consent or
amendment  shall be signed by the  Designating  Bank as agent for the Designated
Lender  and shall not be signed by the  Designated  Lender.  The  Borrower,  the
Agents,  the  Administrative  Agent and the Lenders may rely thereon without any
requirement  that the  Designated  Lender  sign or  acknowledge  the  same.  Any
Designated Lender which is not incorporated  under the Laws of the United States
of  America  or  a  state   thereof  shall  deliver  to  the  Borrower  and  the
Administrative  Agent the form of  certificate  described in Section  10.17 [Tax
Withholding Clause] relating to federal income tax withholding.

                                    - 104 -


                           10.11.3.2  ASSIGNMENTS BY DESIGNATED LENDERS.  

                           Any Designated  Lender may assign its Bid Loan to its
Designating Bank or to another  Designated Lender designated by such Designating
Bank and such  assignment  shall not be subject to the  requirements  of Section
10.11.2  [Assignments and  Participations,  etc.],  PROVIDED that the Designated
Lender and Designating  Bank shall notify the  Administrative  Agent promptly of
such assignment.

                           10.11.3.3   WAIVERS AND CERTAIN MATTERS REGARDING
                                       CONDUITS AS DESIGNATING BANKS.

                           Notwithstanding  any  provision of this  Agreement or
any other Loan Document to the contrary,  neither the Administrative  Agent, any
Agent,  the Borrower nor any Lender shall  institute or join any other person in
instituting against Wood Street Funding Corporation, a Delaware corporation (and
a  Designating  Bank,  designated  by PNC Bank) or against any  similar  conduit
established  by any other  Designated  Lender which has been  designated by such
Designated  Lender  as  a  Designating  Bank,  any  bankruptcy,  reorganization,
arrangement, insolvency or liquidation proceeding, or other proceeding under any
federal or state  bankruptcy  or similar  law,  for one year and a day after the
later to occur of the Expiration Date or the Term Loan Expiration Date.

                  10.11.4  FOREIGN ASSIGNEES AND PARTICIPANTS.

                  Any assignee or participant  which is not  incorporated  under
the Laws of the United States of America or a state thereof shall deliver to the
Borrower  and the  Administrative  Agent the form of  certificate  described  in
Section  10.17  relating  to federal  income tax  withholding.  Each  Lender may
furnish any  publicly  available  information  concerning  any Loan Party or its
Subsidiaries  and  any  other  information  concerning  any  Loan  Party  or its
Subsidiaries in the possession of such Lender from time to time to assignees and
participants  (including  prospective assignees or participants),  provided that
such assignees and  participants  agree to be bound by the provisions of Section
10.12 [Confidentiality].

                  10.11.5  ASSIGNMENTS BY LENDERS TO FEDERAL RESERVE Banks.

                  Notwithstanding  any other  provision in this  Agreement,  any
Lender may at any time pledge or grant a security interest in all or any portion
of its  rights  under  this  Agreement,  its Notes  (if any) and the other  Loan
Documents to any Federal Reserve Bank in accordance with Regulation A of the FRB
or U.S.  Treasury  Regulation 31 CFR Section 203.14 without notice to or consent
of the  Borrower  and the  Administrative  Agent.  No such  pledge or grant of a
security  interest  shall  release  the  transferor  Lender  of its  obligations
hereunder or under any other Loan Document.

                                    - 105 -


            10.12 CONFIDENTIALITY.

                  10.12.1  GENERAL.

                  The Agents,  the  Administrative  Agent and the  Lenders  each
agree to keep  confidential all information  obtained from any Loan Party or its
Subsidiaries  which is  nonpublic  and  confidential  or  proprietary  in nature
(including   any   information   the   Borrower   specifically   designates   as
confidential),  except as provided below,  and to use such  information  only in
connection  with their  respective  capacities  under this Agreement and for the
purposes  contemplated  hereby.  The Agents,  the  Administrative  Agent and the
Lenders  shall be permitted to disclose  such  information  (i) to outside legal
counsel,  accountants  and  other  professional  advisors  who need to know such
information  in  connection  with the  administration  and  enforcement  of this
Agreement, subject to agreement of such Persons to maintain the confidentiality,
(ii) to assignees and participants as contemplated by Section 10.11  [Successors
and Assigns], (iii) to the extent requested by any bank regulatory authority or,
with notice to the  Borrower  as  permitted  by  applicable  Law,  as  otherwise
required by applicable  Law or by any subpoena or similar legal  process,  or in
connection with any investigation or proceeding  arising out of the transactions
contemplated by this Agreement, (iv) if it becomes publicly available other than
as a result of a breach of this Agreement or becomes available from a source not
known to be  subject to  confidentiality  restrictions,  or (v) if the  Borrower
shall have consented to such disclosure.

                  10.12.2  SHARING INFORMATION WITH AFFILIATES OF THE LENDERS.

                  The  Borrower  acknowledges  that from time to time  financial
advisory,  investment  banking and other  services may be offered or provided to
the Borrower or one or more of its Affiliates (in connection with this Agreement
or otherwise) by any Lender or by one or more Subsidiaries or Affiliates of such
Lender and the  Borrower  (on its own behalf and on behalf of its  Subsidiaries)
hereby authorizes each Lender to share any information  delivered to such Lender
by  the  Borrower  and  its  Subsidiaries  pursuant  to  this  Agreement,  or in
connection with the decision of such Lender to enter into this Agreement, to any
such Subsidiary or Affiliate of such Lender,  it being  understood that any such
Subsidiary or Affiliate of any Lender receiving such information  shall be bound
by the  provisions  of Section  10.12.1 as if it were a Lender  hereunder.  Such
authorization shall survive the repayment of the Loans and other Obligations and
the termination of the Commitments.

            10.13  COUNTERPARTS.

            This  Agreement may be executed by different  parties  hereto on any
number of separate counterparts,  each of which, when so executed and delivered,
shall be an original,  and all such counterparts  shall together  constitute one
and the same instrument.

            10.14  AGENT'S OR LENDER'S CONSENT.

            Whenever  the  Administrative  Agent's,  any Agent's or any Lender's
consent is required to be obtained under this Agreement or any of the other Loan
Documents  as a  condition  

                                    - 106 -


to any action,  inaction,  condition or event, the  Administrative  Agent,  each
Agent and each Lender shall be  authorized  to give or withhold  such consent in
its sole and absolute discretion and to condition its consent upon the giving of
additional collateral, the payment of money or any other matter.

            10.15  EXCEPTIONS.

            The representations, warranties and covenants contained herein shall
be independent of each other, and no exception to any  representation,  warranty
or  covenant  shall be deemed to be an  exception  to any other  representation,
warranty or covenant contained herein unless expressly  provided,  nor shall any
such  exceptions  be deemed to permit  any action or  omission  that would be in
contravention of applicable Law.

            10.16  CONSENT TO FORUM; WAIVER OF JURY TRIAL.

            THE  BORROWER  HEREBY  IRREVOCABLY   CONSENTS  TO  THE  NONEXCLUSIVE
JURISDICTION  OF THE COURT OF COMMON  PLEAS OF  ALLEGHENY  COUNTY AND THE UNITED
STATES  DISTRICT  COURT FOR THE  WESTERN  DISTRICT OF  PENNSYLVANIA,  AND WAIVES
PERSONAL  SERVICE  OF ANY AND ALL  PROCESS  UPON IT AND  CONSENTS  THAT ALL SUCH
SERVICE OF PROCESS BE MADE BY  CERTIFIED  OR  REGISTERED  MAIL  DIRECTED  TO THE
BORROWER AT THE ADDRESS  PROVIDED  FOR IN SECTION 10.6 AND SERVICE SO MADE SHALL
BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT  THEREOF.  THE BORROWER WAIVES ANY
OBJECTION  TO  JURISDICTION  AND VENUE OF ANY  ACTION  INSTITUTED  AGAINST IT AS
PROVIDED  HEREIN  AND  AGREES  NOT TO  ASSERT  ANY  DEFENSE  BASED  ON  LACK  OF
JURISDICTION OR VENUE. THE BORROWER,  THE AGENTS, THE  ADMINISTRATIVE  AGENT AND
THE  LENDERS  HEREBY  WAIVE  TRIAL BY JURY IN ANY ACTION,  SUIT,  PROCEEDING  OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT,  ANY OTHER
LOAN DOCUMENT OR THE COLLATERAL TO THE FULL EXTENT PERMITTED BY LAW.

            10.17  TAX WITHHOLDING CLAUSE.

            Each  Lender or  assignee  or  participant  of a Lender  that is not
incorporated  under the Laws of the United  States of America or a state thereof
agrees that it will deliver to each of the Borrower and the Administrative Agent
two (2) duly completed  copies of the following:  (i) Internal  Revenue  Service
Form W-9,  4224 or 1001,  or other  applicable  form  prescribed by the Internal
Revenue  Service,  certifying  that such  Lender,  assignee  or  participant  is
entitled to receive  payments  under this Agreement and the other Loan Documents
without  deduction or withholding of any United States federal income taxes,  or
is subject to such tax at a reduced rate under an applicable tax treaty, or (ii)
Internal  Revenue Service Form W-8 or other  applicable form or a certificate of
such  Lender,  assignee or  participant  indicating  that no such  exemption  or
reduced rate is allowable with respect to such payments.  Each Lender,  assignee
or participant  required to deliver to the Borrower and the Administrative Agent
a form or certificate pursuant to the preceding sentence shall deliver such form
or  certificate  as  follows:  (A) each  Lender  which is 


                                    - 107 -


a party hereto on the Closing Date shall  deliver  such form or  certificate  at
least five (5)  Business  Days prior to the first date on which any  interest or
fees are payable by the Borrower  hereunder for the account of such Lender;  (B)
each assignee or  participant  shall deliver such form or  certificate  at least
five  (5)  Business  Days  before  the  effective  date  of such  assignment  or
participation  (unless the  Administrative  Agent in its sole  discretion  shall
permit such assignee or  participant  to deliver such form or  certificate  less
than five (5)  Business  Days  before such date in which case it shall be due on
the date  specified  by the  Administrative  Agent).  Each  Lender,  assignee or
participant  which so delivers a Form W-8, W-9, 4224 or 1001 further  undertakes
to  deliver  to  each  of the  Borrower  and the  Administrative  Agent  two (2)
additional  copies of such form (or a successor form) on or before the date that
such form  expires  or becomes  obsolete  or after the  occurrence  of any event
requiring  a  change  in the  most  recent  form so  delivered  by it,  and such
amendments  thereto or  extensions  or  renewals  thereof  as may be  reasonably
requested by the Borrower or the  Administrative  Agent,  either certifying that
such Lender,  assignee or participant is entitled to receive payments under this
Agreement and the other Loan Documents  without  deduction or withholding of any
United States  federal  income taxes or is subject to such tax at a reduced rate
under an applicable tax treaty or stating that no such exemption or reduced rate
is  allowable.  The  Administrative  Agent shall be entitled to withhold  United
States  federal  income  taxes at the full  withholding  rate unless the Lender,
assignee or  participant  establishes  an  exemption  or that it is subject to a
reduced rate as established pursuant to the above provisions.

            10.18  JOINDER OF GUARANTORS.

            Any  Significant  Subsidiary  of the  Borrower  which is required to
become a Guarantor  pursuant to Section 7.2.6  [Subsidiaries,  Partnerships  and
Joint  Ventures] or any Subsidiary of the Borrower which is a member of the Arch
Coal Group  which has not  previously  executed a  Guarantor  Joinder  but which
desires to have a Letter of Credit  issued for its  benefit  pursuant to Section
2.10.1  shall  execute and deliver to the  Administrative  Agent (i) a Guarantor
Joinder in substantially the form attached hereto as EXHIBIT 1.1(G)(1)  pursuant
to  which  it shall  join as a  Guarantor  each of the  documents  to which  the
Guarantors are parties; and (ii) documents in the forms described in Section 6.1
[First Loans and Letters of Credit]  modified as  appropriate  to relate to such
Subsidiary.  With respect to  Subsidiaries  (other than  Excluded  Subsidiaries)
which become Significant Subsidiaries, the Borrower shall deliver such Guarantor
Joinder and related  documents to the  Administrative  Agent within  thirty (30)
Business  Days after the end of the fiscal  quarter in which such  Subsidiary of
the Borrower becomes a Significant Subsidiary.


                            [SIGNATURE PAGES FOLLOW]


                                    - 108 -



                 [SIGNATURE PAGE 1 OF 22 TO CREDIT AGREEMENT]

      IN WITNESS WHEREOF,  the parties hereto, by their officers  thereunto duly
authorized,  have  executed  this  Agreement  as of the day and year first above
written.



ATTEST:                              ARCH COAL, INC.


By: /s/ Miriam Rogers Singer         By: /s/ Patrick A. Kriegshauser   
    --------------------------           ------------------------------------
    Miriam Rogers Singer                 Patrick A. Kriegshauser
    Assistant Secretary                  Senior Vice President/Chief Financial
                                         Officer/Treasurer
[Seal]






                 [SIGNATURE PAGE 2 OF 22 TO CREDIT AGREEMENT]



                                      PNC BANK, NATIONAL ASSOCIATION,
                                      individually and as Administrative Agent
                                      and Agent



                                      By:    /s/ Richard L. Munsick
                                             --------------------------------
                                      Title: Vice President
                                             -------------------------------- 






       SIGNATURE PAGE 3 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                                      MORGAN GUARANTY TRUST COMPANY OF
                                      NEW YORK, individually and as
                                      Syndication Agent


                                      By:    /s/ John M. Mikolay
                                             --------------------------------
                                      Title: John M. Mikolay, Vice President
                                             -------------------------------- 











       [SIGNATURE PAGE 4 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                                      FIRST UNION NATIONAL BANK,
                                      individually and as Documentation Agent



                                      By:    /s/ Laurence M. Levy
                                             --------------------------------
                                      Title: Vice President
                                             -------------------------------- 









       [SIGNATURE PAGE 5 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                                      NATIONSBANK, N.A.



                                      By:    /s/ Denise A. Smith
                                             --------------------------------
                                      Title: Senior Vice President
                                             -------------------------------- 


 








       [SIGNATURE PAGE 6 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                                      BANK OF MONTREAL



                                      By:    /s/ Ian M. Plester
                                             --------------------------------
                                      Title: Ian M. Plester
                                             -------------------------------- 
                                             Director
                                             --------------------------------
 







        [SIGNATURE PAGE 7 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                                      THE BANK OF NEW YORK



                                      By:    /s/ Nathan S. Howard
                                             --------------------------------
                                      Title: Nathan S. Howard
                                             -------------------------------- 
                                             Vice President
                                             --------------------------------







        [SIGNATURE PAGE 8 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                                      THE BANK OF NOVA SCOTIA



                                      By:    /s/ F.C.H. Ashby
                                             --------------------------------
                                      Title: F.C.H. Ashby
                                             -------------------------------- 
                                             Senior Manager Loan Operations
                                             --------------------------------








        [SIGNATURE PAGE 9 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                                      BARCLAYS BANK PLC



                                      By:    /s/ Carol A. Cowan
                                             --------------------------------
                                      Title: Carol A. Cowan
                                             -------------------------------- 
                                             Director
                                             --------------------------------









        [SIGNATURE PAGE 10 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                                      THE CHASE MANHATTAN BANK



                                      By:    /s/ Michael D. Feist
                                             --------------------------------
                                      Title: Michael D. Feist
                                             -------------------------------- 
                                             Vice President
                                             --------------------------------








        [SIGNATURE PAGE 11 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                                      THE BANK OF TOKYO-MITSUBISHI, LTD.,
                                      CHICAGO BRANCH


                                      By:    /s/ Hajime Watanabe
                                             --------------------------------
                                      Title: Hajime Watanabe
                                             -------------------------------- 
                                             Deputy General Manager
                                             --------------------------------






      [SIGNATURE PAGE 12 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                                      CREDIT LYONNAIS CHICAGO BRANCH



                                      By:    /s/ Sandra E. Horwitz
                                             --------------------------------
                                      Title: Sandra E. Horwitz
                                             -------------------------------- 
                                             Senior Vice President
                                             --------------------------------
                                             Midwest Regional Manager
                                             --------------------------------






      [SIGNATURE PAGE 13 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                                      THE FIRST NATIONAL BANK OF CHICAGO



                                      By:    /s/ William V. Clifford
                                             --------------------------------
                                      Title: William V. Clifford
                                             -------------------------------- 
                                             Vice President
                                             --------------------------------






        [SIGNATURE PAGE 14 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                              INTENTIONALLY OMITTED








        [SIGNATURE PAGE 15 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                                      BANK ONE, KENTUCKY, NA



                                      By:    /s/ James A. Tutt
                                             --------------------------------
                                      Title: James A. Tutt
                                             -------------------------------- 
                                             Senior Vice President
                                             --------------------------------






        [SIGNATURE PAGE 16 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                                      THE FUJI BANK, LIMITED



                                      By:    /s/ Peter L. Chinnici
                                             --------------------------------
                                      Title: Peter L. Chinnici
                                             -------------------------------- 
                                             Joint General Manager
                                             --------------------------------






        [SIGNATURE PAGE 17 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                                      THE INDUSTRIAL BANK OF JAPAN,
                                      LIMITED



                                      By:    /s/ Walter Wolff
                                             --------------------------------
                                      Title: Senior Vice President
                                             -------------------------------- 
                                             Deputy General Manager
                                             --------------------------------







        [SIGNATURE PAGE 18 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                                      MERCANTILE BANK NATIONAL ASSOCIATION



                                      By:    /s/ Stephen M. Reese
                                             --------------------------------
                                      Title: Stephen M. Reese
                                             -------------------------------- 
                                             Vice President
                                             --------------------------------









        [SIGNATURE PAGE 19 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                                      ABN AMRO BANK, N.V.



                                      By:    /s/ Gregory D. Amoroso
                                             --------------------------------
                                      Title: Group Vice President
                                             -------------------------------- 

                                             /s/ Carrie A. Pence
                                             --------------------------------
                                             Carrie A. Pence, Vice President
                                             --------------------------------
                                             
                                             





        [SIGNATURE PAGE 20 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                                      DRESDNER BANK AG NEW YORK BRANCH



                                      By:    /s/ Wayde Colquhoun
                                             ----------------------------------
                                      Title: Wayde Colquhoun, Vice President
                                             ---------------------------------- 

                                      By:    /s/ P. Douglas Sherrod
                                             ----------------------------------

                                      By:    P. Douglas Sherrod
                                             ----------------------------------
                                      Title: P. Douglas Sherrod, Vice President
                                             ---------------------------------- 














        [SIGNATURE PAGE 21 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                                      BANK HAPOALIM B.M. PHILADELPHIA BRANCH



                                      By:    /s/ Carl Hopfinger
                                             --------------------------------
                                      Title: Vice President
                                             -------------------------------- 


                                      By:    /s/ F. J. McEntee
                                             --------------------------------
                                      Title: Vice President/Controller
                                             -------------------------------- 








        [SIGNATURE PAGE 22 OF 22 TO THE ARCH COAL, INC. CREDIT AGREEMENT]



                                      THE LONG-TERM CREDIT BANK OF JAPAN, LTD.



                                      By:    /s/ Richard E. Stahl
                                             --------------------------------
                                      Title: Executive Vice President
                                             -------------------------------- 

                                                          EXHIBIT 4.2


                             $675,000,000 TERM LOAN
                                CREDIT AGREEMENT

                                  by and among

                           ARCH WESTERN RESOURCES, LLC

                                       and

                             THE BANKS PARTY HERETO

                                       and

                         PNC BANK, NATIONAL ASSOCIATION,


                             as Administrative Agent

                                       and

                  MORGAN GUARANTY TRUST COMPANY OF NEW YORK,

                              as Syndication Agent

                                       and

                               NATIONSBANK, N.A.,


                             as Documentation Agent



                            Dated as of June 1, 1998










                                TABLE OF CONTENTS

SECTION                                                                   PAGE


1.    CERTAIN DEFINITIONS....................................................1
      1.1   Certain Definitions..............................................1
      1.2   Construction....................................................23
      1.3   Accounting Principles...........................................25


2.    TERM LOAN FACILITY....................................................25
      2.1   Term Loan Commitments...........................................25
      2.2   Nature of Banks' Obligations with Respect to Term Loans.........25
      2.3   Term Loan Notes.................................................26
      2.4   Use of Proceeds.................................................26
      2.5   Request to Select Interest Rate Options.........................26


3.    INTEREST RATES........................................................26
      3.1   Interest Rate Options...........................................26
      3.2   Interest Periods................................................28
      3.3   Interest After Default..........................................29
      3.4   Euro-Rate Unascertainable; Illegality; Increased Costs;
            Deposits Not Available..........................................29
      3.5   Selection of Interest Rate Options..............................31


4.    PAYMENTS..............................................................31
      4.1   Payments........................................................31
      4.2   Pro Rata Treatment of Banks.....................................31
      4.3   Interest Payment Dates..........................................32
      4.4   Prepayments.....................................................32
      4.5   Additional Compensation in Certain Circumstances................34
      4.6   Notes...........................................................35
      4.7   Taxes...........................................................35


5.    REPRESENTATIONS AND WARRANTIES........................................37
      5.1   Representations and Warranties..................................37
      5.2   Continuation of Representations.................................46


6.    CONDITIONS OF LENDING.................................................46
      6.1   Conditions to Closing...........................................46
      6.2   Syndication.....................................................50


7.    COVENANTS.............................................................51
      7.1   Affirmative Covenants...........................................51
      7.2   Negative Covenants..............................................54
      7.3   Reporting Requirements..........................................60


                                      - i -




8.    DEFAULT...............................................................63
      8.1   Events of Default...............................................63
      8.2   Consequences of Event of Default................................67


9.    THE AGENTS............................................................69
      9.1   Appointment.....................................................69
      9.2   Delegation of Duties............................................70
      9.3   Nature of Duties; Independent Credit Investigation..............70
      9.4   Actions in Discretion of Agents; Instructions From the
            Banks...........................................................71
      9.5   Reimbursement and Indemnification of Agents by the Borrower.....71
      9.6   Exculpatory Provisions; Limitation of Liability.................72
      9.7   Reimbursement and Indemnification of Agents by the Banks........73
      9.8   Reliance by Agents..............................................73
      9.9   Notice of Default...............................................73
      9.10  Notices.........................................................74
      9.11  Banks in Their Individual Capacities............................74
      9.12  Holders of Notes................................................74
      9.13  Equalization of Banks...........................................74
      9.14  Successor Agents................................................75
      9.15  Administrative Agent's Fee......................................76
      9.16  Availability of Funds...........................................76
      9.17  Calculations....................................................76
      9.18  Beneficiaries...................................................76


10.   MISCELLANEOUS.........................................................77
      10.1  Modifications, Amendments or Waivers............................77
      10.2  No Implied Waivers; Cumulative Remedies; Writing Required.......78
      10.3  Reimbursement and Indemnification of Banks by the Borrower;
            Taxes...........................................................78
      10.4  Holidays........................................................79
      10.5  Funding by Branch, Subsidiary or Affiliate......................79
      10.6  Notices.........................................................80
      10.7  Severability....................................................80
      10.8  Governing Law...................................................81
      10.9  Prior Understanding.............................................81
      10.10 Duration; Survival..............................................81
      10.11 Successors and Assigns..........................................81
      10.12 Confidentiality.................................................83
      10.13 Counterparts....................................................84
      10.14 Agent's or Bank's Consent.......................................84
      10.15 Exceptions......................................................84
      10.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL..........................84
      10.17 Tax Withholding Clause..........................................85
      10.18 Joinder of Guarantors...........................................85

                                     - ii -





                         LIST OF SCHEDULES AND EXHIBITS

SCHEDULES

SCHEDULE 1.1(A)        -   PRICING GRID
SCHEDULE 1.1(B)        -   COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
SCHEDULE 5.1.2         -   CERTAIN INFORMATION REGARDING CAPITALIZATION OF
                           BORROWER AND ITS SUBSIDIARIES
SCHEDULE 5.1.11        -   CONSENTS AND APPROVALS
SCHEDULE 5.1.22        -   PARTNERSHIP AGREEMENTS; LLC AGREEMENTS
SCHEDULE 7.2.6         -   CERTAIN MATTERS REGARDING SUBSIDIARIES,
                           PARTNERSHIPS AND JOINT VENTURES


EXHIBITS

EXHIBIT 1.1(A)(1)      -   ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(C)(2)      -   COLLATERAL AGENCY AND SHARING AGREEMENT
EXHIBIT 1.1(G)(1)      -   GUARANTOR JOINDER AND ASSUMPTION
EXHIBIT 1.1(G)(2)      -   CONTINUING GUARANTY AND SURETYSHIP AGREEMENT
EXHIBIT 1.1(N)         -   NOTE PLEDGE AGREEMENT
EXHIBIT 1.1(P)(1)      -   PLEDGE AGREEMENT (INVESTMENT PROPERTY)
EXHIBIT 1.1(P)(2)      -   PLEDGE AGREEMENT (SUBSIDIARY EQUITY INTERESTS)
EXHIBIT 1.1(T)         -   TERM NOTE
EXHIBIT 2.5            -   RATE REQUEST
EXHIBIT 6.1.4          -   OPINION OF COUNSEL
EXHIBIT 7.3.3          -   QUARTERLY COMPLIANCE CERTIFICATE

                                    - iii -



                                CREDIT AGREEMENT

      THIS  CREDIT  AGREEMENT  is dated as of June 1,  1998,  and is made by and
among ARCH WESTERN  RESOURCES,  LLC, a Delaware limited  liability  company (the
"Borrower"),  the BANKS (as hereinafter defined),  MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, in its capacity as  syndication  agent,  NATIONSBANK,  N.A., in its
capacity as documentation  agent,  and PNC BANK,  NATIONAL  ASSOCIATION,  in its
capacity as administrative agent for the Banks under this Agreement.

                                   WITNESSETH:

      WHEREAS, the Borrower has requested the Banks to provide to the Borrower a
$675,000,000 term loan facility;

      WHEREAS,  the term loan facility shall be used to finance the Distribution
(as hereinafter defined); and

      WHEREAS,  the Banks are willing to provide  such credit upon the terms and
conditions hereinafter set forth;

      NOW,  THEREFORE,  the parties  hereto,  in  consideration  of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:


                             1. CERTAIN DEFINITIONS

            1.1    CERTAIN DEFINITIONS.

            In addition to words and terms defined  elsewhere in this Agreement,
the following words and terms shall have the following  meanings,  respectively,
unless the context hereof clearly requires otherwise:

                  ACC shall mean the U.S.  operations  of  ARCO Coal  Company, a
division of ARCO.

                  ACC ANNUAL  STATEMENTS shall have the meaning assigned to such
term in Section 5.1.7(i).

                  ACC BALANCE SHEET shall mean the audited, consolidated balance
sheet of ACC as of December 31, 1997.

                  ACC GROUP shall mean collectively,  ARCO and each Affiliate of
ARCO party to any Acquisition Document.

                  ACQUISITION  DOCUMENTS  shall mean  collectively  the Purchase
Agreement,  the Contribution Agreement,  the Tax Sharing Agreement,  and the LLC
Agreements,  as  limited




by  their  schedules  and  exhibits,  as the same may be  amended,  modified  or
supplemented after the Closing Date as permitted by Section 7.2.14.

                  ACQUISITION   TRANSACTIONS   shall   mean   the   transactions
contemplated by the Purchase Agreement and the Contribution  Agreement,  as such
documents  may be amended,  modified or  supplemented  after the Closing Date as
permitted by Section 7.2.14.

                  ADJUSTED  EBITDDA for any period of  determination  shall mean
with respect to any Person the sum of income from  operations  before the effect
of changes in  accounting  principles,  nonrecurring  charges and  extraordinary
items,  net  interest  expense,  income  taxes,   depreciation,   depletion  and
amortization  in each case for such period  determined in accordance  with GAAP.
For purposes of calculating the Fixed Charge Coverage Ratio (i) Adjusted EBITDDA
of the Borrower and its  Subsidiaries,  including the Appropriate  Percentage of
Adjusted  EBITDDA of Canyon  Fuel,  shall be assumed to be  $39,200,000  for the
fiscal quarter ended March 31, 1998, and (ii) Adjusted  EBITDDA for the Borrower
and its Subsidiaries,  including the Appropriate  Percentage of Adjusted EBITDDA
of Canyon Fuel for the months of April and May, 1998,  shall be determined based
upon the results  from the  operations  of the business of such Persons for such
months by ARCO as set forth in an income  statement  with respect to such months
prepared  by ARCO and  reasonably  acceptable  to the  Agents,  shall  take into
account  the $1 million  per month  reduction  in  overhead  resulting  from the
consummation  of the  Acquisition,  shall assume that operating lease expense of
the Borrower and its Subsidiaries,  including Canyon Fuel, shall be $970,000 per
month and shall  assume that  interest  expense for such Persons for such months
shall be zero,  with such  calculation of Adjusted  EBITDDA for the Borrower and
its  Subsidiaries  for such months to be  reasonably  acceptable  to the Agents.
Further,  for purposes of  calculating  the Fixed Charge  Coverage Ratio for the
fiscal quarters ended June 30, 1998, and September 30, 1998, Adjusted EBITDDA of
the Borrower and its  Subsidiaries,  including  the  Appropriate  Percentage  of
Adjusted  EBITDDA of Canyon Fuel,  shall be deemed to be an amount equal to: (i)
for the  fiscal  quarter  ended  June  30,  1998 the  product  of,  (x)  without
duplication,  Adjusted  EBITDDA of the Borrower and its Subsidiaries for the two
fiscal quarters then ended determined on a consolidated basis in accordance with
GAAP,  plus the Appropriate  Percentage of Adjusted  EBITDDA of Canyon Fuel, for
the two fiscal  quarters  then  ended,  determined  on a  consolidated  basis in
accordance with GAAP, multiplied by (y) two (2); and (ii) for the fiscal quarter
ended  September  30, 1998 the product  of, (x)  without  duplication,  Adjusted
EBITDDA of the Borrower and its  Subsidiaries for the three fiscal quarters then
ended  determined  on a  consolidated  basis in accordance  with GAAP,  plus the
Appropriate  Percentage of Adjusted  EBITDDA of Canyon Fuel for the three fiscal
quarters then ended determined on a consolidated  basis in accordance with GAAP,
multiplied by (y) four-thirds (4/3).

                  ADMINISTRATIVE   AGENT   shall   mean   PNC   Bank,   National
Association,  in its capacity as  administrative  agent for the Banks under this
Agreement and its successors in such capacity.

                  ADMINISTRATIVE  AGENT'S FEE shall have the meaning assigned to
that term in Section 9.15.



                                     - 2 -


                  ADMINISTRATIVE  AGENT'S LETTER shall have the meaning assigned
to that term in Section 9.15.

                  AFFILIATE  as to any Person  shall  mean any other  Person (i)
which  directly or indirectly  controls,  is  controlled  by, or is under common
control with such Person,  (ii) which  beneficially  owns or holds 5% or more of
any class of the voting or other equity interests of such Person, or (iii) 5% or
more of any class of voting  interests  or other  equity  interests  of which is
beneficially owned or held, directly or indirectly,  by such Person. Control, as
used in this definition,  shall mean the possession,  directly or indirectly, of
the power to direct or cause the  direction of the  management  or policies of a
Person,  whether  through the  ownership  of voting  securities,  by contract or
otherwise,  including the power to elect a majority of the directors or trustees
of a corporation or trust, as the case may be.  Notwithstanding the foregoing, a
Subsidiary of the Borrower shall not be deemed an Affiliate of the Borrower.

                  AGENTS shall mean collectively the  Administrative  Agent, the
Documentation  Agent and the Syndication  Agent, and AGENT shall mean any one of
the Agents, individually.

                  AGREEMENT shall mean this Credit Agreement, as the same may be
supplemented or amended from time to time, including all schedules and exhibits.

                  APPLICABLE MARGIN shall mean, as applicable:

                  (A) the  percentage  spread to be added to Base Rate under the
Base Rate Option at the indicated  level of Leverage Ratio for any period during
which a Debt  Rating  is not in  effect  as set  forth  in the  pricing  grid on
SCHEDULE 1.1(A) PART (A) below the heading "Term Loan Base Rate Spread,"

                  (B) the  percentage  spread to be added to Base Rate under the
Base Rate Option at the indicated  level of Leverage Ratio for any period during
which a Debt  Rating is in effect as set forth in the  pricing  grid on SCHEDULE
1.1(A) PART (B) below the heading "Term Loan Base Rate Spread,"

                  (C) the percentage  spread to be added to Euro-Rate  under the
Euro-Rate  Option at the indicated level of Leverage Ratio for any period during
which a Debt  Rating  is not in  effect  as set  forth  in the  pricing  grid on
SCHEDULE 1.1(A) PART (A) below the heading "Term Loan Euro-Rate Spread," or

                  (D) the percentage  spread to be added to Euro-Rate  under the
Euro-Rate  Option at the indicated level of Leverage Ratio for any period during
which a Debt  Rating is in effect as set forth in the  pricing  grid on SCHEDULE
1.1(A) PART (B) below the heading "Term Loan Euro-Rate Spread."

The  Applicable  Margin shall be computed in accordance  with the parameters set
forth on SCHEDULE 1.1(A).  Notwithstanding the foregoing, it is expressly agreed
that following the Closing Date through and including the Initial Delivery Date,
the  Applicable  Margin shall be


                                     - 3 -


such amount as determined in  accordance  with SCHEDULE  1.1(A) but no less than
the amount  set forth in the  pricing  grid in Level V of  PART(A)  of  SCHEDULE
1.1(A).  For periods  after the Initial  Delivery  Date,  until such time as the
Parent's  senior  unsecured  long-term debt, on a consolidated  basis,  has been
rated  Investment  Grade, the Applicable  Margin shall be the amount  determined
under clause (A) or clause (C) above, and for any period  thereafter when a Debt
Rating is in effect the Applicable  Margin shall be the amount  determined under
clause (B) or clause (D) above.

                  APPROPRIATE  PERCENTAGE  shall  mean,  with  respect  to  each
Special  Subsidiary,  the  percentage  of the equity of such Person owned by the
Borrower or any Subsidiary of the Borrower.

                  ARCH CREDIT FACILITY shall mean that certain Credit  Agreement
by and among Parent,  PNC Bank as  administrative  agent,  Morgan as syndication
agent  and  First  Union  National  Bank of  Virginia  as  documentation  agent,
providing for a $600,000,000  revolving credit facility and a $300,000,000  term
loan  facility  to Parent,  as the same may be  amended,  restated,  modified or
supplemented from time to time after the date hereof.

                  ARCH OF WYOMING LLC shall mean Arch of Wyoming, LLC, a limited
liability  company  organized  and  existing  under  the  laws of the  State  of
Delaware.

                  ARCH OF WYOMING LLC AGREEMENT  shall mean that certain Limited
Liability Agreement, dated as of April 15, 1998, of Arch of Wyoming LLC.

                  ARCH WESTERN LLC  AGREEMENT  shall mean that  certain  Limited
Liability Company  Agreement by and between AWAC and Delta Housing,  dated as of
June 1, 1998, with AWAC and Delta Housing as members and creating the Borrower.

                  ARCO shall mean  Atlantic  Richfield  Company,  a  corporation
organized and existing under the laws of the State of Delaware.

                  ARRANGERS shall mean PNC Bank and Morgan.

                  ASSIGNMENT AND ASSUMPTION  AGREEMENT  shall mean an Assignment
and Assumption  Agreement by and among a Purchasing  Bank, a Transferor Bank and
the  Administrative  Agent,  as agent  and on  behalf  of the  remaining  Banks,
substantially in the form of EXHIBIT 1.1(A)(1).
                  AU SUB LLC AGREEMENT shall mean that certain Limited Liability
Company  Agreement,  dated as of April 8,  1998,  as  amended,  of AU Sub LLC, a
limited  liability company organized and existing under the laws of the State of
Delaware.

                  AUTHORIZED OFFICER shall mean those individuals, designated by
written  notice to the  Administrative  Agent from the  Borrower,  authorized to
execute  notices,  reports  and other  documents  on behalf of the Loan  Parties
required hereunder. The Borrower may amend


                                     - 4 -


such list of  individuals  from time to time by  giving  written  notice of such
amendment to the Administrative Agent.

                  AVERAGE  BALANCE OF THE ELIGIBLE NOTE  RECEIVABLE  shall mean,
for any period of determination,  the daily average outstanding principal amount
of the Eligible Note Receivable during such period.

                  AVERAGE  PLEDGED ACCOUNT BALANCE shall mean, for any period of
determination,  the daily average balance in the "Escrow  Account" (as such term
is defined  in the Pledge  Agreement  (Investment  Property)  pledged on a first
priority  perfected  basis to the  Administrative  Agent for the  benefit of the
Banks pursuant to the Pledge Agreement (Investment Property) during such period.

                  AWAC  shall  mean  Arch  Western  Acquisition  Corporation,  a
corporation organized and existing under the laws of the State of Delaware.

                  BANKS shall mean the financial  institutions named on SCHEDULE
1.1(B) and their respective successors and assigns as permitted hereunder,  each
of which is referred to herein as a Bank.

                  BASE NET WORTH shall mean the sum of $375,000,000  plus 50% of
consolidated  net  income  of the  Borrower  and its  Subsidiaries  (before  the
after-tax effect of changes in accounting principles) for each fiscal quarter in
which net  income  was  earned  plus 100% of the net  increase  in  Consolidated
Tangible Net Worth  resulting from the issuance of any equity  securities by the
Borrower,   for  the  period  from  the  Closing   Date   through  the  date  of
determination.  In no event  shall  Base Net Worth be  reduced  on  account of a
consolidated net loss for any fiscal period.

                  BASE RATE shall mean the greater of (i) the interest  rate per
annum announced from time to time by the  Administrative  Agent at its Principal
Office as its then prime rate,  which rate may not be the lowest rate then being
charged commercial  borrowers by the  Administrative  Agent, or (ii) the Federal
Funds Effective Rate plus 1/2% per annum.

                  BASE RATE OPTION shall mean the option of the Borrower to have
Term  Loans bear  interest  at the rate and under the terms and  conditions  set
forth in Section 3.1.1.

                  BENEFIT  ARRANGEMENT  shall  mean  at any  time  an  "employee
benefit  plan," within the meaning of Section 3(3) of ERISA,  which is neither a
Plan nor a  Multiemployer  Plan and which is maintained,  sponsored or otherwise
contributed to by any member of the ERISA Group.

                  BORROWER  shall mean Arch  Western  Resources,  LLC, a limited
liability  company  organized  and  existing  under  the  laws of the  State  of
Delaware.

                  BORROWER  LLC  INTERESTS  shall have the  meaning set forth in
Section 5.1.2.


                                     - 5 -


                  BORROWING DATE shall mean,  with respect to any Loan, the date
for the making thereof or the renewal or conversion thereof at or to the same or
a different Interest Rate Option, which shall be a Business Day.

                  BORROWING  TRANCHE  shall  mean  specified  portions  of Loans
outstanding as follows:  (i) any Loans to which a Euro-Rate Option applies which
become  subject to the same  Interest Rate Option under the same Rate Request by
the  Borrower  and which have the same  Interest  Period  shall  constitute  one
Borrowing  Tranche,  and (ii)  all  Loans to  which a Base  Rate  applies  shall
constitute one Borrowing Tranche.

                  BUSINESS  shall mean the business of owning and  operating the
U.S.  domestic coal properties of ACC,  substantially  as operated by ACC at the
time of the closing of the Acquisition Transactions.

                  BUSINESS  DAY shall  mean any day  other  than a  Saturday  or
Sunday or a legal holiday on which  commercial  banks are authorized or required
to be closed for business in  Pittsburgh,  Pennsylvania  and New York, New York;
and if the  applicable  Business Day relates to any Loan to which the  Euro-Rate
Option applies,  such day must also be a day on which dealings are carried on in
the London interbank market.

                  CANYON  FUEL shall mean Canyon  Fuel  Company,  LLC, a limited
liability  company  organized  and  existing  under  the  laws of the  State  of
Delaware.

                  CANYON  FUEL LLC  AGREEMENT  shall mean that  certain  Limited
Liability  Company agreement by and between the Borrower (or a Subsidiary of the
Borrower) and Itochu Coal International,  Inc., a Delaware corporation, dated as
of January 1, 1997, as amended, with the Borrower and Itochu Coal International,
Inc. as members of the Canyon Fuel Company,  LLC, a Delaware  limited  liability
company.

                  CLOSING  DATE  shall mean the  Business  Day on which the Term
Loans shall be made, which shall be June 1, 1998.

                  COASTAL  AGREEMENT  shall mean that certain  Purchase and Sale
Agreement among The Coastal Corporation,  a Delaware corporation,  Coastal Coal,
Inc., a Delaware corporation, ARCO and Itochu Corporation, a Japanese
corporation, dated as of October 23, 1996.

                  COLLATERAL  shall  mean   collectively  the  property  of  the
Borrower in which  security  interests are granted or purported to be granted to
the  Administrative  Agent for the  benefit  of the Banks  under the  Collateral
Documents.

                  COLLATERAL  DOCUMENTS  shall  mean  collectively,  the  Pledge
Agreement  (Subsidiary  Equity  Interests),  the  Pledge  Agreement  (Investment
Property),  the Collateral Sharing Agreement,  and the Note Pledge Agreement, as
the same may be supplemented or amended from time to time in accordance herewith
or therewith and Collateral Document shall mean any of the Collateral Documents.

                                     - 6 -


                  COLLATERAL  SHARING AGREEMENT shall mean the Collateral Agency
and Sharing  Agreement among the Borrower,  the Guarantors,  the Banks, the Swap
Parties (as defined  therein)  and the  Collateral  Agent (as defined  therein),
substantially in the form of EXHIBIT 1.1(C)(2) hereto.

                  COMMITMENT  shall mean as to any Bank its Term Loan Commitment
and Commitments  shall mean the aggregate of the Term Loan Commitments of all of
the Banks.

                  CONSOLIDATED  TANGIBLE  NET WORTH shall mean as of any date of
determination,  total  equity less  intangible  assets of the  Borrower  and its
Subsidiaries  as of such date  determined and  consolidated  in accordance  with
GAAP,  and adjusted to exclude the after tax effect of any changes in accounting
principles subsequent to the Closing Date.

                  CONTRIBUTION  AGREEMENT  shall mean that certain  Contribution
Agreement among the Borrower, AWAC, ARCO, Delta Housing and the Parent.

                  DEBT shall mean for any Person as of any date of determination
the  difference  between the following (a) and (b): (a) the sum of the following
for such Person,  as of such date,  determined in accordance  with GAAP: (i) all
indebtedness for borrowed money (including, without limitation, all subordinated
indebtedness but excluding obligations under any interest rate swap, cap, collar
or floor agreement or other interest rate management  device),  (ii) all amounts
raised under or liabilities in respect of any note purchase or acceptance credit
facility,  (iii) all indebtedness in respect of any other transaction (including
production  payments (excluding  royalties),  installment  purchase  agreements,
forward sale or purchase  agreements,  capitalized  leases and conditional sales
agreements) having the commercial effect of a borrowing of money entered into by
such  Person  to  finance  its   operations   or  capital   requirements,   (iv)
reimbursement  obligations (contingent or otherwise) under any letter of credit,
and (v) the amount of all indebtedness (whether matured or unmatured, liquidated
or  unliquidated,  direct  or  indirect,  absolute  or  contingent,  or joint or
several) in respect of all Guarantees of indebtedness for borrowed money,  minus
(b) the Permitted Reduction Amount.

                  DEBT  RATING  shall  mean the  rating of the  Parent's  senior
unsecured long-term debt by either of Standard & Poor's or Moody's.

                  DELTA  HOUSING  shall mean Delta  Housing  Inc., a corporation
organized and existing under the laws of the State of Delaware.

                  DELTA HOUSING GUARANTY shall mean that certain Master Guaranty
of  Collection  dated as of June 1, 1998,  executed by Delta Housing in favor of
the judgment creditors referred to therein.

                  DERIVATIVES  OBLIGATIONS shall mean for any Person obligations
of such Person in respect of any rate swap transaction, basis swap, forward rate
transaction,  commodity  swap,  commodity  option,  equity or equity index swap,
equity or equity index  option,  bond  option,  interest  rate  option,  foreign
exchange transaction,  cap transaction,  floor transaction,  collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or



                                     - 7 -


any other similar  transaction  (including any option with respect to any of the
foregoing transactions) or any combination of the foregoing transactions.

                  DISTRIBUTION shall mean a Special  Distribution (as defined in
the Contribution  Agreement) of $700,000,000 to be paid by the Borrower to Delta
Housing  pursuant to the Contribution  Agreement,  the proceeds of which will be
further  distributed  by  Delta  Housing  to ARCO on or  about  the date of this
Agreement,  in  accordance  with,  and subject to adjustment as provided in, the
Contribution Agreement.

                  DOCUMENTATION  AGENT  shall  mean  NationsBank,  N.A.  in  its
capacity as documentation agent under this Agreement, and its successors in such
capacity.

                  DOLLAR, DOLLARS, U.S.  DOLLARS  and  the  symbol $ shall  mean
lawful money of the United States of America.

                  EBITDDA  for any  period  of  determination  shall  mean  with
respect to any Person the sum of income from  operations and interest income all
before the effect of changes in accounting principles,  nonrecurring charges and
extraordinary items, interest expense, income taxes, depreciation, depletion and
amortization  in each case for such period  determined in accordance  with GAAP.
For purposes of calculating the Leverage Ratio,  (i) EBITDDA of the Borrower and
its  Subsidiaries,  including  the  Appropriate  Percentage of EBITDDA of Canyon
Fuel,  shall be assumed to be $39,200,000 for the fiscal quarter ended March 31,
1998,  and (ii)  EBITDDA for the Borrower and its  Subsidiaries,  including  the
Appropriate  Percentage  of EBITDDA  of Canyon  Fuel for the months of April and
May, 1998, shall be determined based upon the results from the operations of the
business  of such  Persons  for such  months  by ARCO as set  forth in an income
statement with respect to such months prepared by ARCO and reasonably acceptable
to the Agents,  shall take into account the  $1,000,000  per month  reduction in
overhead  resulting from the consummation of the Acquisition,  shall assume that
operating lease expense of the Borrower and its  Subsidiaries,  including Canyon
Fuel,  shall be $970,000  per month and shall assume that  interest  expense for
such Persons for such months shall be zero, with such calculation of EBITDDA for
the Borrower and its Subsidiaries for such months to be reasonably acceptable to
the Agents.  Further,  for purposes of  calculating  the Leverage  Ratio for the
fiscal  quarters  ended June 30, 1998,  and September  30, 1998,  EBITDDA of the
Borrower and its Subsidiaries,  including the Appropriate  Percentage of EBITDDA
of Canyon  Fuel,  shall be deemed to be an amount  equal to:  (i) for the fiscal
quarter ended June 30, 1998 the product of, (x) without duplication,  EBITDDA of
the  Borrower  and its  Subsidiaries  for the two  fiscal  quarters  then  ended
determined on a consolidated basis in accordance with GAAP, plus the Appropriate
Percentage  of EBITDDA of Canyon Fuel,  for the two fiscal  quarters then ended,
determined on a consolidated  basis in accordance  with GAAP,  multiplied by (y)
two (2); and (ii) for the fiscal  quarter  ended  September 30, 1998 the product
of, (x) without  duplication,  EBITDDA of the Borrower and its  Subsidiaries for
the three fiscal  quarters  then ended  determined  on a  consolidated  basis in
accordance with GAAP, plus the Appropriate  Percentage of EBITDDA of Canyon Fuel
for the three fiscal quarters then ended  determined on a consolidated  basis in
accordance with GAAP, multiplied by (y) four-thirds (4/3).


                                     - 8 -


                  ELIGIBLE NOTE RECEIVABLE  shall mean that certain note payable
by the Parent to the Borrower, as the same may be amended,  restated or modified
from time to time,  satisfactory in form and substance to the Agents  (including
the  providing of and terms and  conditions  of all  collateral  and  guarantees
provided as security  therefor),  and  pledged,  on a first  priority  perfected
basis, to the Administrative  Agent for the benefit of the Banks pursuant to the
Note Pledge Agreement.

                  ENVIRONMENTAL CLAIM shall mean any administrative,  regulatory
or judicial action, suit, claim, notice of noncompliance or violation, notice of
liability or potential liability, proceeding, consent order or consent agreement
relating in any way to any Environmental Law,  Environmental  Permit,  Regulated
Substances or Hazardous  Substances or arising from alleged  injury or threat of
injury to the environment.

                  ENVIRONMENTAL  COMPLAINT  shall  mean  any  written  complaint
setting forth a cause of action for personal injury or property damage,  natural
resource damage,  contribution or indemnity for response costs, civil penalties,
criminal  penalties,  or  declaratory  or  equitable  relief  arising  under any
Environmental Law or any order, notice of violation, citation, subpoena, request
for  information  or other written notice of any type issued by an Official Body
pursuant to any Environmental Law.

                  ENVIRONMENTAL  CONDITIONS shall mean the presence of Regulated
Substances in, on, under or emanating to or from the Property, which pursuant to
Environmental  Laws requires  notification  or reporting to an Official Body, or
which  pursuant to  Environmental  Laws  requires  the  investigation,  cleanup,
removal  or  remediation  of  such  Regulated   Substances  or  which  otherwise
constitutes a violation of Environmental Laws.

                  ENVIRONMENTAL  LAW shall  mean any  federal,  state,  local or
foreign statute, law, ordinance, rule, regulation, code, order, judgment, decree
or  judicial  or agency  interpretation,  policy  or  guidance  relating  to the
environment  or  any  release  or  disposal  of or  contamination  by  Hazardous
Substances.

                  ENVIRONMENTAL PERMIT shall mean any permit, approval,  license
or other authorization required under any Environmental Law.

                  ERISA shall mean the Employee  Retirement  Income Security Act
of 1974, as the same may be amended or  supplemented  from time to time, and any
successor statute of similar import,  and the rules and regulations  thereunder,
as from time to time in effect.

                  ERISA GROUP  shall mean,  at any time,  the  Borrower  and all
members of a  controlled  group of  corporations  and all  trades or  businesses
(whether or not incorporated) under common control and all other entities which,
together with the Borrower,  are treated as a single  employer under Section 414
of the Internal Revenue Code.

                  EURO-RATE shall mean, with respect to the Loans comprising any
Borrowing Tranche to which the Euro-Rate Option applies for any Interest Period,
the interest rate per annum determined by the  Administrative  Agent by dividing
(the resulting quotient




                                     - 9 -


rounded  upward to the  nearest  1/100 of 1% per annum) (i) the rate of interest
determined by the Administrative  Agent (which determination shall be conclusive
absent manifest error) to be the average of the London  interbank  offered rates
of interest  per annum for U.S.  Dollars set forth on Dow Jones  Market  Service
display page 3750 or such other  display  page on the Dow Jones  Market  Service
System as may replace such page to evidence the average of rates quoted by banks
designated by the British Bankers' Association (or appropriate  successor or, if
the British Bankers' Association or its successor ceases to provide such quotes,
a comparable  replacement  determined by the Administrative Agent) at 11:00 a.m.
(London  time) two (2)  Business  Days  prior to the first day of such  Interest
Period for an amount comparable to such Borrowing Tranche and having a borrowing
date and a maturity comparable to such Interest Period by (ii) a number equal to
1.00 minus the Euro-Rate Reserve Percentage. The Euro-Rate may also be expressed
by the following formula:

                  Dow Jones Market Service page 3750 quoted by British Bankers'
      Euro-Rate = ASSOCIATION OR APPROPRIATE SUCCESSOR
                  1.00 - Euro-Rate Reserve Percentage

The Euro-Rate shall be adjusted with respect to any Euro-Rate Option outstanding
on the effective  date of any change in the Euro-Rate  Reserve  Percentage as of
such effective  date. The  Administrative  Agent shall give prompt notice to the
Borrower and the Banks of the  Euro-Rate as determined or adjusted in accordance
herewith, which determination shall be conclusive absent manifest error.

                  EURO-RATE  INTEREST  PERIOD  shall  mean the  Interest  Period
applicable to a Loan subject to the Euro-Rate Option.

                  EURO-RATE OPTION shall mean the option of the Borrower to have
the Term Loans bear  interest  at the rate and on the terms and  conditions  set
forth in Section 3.1.1.

                  EURO-RATE RESERVE PERCENTAGE shall mean the maximum percentage
(expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined
by the  Administrative  Agent which is in effect during any relevant period,  as
prescribed  by the Board of  Governors  of the  Federal  Reserve  System (or any
successor) for determining  the reserve  requirements  (including  supplemental,
marginal  and  emergency  reserve  requirements)  with  respect to  eurocurrency
funding (currently  referred to as "Eurocurrency  Liabilities") of a member bank
in such System.

                  EVENT OF DEFAULT  shall mean  any  of the  events described in
Section 8.1 and referred to therein as an "Event of Default."

                  EXPIRATION DATE shall mean,  with respect to the  Commitments,
May 31, 2003.

                  FEDERAL FUNDS  EFFECTIVE  RATE for any day shall mean the rate
per annum  (based on a year of 360 days and  actual  days  elapsed  and  rounded
upward to the nearest 1/100 of 1%) announced by the Federal  Reserve Bank of New
York (or any  successor) on such day as



                                     - 10 -


being the weighted average of the rates on overnight federal funds  transactions
arranged by federal funds  brokers on the previous  trading day, as computed and
announced by such Federal Reserve Bank (or any successor) in  substantially  the
same manner as such Federal  Reserve Bank  computes and  announces  the weighted
average it refers to as the  "Federal  Funds  Effective  Rate" as of the date of
this Agreement;  PROVIDED,  if such Federal Reserve Bank (or its successor) does
not announce such rate on any day, the "Federal Funds  Effective  Rate" for such
day shall be the  Federal  Funds  Effective  Rate for the last day on which such
rate was announced.

                  FINANCIAL  PROJECTIONS shall have the meaning assigned to that
term in Section 5.1.7(iii).

                  FIXED  CHARGE  COVERAGE  RATIO shall mean the ratio of (a) the
sum,  without  duplication,   of  Adjusted  EBITDDA  of  the  Borrower  and  its
Subsidiaries,  plus the  Appropriate  Percentage  of each  Special  Subsidiary's
Adjusted  EBITDDA,  each on a consolidated  basis in accordance  with GAAP, plus
operating  lease  expense  of  the  Borrower  and  its  Subsidiaries,  plus  the
Appropriate  Percentage of each Special  Subsidiary's  operating  lease expense,
each on a  consolidated  basis in  accordance  with GAAP,  to (b) the sum of Net
Interest Expense (other than Permitted Loan Origination Expense) of the Borrower
and its Subsidiaries plus the Appropriate  Percentage of Net Interest Expense of
each Special  Subsidiary,  each on a consolidated basis in accordance with GAAP,
plus  operating  lease  expense of the Borrower and its  Subsidiaries,  plus the
Appropriate  Percentage of operating  lease expense of each Special  Subsidiary,
each on a consolidated  basis in accordance  with GAAP, all calculated as of the
last day of each fiscal  quarter for the four  fiscal  quarters of the  Borrower
then ended.  It is assumed that operating  lease expense of the Borrower and its
Subsidiaries,  including  Canyon Fuel shall be $970,000 per month for the months
of April and May,  1998 and that  interest  expense  for such  Persons  for such
months shall be zero.  For  purposes of  calculating  the Fixed Charge  Coverage
Ratio for the  fiscal  quarters  ended June 30,  1998,  September  30,  1998 and
December 31, 1998, operating lease expense of the Borrower and its Subsidiaries,
including the Appropriate  Percentage of operating lease expense of Canyon Fuel,
shall be deemed to be an amount equal to: (i) for the fiscal  quarter ended June
30, 1998, the product of, (x) without  duplication,  operating  lease expense of
the Borrower and its Subsidiaries determined and consolidated in accordance with
GAAP for such fiscal quarter, plus the Appropriate Percentage of operating lease
expense of Canyon Fuel for such fiscal  quarter  determined in  accordance  with
GAAP,  multiplied by (y) four (4); (ii) for the fiscal  quarter ended  September
30, 1998, the product of, (x) without  duplication,  operating  lease expense of
the  Borrower  and its  Subsidiaries  for the two  fiscal  quarters  then  ended
determined  and  consolidated  in  accordance  with GAAP,  plus the  Appropriate
Percentage of operating lease expense of Canyon Fuel for the two fiscal quarters
then ended  determined in accordance  with GAAP,  multiplied by (y) two (2); and
(iii) for the fiscal  quarter  ended  December  31,  1998,  the  product of, (x)
without   duplication,   operating   lease  expense  of  the  Borrower  and  its
Subsidiaries   for  the  three  fiscal   quarters  then  ended   determined  and
consolidated  in  accordance  with  GAAP,  plus the  Appropriate  Percentage  of
operating lease expense of Canyon Fuel for the three fiscal quarters then ended,
determined in accordance  with GAAP,  multiplied by (y) four-thirds  (4/3).  For
purposes of calculating  the Fixed Charge Coverage Ratio for the fiscal quarters
ended June 30, 1998,  September  30, 1998 and  December  31, 1998,  Net Interest
Expense  of  the  Borrower  and  its  Subsidiaries,  including  the



                                     - 11 -


Appropriate  Percentage of Net Interest  Expense of Canyon Fuel, shall be deemed
to be an amount equal to: (i) for the fiscal  quarter  ended June 30, 1998,  the
product of, (x) without  duplication,  Net Interest  Expense of the Borrower and
its  Subsidiaries  determined and  consolidated in accordance with GAAP for such
fiscal  quarter,  plus the  Appropriate  Percentage  of Net Interest  Expense of
Canyon  Fuel for  such  fiscal  quarter  determined  in  accordance  with  GAAP,
multiplied  by (y) four (4);  (ii) for the fiscal  quarter  ended  September 30,
1998,  the product  of, (x) without  duplication,  Net  Interest  Expense of the
Borrower and its  Subsidiaries for the two fiscal quarters then ended determined
and consolidated in accordance with GAAP, plus the Appropriate Percentage of Net
Interest  Expense  of  Canyon  Fuel  for  the two  fiscal  quarters  then  ended
determined in accordance with GAAP, multiplied by (y) two (2); and (iii) for the
fiscal quarter ended December 31, 1998, the product of, (x) without duplication,
Net Interest  Expense of the Borrower and its  Subsidiaries for the three fiscal
quarters then ended  determined and  consolidated  in accordance with GAAP, plus
the Appropriate  Percentage of Net Interest Expense of Canyon Fuel for the three
fiscal quarters then ended,  determined in accordance  with GAAP,  multiplied by
(y) four-thirds (4/3).

                  GAAP shall mean Generally  Accepted  Accounting  Principles as
are in effect from time to time,  subject to the  provisions of Section 1.3, and
applied on a consistent basis both as to classification of items and amounts.

                  GUARANTORS  shall  mean at any time  collectively  each of the
Significant Subsidiaries of the Borrower, other than Canyon Fuel.

                  GUARANTOR  JOINDER  shall  mean a  joinder  by a  Person  as a
Guarantor  under the Guarantor  Joinder and Assumption  Agreement in the form of
EXHIBIT 1.1(G)(1).

                  GUARANTY  of any  Person  shall  mean any  obligation  of such
Person guaranteeing or in effect guaranteeing any liability or obligation of any
other Person in any manner,  whether directly or indirectly,  including any such
liability arising by virtue of partnership  agreements,  including any agreement
to indemnify or hold harmless any other Person,  any  performance  bond or other
suretyship  arrangement  and any other form of assurance  against  loss,  except
endorsement of negotiable or other  instruments for deposit or collection in the
ordinary course of business.

                  GUARANTY  AGREEMENT  shall mean the  Continuing  Guaranty  and
Suretyship Agreement in substantially the form of EXHIBIT 1.1(G)(2) executed and
delivered by each of the Guarantors to the Administrative  Agent for the benefit
of the Banks.

                  HAZARDOUS   SUBSTANCES  shall  mean  petroleum  and  petroleum
products,    byproducts   or   breakdown   products,    radioactive   materials,
asbestos-containing  materials,  radon  gas and any  hazardous  or solid  waste,
hazardous substance or chemical  substance,  as such terms are defined under the
Resource  Conservation  and Recovery Act (42 U.S.C.  Sections 4901 ET SEQ.), the
Comprehensive Environmental Response,  Compensation and Liability Act (42 U.S.C.
Sections 9601 ET SEQ.), the Toxic Substances Control Act (15 U.S.C.
Sections 2601 ET SEQ.) or any similar state law.

                                     - 12 -


                  INDEBTEDNESS shall mean, as to any Person at any time, any and
all  indebtedness,  obligations  or liabilities  (whether  matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or  several)  of such  Person for or in respect  of: (i)  borrowed  money,  (ii)
amounts  raised  under  or  liabilities  in  respect  of any  note  purchase  or
acceptance  credit  facility,  (iii)  reimbursement  obligations  (contingent or
otherwise)  under any letter of credit,  (iv) any other  transaction  (including
production  payments (excluding  royalties),  installment  purchase  agreements,
forward sale or purchase  agreements,  capitalized  leases and conditional sales
agreements) having the commercial effect of a borrowing of money entered into by
such Person to finance its operations or capital requirements (but not including
trade payables and accrued expenses  incurred in the ordinary course of business
which are not represented by a promissory note or other evidence of indebtedness
and which are not more than thirty (30) days past due),  or (v) any  Guaranty of
any such Indebtedness.  It is understood and agreed that Derivatives Obligations
shall not be deemed to be Indebtedness.

                  INELIGIBLE  SECURITY  shall mean any security which may not be
underwritten  or dealt in by member  banks of the Federal  Reserve  System under
Section  16 of the  Banking  Act of 1933 (12 U.S.C.  Section  24,  Seventh),  as
amended.

                  INITIAL ANNUAL  STATEMENTS AND  COMPLIANCE  CERTIFICATE  shall
mean collectively with respect to the fiscal year of the Borrower ended December
31, 1998, the annual  financial  statements of the Borrower and its Subsidiaries
consisting of the unaudited  consolidated and consolidating  balance sheet as of
the end of such  fiscal  year,  related  consolidated  statements  of income and
equity and related consolidated statement of cash flows for the fiscal year then
ended,  together with the duly executed related compliance  certificate required
to be delivered to the  Administrative  Agent and the Banks  pursuant to Section
7.3.3.  It is  acknowledged  and agreed that the Initial  Annual  Statements and
Compliance  Certificate  are to be  delivered  by the  Borrower  for purposes of
calculating the Leverage Ratio as of December 31, 1998 in order to determine the
Applicable Margin. Notwithstanding the delivery of the Initial Annual Statements
and Compliance Certificate,  the Borrower shall still be required to comply with
the  provisions  of Section 7.3.2 and deliver the audited  financial  statements
required thereby,  together with the related Compliance  Certificate required to
be delivered under Section 7.3.3.

                  INITIAL  DELIVERY  DATE  shall  mean  the  date  the  Borrower
delivers to the Administrative Agent and the Banks the Initial Annual Statements
and Compliance Certificate.

                  INSOLVENCY  PROCEEDING shall mean, with respect to any Person,
(a) a case,  action or  proceeding  with  respect to such  Person (i) before any
court  or  any  other   Official   Body   under  any   bankruptcy,   insolvency,
reorganization  or other similar Law now or hereafter in effect, or (ii) for the
appointment   of  a  receiver,   liquidator,   assignee,   custodian,   trustee,
sequestrator,  conservator (or similar  official) of any Loan Party or otherwise
relating to the liquidation,  dissolution,  winding-up or relief of such Person,
or (b)  any  general  assignment  for the  benefit  of  creditors,  composition,
marshaling of assets for creditors,  or other, similar arrangement in respect of
such Person's creditors  generally or any substantial  portion of its creditors,
undertaken under any Law.

                                     - 13 -


                  INTEREST  PERIOD  shall have the  meaning set forth in Section
3.2.

                  INTEREST RATE OPTION shall mean any  Euro-Rate  Option or Base
Rate Option.

                  INTERNAL  REVENUE CODE shall mean the Internal Revenue Code of
1986,  as the same may be amended  or  supplemented  from time to time,  and any
successor statute of similar import,  and the rules and regulations  thereunder,
as from time to time in effect.

                  INVESTMENT  GRADE shall mean the rating of the Parent's senior
unsecured long-term debt, on a consolidated basis, of BBB- or better by Standard
& Poor's AND Baa3 or better by Moody's.

                  INVESTMENTS  shall mean collectively all of the following with
respect to any  person:  (i)  investments  or  contributions  by any of the Loan
Parties or their Subsidiaries  directly or indirectly in or to the capital of or
other payments to (except in connection with  transactions for the sale of goods
or services for fair value in the ordinary course of business) such Person, (ii)
loans by any of the Loan Parties or their  Subsidiaries  to such  Person,  (iii)
guaranties  by any Loan Party or any  Subsidiary  of any Loan Party  directly or
indirectly  of the  obligations  of  such  Person,  or (iv)  other  obligations,
contingent or otherwise,  of any Loan Party or any  Subsidiary of any Loan Party
to or for the benefit of such Person. If the nature of an Investment is tangible
property then the amount of such Investment  shall be determined by valuing such
property at fair value in accordance  with the past practice of the Loan Parties
and such fair values shall be satisfactory to the  Administrative  Agent, in its
sole discretion.

                  LABOR   CONTRACTS   shall  mean  all  employment   agreements,
employment  contracts,  collective  bargaining  agreements and other  agreements
among any Loan Party or Subsidiary of a Loan Party and its employees.

                  LAW shall mean any law (including  common law),  constitution,
statute, treaty, regulation,  rule, ordinance,  opinion, release, ruling, order,
injunction, writ, decree or award of any Official Body.

                  LEVERAGE  RATIO  shall  mean the ratio of the sum of,  without
duplication,  Debt of the Borrower and its  Subsidiaries,  plus the  Appropriate
Percentage of Debt of each Special  Subsidiary,  each on a consolidated basis in
accordance  with GAAP (as the  numerator)  to  EBITDDA of the  Borrower  and its
Subsidiaries,  plus the  Appropriate  Percentage  of each  Special  Subsidiary's
EBITDDA,  each  on  a  consolidated  basis  in  accordance  with  GAAP  (as  the
denominator).  For purposes of  calculating  the Leverage  Ratio,  Debt shall be
determined  as of the end of each  fiscal  quarter of the  Borrower  and EBITDDA
shall be determined as of the end of each fiscal quarter of the Borrower for the
four fiscal quarters then ended.

                  LIEN shall mean any  mortgage,  deed of trust,  pledge,  lien,
security  interest,  charge or other encumbrance or security  arrangement of any
nature whatsoever,  whether  voluntarily or involuntarily  given,  including any
conditional  sale or title retention  arrangement,  and any assignment,  deposit
arrangement  or lease  intended  as, or having the effect of,  security



                                     - 14 -


and any  filed  financing  statement  or other  notice  of any of the  foregoing
(whether or not a lien or other  encumbrance is created or exists at the time of
the filing).

                  LLC AGREEMENTS  shall mean  collectively  the Arch Western LLC
Agreement,  the Canyon Fuel LLC Agreement,  the Mountain Coal LLC Agreement, the
Arch of Wyoming LLC Agreement,  the AU Sub LLC  Agreement,  the State Leases LLC
Agreement and the Thunder Basin LLC Agreement.

                  LLC  INTERESTS  shall have the  meaning  given to such term in
Section 5.1.2.

                  LOAN DOCUMENTS shall mean this Agreement,  the  Administrative
Agent's Letter, the Collateral Sharing Agreement,  the Guaranty  Agreement,  the
Pledge Agreement (Subsidiary Equity Interests), the Pledge Agreement (Investment
Property),  the Note  Pledge  Agreement,  the Notes  and any other  instruments,
certificates or documents delivered or contemplated to be delivered hereunder or
thereunder  or  in  connection  herewith  or  therewith,  as  the  same  may  be
supplemented  or amended from time to time in accordance  herewith or therewith,
and Loan Document shall mean any of the Loan Documents.

                  LOAN PARTIES shall mean the Borrower and the Guarantors.

                  LOANS shall mean  collectively  and Loan shall mean separately
all Term Loans or any Term Loan.

                  MANDATORY  PREPAYMENT  shall have the meaning assigned to such
term in Section 4.4.4.

                  MATERIAL ADVERSE CHANGE shall mean any set of circumstances or
events  which  (a) has or could  reasonably  be  expected  to have any  material
adverse effect  whatsoever upon the validity or enforceability of this Agreement
or any  other  Loan  Document,  (b) is or could  reasonably  be  expected  to be
materially adverse to the business, financial condition or results of operations
of the Borrower and its Subsidiaries taken as a whole, or (c) impairs materially
or could reasonably be expected to impair materially the ability of any Agent or
any of the Banks,  to the extent  permitted,  to enforce  their  legal  remedies
pursuant to this Agreement or any other Loan Document.

                  MATERIAL CONTRACTS shall mean collectively (i) the Acquisition
Documents,  (ii) all other contracts,  agreements or other instruments described
in  Regulation  S-K,  Item  601(b)(10)  promulgated  pursuant to the  Securities
Exchange  Act of 1934,  as  amended,  which the Parent is required to file as an
exhibit to any annual,  quarterly  or other  report  required to be filed by the
Parent under the Securities Exchange Act of 1934, as amended, and (iii) all coal
supply  agreements or contracts (or related coal supply agreements or contracts)
under which the Borrower or any Subsidiary of the Borrower is required, over the
remaining  term of such agreement or contract as of the Closing Date, to deliver
one million (1,000,000) tons or more of coal.



                                     - 15 -


                  MONTH,  with respect to an Interest Period under the Euro-Rate
Option,  shall mean the interval between the days in consecutive calendar months
numerically  corresponding  to the first  day of such  Interest  Period.  If any
Interest Period for any Loan subject to a Euro-Rate  Option begins on a day of a
calendar month for which there is no numerically  corresponding day in the month
in which such Interest Period is to end, the final month of such Interest Period
shall be deemed to end on the last Business Day of such final month.

                  MOODY'S shall mean Moody's  Investors  Service,  Inc., and its
successors.

                  MORGAN shall mean Morgan Guaranty Trust Company of New York.

                  MOUNTAIN  COAL LLC AGREEMENT  shall mean that certain  Limited
Liability Company Agreement,  dated as of March 6, 1998, as amended, of Mountain
Coal Company,  L.L.C., a limited  liability company organized and existing under
the laws of the State of Delaware.

                  MULTIEMPLOYER  PLAN shall mean any employee benefit plan which
is a "multiemployer  plan" within the meaning of Section 4001(a)(3) of ERISA and
to which  the  Borrower  or any  member  of the  ERISA  Group is then  making or
accruing an obligation to make  contributions or, within the preceding five Plan
years, has made or had an obligation to make such contributions.

                  MULTIPLE EMPLOYER PLAN shall mean a Plan which has two or more
contributing  sponsors (including the Borrower or any member of the ERISA Group)
at least two of whom are not under common  control,  as such a plan is described
in Sections 4063 and 4064 of ERISA.

                  NET   INTEREST   EXPENSE   shall  mean,   for  any  period  of
determination,  for any Person,  interest expense of such Person for such period
determined in  accordance  with GAAP,  if  applicable,  reduced by the Permitted
Adjustment Amount.

                  NOTE PLEDGE  AGREEMENT  shall mean the Note  Pledge  Agreement
substantially  in the form of  EXHIBIT  1.1(N)  executed  and  delivered  by the
Borrower to the Administrative Agent for the benefit of the Banks.

                  NOTES shall mean the Term Notes.

                  NOTICES  shall  have  the  meaning  assigned  to that  term in
Section 10.6.

                  OBLIGATION  shall mean any  obligation  or liability of any of
the Loan Parties to any Agent or any of the Banks, howsoever created, arising or
evidenced,  whether direct or indirect, absolute or contingent, now or hereafter
existing,  or due or to become due, under or in connection  with this Agreement,
any Notes, the Administrative Agent's Letter or any other Loan Document.



                                     - 16 -


                  OFFICIAL BODY shall mean any national,  federal,  state, local
or other government or political subdivision or any agency,  authority,  bureau,
central bank, commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.

                  PARENT shall mean Arch Coal, Inc., a corporation organized and
existing under the laws of the State of Delaware.

                  PARTNERSHIP  INTERESTS  shall have the  meaning  given to such
term in Section 5.1.2.

                  PBGC  shall  mean the  Pension  Benefit  Guaranty  Corporation
established pursuant to Subtitle A of Title IV of ERISA or any successor.

                  PERMITTED ACQUISITIONS shall have the meaning assigned to such
term in Section 7.2.3.

                  PERMITTED  ADJUSTMENT  AMOUNT  shall  mean for any  period  of
determination,  if  throughout  such  period  either  (i)  the  Parent's  senior
unsecured  long-term  debt, on a  consolidated  basis,  is rated BB or better by
Standard & Poor's and Ba2 or better by Moody's,  or (ii) the Leverage  Ratio (as
defined in the Arch Credit  Facility)  is less than or equal to 4.0 to 1.0,  the
amount of interest  income of the Borrower  determined in  accordance  with GAAP
with respect to the Eligible Note Receivable for such period.

                  PERMITTED INVESTMENTS shall mean

                  (i) direct  obligations of the United States of America or any
agency or  instrumentality  thereof or obligations  backed by the full faith and
credit of the United  States of America  maturing  in twelve (12) months or less
from the date of acquisition;

                  (ii)  commercial  paper maturing in 180 days or less rated not
lower  than  A-1,  by  Standard  &  Poor's  or P-1 by  Moody's  on the  date  of
acquisition; and

                  (iii)  demand  deposits,  time  deposits  or  certificates  of
deposit  maturing  within one year in a commercial  bank whose  obligations  are
rated A-1,  A or the  equivalent  or better by  Standard & Poor's on the date of
determination.

                  PERMITTED LIENS shall mean:

                  (i) Liens for taxes, assessments, or similar charges, incurred
in the ordinary course of business and which are not yet due and payable;

                  (ii)  Pledges  or  deposits  made in the  ordinary  course  of
business to secure payment of reclamation liabilities, worker's compensation, or
to   participate  in  any  fund  in  connection   with  worker's   compensation,
unemployment insurance, old-age pensions or other social security programs;



                                     - 17 -


                  (iii) Liens of mechanics, materialmen, warehousemen, carriers,
or other like Liens,  securing  obligations  incurred in the ordinary  course of
business  that  are not yet due and  payable  and  Liens of  landlords  securing
obligations  to pay  lease  payments  that  are not yet  due and  payable  or in
default;

                  (iv)  Good-faith  pledges  or  deposits  made in the  ordinary
course of  business  to  secure  performance  of bids  (including  bonus  bids),
tenders,  contracts  (other than for the repayment of borrowed money) or leases,
not in excess of the aggregate  amount due  thereunder,  or to secure  statutory
obligations,  or surety, appeal,  indemnity,  performance or other similar bonds
required in the ordinary course of business (it being understood that any appeal
or similar bond (other than such a bond required  pursuant to applicable  Law to
secure in the  ordinary  course  payment of worker's  compensation,  reclamation
liabilities or royalty bonds) in an amount exceeding $50,000,000 shall not be in
the ordinary course of business);

                  (v) Encumbrances consisting of zoning restrictions,  easements
or other  restrictions  on the use of real  property,  none of which  materially
impairs  the use of such  property  or the value  thereof,  and none of which is
violated in any material respect by existing or proposed structures or land use;

                  (vi)  Liens  granted  in  the   Collateral,   subject  to  the
Collateral Sharing Agreement, to any Bank providing the Interest Rate Protection
Agreement required by Section 7.1.13 [Interest Rate Protection];

                  (vii) Liens securing Indebtedness of not more than $25,000,000
at any time;

                  (viii) The following, (A) if the validity or amount thereof is
being contested in good faith by appropriate and lawful  proceedings  diligently
conducted so long as levy and execution thereon have been stayed and continue to
be stayed or (B) if a final  judgment is entered and such judgment is discharged
within thirty (30) days of entry,  and they do not adversely affect the value of
the Collateral or the first priority perfected Lien and security interest of the
Administrative  Agent for the benefit of the Banks in the  Collateral or, in the
aggregate,  materially  impair the  ability  of any Loan  Party to  perform  its
Obligations hereunder or under the other Loan Documents:

                        (1)  Claims or Liens for taxes,  assessments  or charges
            due and payable and  subject to interest or penalty,  PROVIDED  that
            the  applicable   Loan  Party   maintains  such  reserves  or  other
            appropriate  provisions  as shall be  required  by GAAP and pays all
            such taxes,  assessments or charges  forthwith upon the commencement
            of proceedings to foreclose any such Lien;

                        (2) Claims,  Liens or encumbrances  upon, and defects of
            title to,  real or  personal  property  other  than the  Collateral,
            including any attachment of personal or real property or other legal
            process prior to adjudication of a dispute on the merits;



                                     - 18 -


                        (3)   Claims   or  Liens  of   mechanics,   materialmen,
            warehousemen, carriers, or other statutory nonconsensual Liens; or

                        (4) Liens  resulting from judgments or orders  described
            in Section 8.1.6;

                  (ix) Liens  granted  in the  Collateral  under the  Collateral
Documents to the Administrative Agent for the benefit of the Banks; and

                  (x) Any Lien or restriction  resulting from  ownership,  by an
entity other than an Affiliate of the Borrower, of a minority interest in Canyon
Fuel.

                  PERMITTED  LOAN  ORIGINATION  EXPENSE shall mean the aggregate
amount of all fees and expenses  incurred by the Borrower in connection with the
closing of the transactions  under this Agreement which the Borrower is required
to capitalize in accordance with GAAP.

                  PERMITTED REDUCTION AMOUNT shall mean the sum of:

                  (i) for any period of determination, if throughout such period
either (i) the Parent's  senior  unsecured  long-term  debt,  on a  consolidated
basis,  is rated BB or better by Standard & Poor's and Ba2 or better by Moody's,
or (ii) the Leverage Ratio (as defined in the Arch Credit Facility) is less than
or equal to 4.0 to 1.0, the amount of the Average  Balance of the Eligible  Note
Receivable for such period; and

                  (ii)  for any  period  of  determination,  the  amount  of the
Average Pledged Account Balance for such period.

                  PERSON shall mean any  individual,  corporation,  partnership,
limited   liability   company,   association,    joint-stock   company,   trust,
unincorporated organization,  joint venture, government or political subdivision
or agency thereof, or any other entity.

                  PLAN shall mean at any time an employee  pension  benefit plan
(including a Multiple  Employer  Plan,  but not a  Multiemployer  Plan) which is
covered  by Title IV of ERISA or is  subject to the  minimum  funding  standards
under  Section 412 of the Internal  Revenue Code and either (i) is maintained by
any member of the ERISA Group for  employees of any member of the ERISA Group or
(ii) has at any time  within the  preceding  five years been  maintained  by any
entity  which was at such time a member of the ERISA Group for  employees of any
entity which was at such time a member of the ERISA Group.

                  PLEDGE AGREEMENT  (INVESTMENT  PROPERTY) shall mean the Pledge
Agreement (Investment  Property)  substantially in the form of EXHIBIT 1.1(P)(1)
executed  and  delivered by the  Borrower  and each of its  Subsidiaries  to the
Administrative  Agent  for  the  benefit  of  the  Banks,  as  the  same  may be
supplemented,  replaced,  restated  or amended  from time to time in  accordance
herewith or therewith.

                                     - 19 -


                  PLEDGE AGREEMENT  (SUBSIDIARY EQUITY INTERESTS) shall mean the
Pledge  Agreement  (Subsidiary  Equity  Interests)  substantially in the form of
EXHIBIT  1.1(P)(2)  executed  and  delivered  by the  Borrower  and  each of its
Subsidiaries  pledging equity interests which it owns in any other Subsidiary of
the Borrower to the  Administrative  Agent for the benefit of the Banks,  as the
same may be  supplemented,  replaced,  restated or amended  from time to time in
accordance herewith or therewith.


                  PNC  BANK  shall  mean PNC  Bank,  National  Association,  its
successors and assigns.

                  POTENTIAL DEFAULT shall mean any event or condition which with
notice,  passage of time or a determination by the  Administrative  Agent or the
Required Banks, or any combination of the foregoing,  would  constitute an Event
of Default.

                  PRINCIPAL  OFFICE  shall mean the main  banking  office of the
Administrative Agent in Pittsburgh, Pennsylvania.

                  PRIOR  SECURITY  INTEREST  shall mean a valid and  enforceable
perfected  first-priority security interest under the Uniform Commercial Code or
other applicable Law in the Collateral.

                  PROHIBITED  TRANSACTION shall mean any prohibited  transaction
as defined in Section 4975 of the Internal  Revenue Code or Section 406 of ERISA
for which  neither an  individual  nor a class  exemption has been issued by the
United States Department of Labor.

                  PROPERTY shall mean all real property,  both owned and leased,
of any Loan Party or Subsidiary of a Loan Party.

                  PURCHASE  AGREEMENT shall mean that certain  Purchase and Sale
Agreement  among ARCO,  ARCO Uinta Coal  Company,  a Delaware  corporation,  the
Parent and AWAC,  dated as of March 22, 1998,  together  with all  schedules and
exhibits thereto.

                  PURCHASE  MONEY  SECURITY   INTEREST  shall  mean  Liens  upon
tangible  personal  property securing loans to any Loan Party or Subsidiary of a
Loan  Party or  deferred  payments  by such  Loan  Party or  Subsidiary  for the
purchase of such tangible personal property.

                  PURCHASING  BANK shall  mean a Bank  which  becomes a party to
this Agreement by executing an Assignment and Assumption Agreement.

                  RATABLE  SHARE  shall  mean  the  proportion   that  a  Bank's
Commitment bears to the Commitments of all of the Banks.

                  RATE  REQUEST  shall mean a request  to select,  convert to or
renew a Base Rate Option or  Euro-Rate  Option with respect to the Term Loans in
accordance with Section 2.5.

                  REGULATED SUBSTANCES shall mean any substance, the generation,
manufacture, extraction, processing, distribution, treatment, storage, disposal,
transport,




                                     - 20 -


recycling,  reclamation,  use, reuse,  spilling,  leaking,  dumping,  injection,
pumping, leaching,  emptying,  discharge, escape, release or other management or
mismanagement of which is regulated by the Environmental Laws.

                  REGULATION U shall mean Regulation U, T or X as promulgated by
the Board of Governors of the Federal  Reserve  System,  as amended from time to
time.

                  REPORTABLE  EVENT shall mean a reportable  event  described in
Section  4043 of ERISA and  regulations  thereunder  with  respect  to a Plan or
Multiemployer Plan.

                  REQUIRED BANKS shall mean

                  (i) if  there  are no  Term  Loans  outstanding,  Banks  whose
Commitments aggregate at least 51% of the Commitments of all of the Banks, or

                  (ii)  if  there  are  Term  Loans  outstanding,   Banks  whose
outstanding  Term Loans aggregate at least 51% of the total principal  amount of
all of the Term Loans then outstanding.

                  SEC shall mean the Securities  and Exchange  Commission or any
governmental agencies substituted therefor.

                  SIGNIFICANT  SUBSIDIARY  shall mean any Subsidiary of Borrower
which at any time (i) has gross  revenues  equal to or in excess of five percent
(5%)  of  the  gross  revenues  of  the  Borrower  and  its  Subsidiaries  on  a
consolidated  basis,  or (ii) has  total  assets  equal to or in  excess of five
percent (5%) of the total assets of the Borrower and its Subsidiaries, in either
case, as determined and consolidated in accordance with GAAP.

                  SOLVENT shall mean, with respect to any Person on a particular
date,  that on such date (i) the fair value of the  property  of such  Person is
greater than the total amount of  liabilities,  including,  without  limitation,
contingent  liabilities,  of such Person, (ii) the present fair salable value of
the assets of such  Person is not less than the amount  that will be required to
pay the probable  liability of such Person on its debts as they become  absolute
and  matured,  (iii) such Person is able to realize  upon its assets and pay its
debts and other  liabilities,  contingent  obligations and other  commitments as
they mature in the normal  course of business,  (iv) such Person does not intend
to, and does not believe that it will,  incur debts or  liabilities  beyond such
Person's  ability  to pay as such  debts and  liabilities  mature,  and (v) such
Person is not engaged in business or a  transaction,  and is not about to engage
in business or a transaction,  for which such Person's property would constitute
unreasonably  small capital  after giving due  consideration  to the  prevailing
practice  in the  industry in which such Person is  engaged.  In  computing  the
amount  of  contingent  liabilities  at  any  time,  it is  intended  that  such
liabilities  will be computed at the amount which, in light of all the facts and
circumstances  existing at such time,  represents the amount that can reasonably
be expected to become an actual or matured liability.

                  SPECIAL  SUBSIDIARY  shall  mean  Canyon  Fuel and each  other
Person (i) with respect to which the  ownership of equity  interests  thereof by
the Borrower or any  Subsidiary  of


                                     - 21 -


the  Borrower  is  accounted  for in  accordance  with the  "equity  method"  in
accordance  with GAAP;  (ii) engaged in a line of business  permitted by Section
7.2.7  [Continuation of or Change in Business];  (iii) with respect to which the
equity  interests  thereof were  acquired by the Borrower or  Subsidiary  of the
Borrower  in an  arms-length  transaction;  (iv) the  operations  of  which  the
Borrower has management  control over; and (v) a majority of the economic equity
interests of which are owned directly or indirectly by the Borrower.

                  STANDARD  &  POOR'S  shall  mean  Standard  &  Poor's  Ratings
Services, a division of The McGraw-Hill Companies, Inc., and its successors.

                  SUBSIDIARY  of any  Person  at any  time  shall  mean  (i) any
corporation  or trust of which  more than 50% (by  number of shares or number of
votes)  of the  outstanding  capital  stock or  shares  of  beneficial  interest
normally  entitled to vote for the election of one or more directors or trustees
(regardless  of any  contingency  which does or may suspend or dilute the voting
rights) is at such time owned  directly or  indirectly  by such Person or one or
more of such Person's Subsidiaries, (ii) any partnership of which such Person is
a general partner or of which more than 50% of the  partnership  interests is at
the time  directly  or  indirectly  owned by such  Person or one or more of such
Person's Subsidiaries,  (iii) any limited liability company of which such Person
is a member or of which more than 50% of the limited liability company interests
is at the time  directly  or  indirectly  owned by such Person or one or more of
such Person's Subsidiaries or (iv) any corporation, trust, partnership,  limited
liability  company  or other  entity  which is  controlled  or  capable of being
controlled  by such Person or one or more of such Person's  Subsidiaries.  As of
the Closing Date, the Borrower owns 65% of the member  interests of Canyon Fuel.
It is  expressly  agreed that each  Special  Subsidiary  shall be deemed to be a
Subsidiary  of the  Borrower for purposes of this  Agreement.  Nonetheless,  the
Appropriate  Percentage of the assets, income,  expenses,  liabilities and other
items with respect to each Special  Subsidiary shall be included for purposes of
calculating  the Leverage Ratio and the Fixed Charge Coverage Ratio as described
more fully in the definitions of "Adjusted EBITDDA," "EBITDDA," "Leverage Ratio"
and "Fixed Charge Coverage Ratio."

                  STATE LEASES LLC  AGREEMENT  shall mean that  certain  Limited
Liability  Company  Agreement,  dated as of April 8, 1998, as amended,  of State
Leases LLC, a limited liability company organized and existing under the laws of
the State of Delaware.

                  SUBSIDIARY SHARES shall have the meaning assigned to that term
in Section 5.1.2.

                  SYNDICATION  AGENT  shall  mean  Morgan  in  its  capacity  as
syndication  agent for the Banks under this Agreement and its successors in such
capacity.

                  SYNDICATION  DATE shall  mean the  earlier of (i) a date after
the Closing Date which is selected by the Arrangers and notice of which is given
by the  Arrangers to the Borrower at least five (5) Business  Days prior thereto
and (ii) or the 90th day following the Closing Date.

                  TAX  SHARING  AGREEMENT  shall mean that  certain  Tax Sharing
Agreement dated as June 1, 1998 by and among the Borrower,  AWAC, the Parent and
Delta Housing.

                                     - 22 -


                  TERM LOAN shall have the meaning given to such term in Section
2.1; Term Loans shall mean collectively all of the Term Loans.

                  TERM LOAN  COMMITMENT  shall mean, as to any Bank at any time,
the amount  initially  set forth  opposite  its name on  SCHEDULE  1.1(B) in the
column labeled "Amount of Commitment for Term Loans," and thereafter on Schedule
I to the most recent Assignment and Assumption  Agreement executed by such Bank,
and Term Loan Commitments  shall mean the aggregate Term Loan Commitments of all
of the Banks.

                  TERM NOTES  shall mean  collectively  and Term Note shall mean
separately  all of the Term Notes of the Borrower in the form of EXHIBIT  1.1(T)
issued  by the  Borrower  at the  request  of a Bank  pursuant  to  Section  2.3
evidencing the Term Loans, together with all amendments,  extensions,  renewals,
replacements, refinancings or refunds thereof in whole or in part.

                  THUNDER  BASIN LLC AGREEMENT  shall mean that certain  Limited
Liability Company Agreement,  dated as of July 10, 1997, as amended,  of Thunder
Basin Coal Company,  L.L.C., a limited  liability company organized and existing
under the laws of the State of Delaware.

                  TRANSFEROR  BANK shall mean the  selling  Bank  pursuant to an
Assignment and Assumption Agreement.
                  UNIFORM  COMMERCIAL  CODE shall have the  meaning  assigned to
that term in Section 5.1.21.

                  U.S. shall mean the United States of America.

            1.2    CONSTRUCTION.

            Unless the context of this Agreement otherwise clearly requires, the
following  rules of  construction  shall apply to this Agreement and each of the
other Loan Documents:

                  1.2.1  NUMBER; INCLUSION.

                  references to the plural include the singular, the plural, the
part and the whole;  "or" has the inclusive  meaning  represented  by the phrase
"and/or";  and "including" has the meaning  represented by the phrase "including
without limitation";

                  1.2.2  DETERMINATION.

                  references  to  "determination"  of or by  the  Administrative
Agent or the Banks  shall be  deemed  to  include  good-faith  estimates  by the
Administrative  Agent or the Banks (in the case of quantitative  determinations)
and good-faith beliefs by the Administrative  Agent or the Banks (in the case of
qualitative  determinations)  and such determination  shall be conclusive absent
manifest error;


                                     - 23 -


                  1.2.3  ADMINISTRATIVE AGENT'S DISCRETION AND CONSENT.

                  whenever the Administrative Agent or the Banks are granted the
right  herein to act in its or their  sole  discretion  or to grant or  withhold
consent such right shall be exercised in good faith;

                  1.2.4  DOCUMENTS TAKEN AS A WHOLE.

                  the  words  "hereof,"  "herein,"   "hereunder,"  "hereto"  and
similar  terms  in this  Agreement  or any  other  Loan  Document  refer to this
Agreement  or such  other  Loan  Document  as a whole and not to any  particular
provision of this Agreement or such other Loan Document;

                  1.2.5  HEADINGS.

                  the section and other headings  contained in this Agreement or
such other Loan  Document  and the Table of Contents  (if any),  preceding  this
Agreement or such other Loan Document are for reference  purposes only and shall
not  control or affect the  construction  of this  Agreement  or such other Loan
Document or the interpretation thereof in any respect;

                  1.2.6  IMPLIED REFERENCES TO THIS AGREEMENT.

                  article,  section,  subsection,  clause,  schedule and exhibit
references  are to this  Agreement or other Loan  Document,  as the case may be,
unless otherwise specified;

                  1.2.7  PERSONS.

                  reference to any Person includes such Person's  successors and
assigns but, if applicable, only if such successors and assigns are permitted by
this Agreement or such other Loan Document, as the case may be, and reference to
a Person in a particular capacity excludes such Person in any other capacity;

                  1.2.8  MODIFICATIONS TO DOCUMENTS.

                  reference to any agreement  (including  this Agreement and any
other Loan Document together with the schedules and exhibits hereto or thereto),
document or instrument means such agreement,  document or instrument as amended,
modified,  replaced,  substituted for, superseded or restated in accordance with
the applicable provisions thereof and hereof;

                  1.2.9  FROM, TO AND THROUGH.

                  relative to the  determination  of any period of time,  "from"
means "from and  including,"  "to" means "to but excluding," and "through" means
"through and including"; and


                                     - 24 -


                  1.2.10  SHALL; WILL.

                  references to "shall" and "will" are intended to have the same
meaning.

            1.3    ACCOUNTING PRINCIPLES.

            Except as otherwise provided in this Agreement, all computations and
determinations   as  to  accounting  or  financial  matters  and  all  financial
statements to be delivered pursuant to this Agreement shall be made and prepared
in  accordance  with  GAAP   (including   principles  of   consolidation   where
appropriate),  and all  accounting  or  financial  terms shall have the meanings
ascribed to such terms by GAAP;  PROVIDED,  HOWEVER,  that all accounting  terms
used in Section 7.2  [Negative  Covenants]  (and all  defined  terms used in the
definition  of any  accounting  term used in  Section  7.2),  as  applied to the
Borrower and its  Subsidiaries  shall have the meaning  given to such terms (and
defined  terms)  under GAAP as in effect on the date  hereof  applied on a basis
consistent  with those used in preparing  the Annual  Statements  referred to in
Section 5.1.7(i) [Historical  Statements].  In the event of any change after the
date  hereof  in GAAP,  and if such  change  would  result in the  inability  to
determine compliance with the financial covenants set forth in Section 7.2 based
upon the Borrower's  regularly  prepared  financial  statements by reason of the
preceding sentence, then the parties hereto agree to endeavor, in good faith, to
agree upon an  amendment  to this  Agreement  that would  adjust such  financial
covenants  in a manner that would not affect the  substance  thereof,  but would
allow  compliance  therewith to be determined in accordance  with the Borrower's
financial  statements at that time. Nothing in this Section 1.3 will require the
Borrower or any of its Subsidiaries to continue  accounting  methods used by ACC
in preparing the ACC Annual Statements.


                              2. TERM LOAN FACILITY

            2.1    TERM LOAN COMMITMENTS.

            Subject to the terms and  conditions  hereof,  and relying  upon the
representations  and warranties  herein set forth, each Bank severally agrees to
make a term loan (the "Term  Loan") to the  Borrower on the Closing Date in such
principal  amount as the Borrower shall request up to, but not  exceeding,  such
Bank's Term Loan Commitment.

            2.2    NATURE OF BANKS' OBLIGATIONS WITH RESPECT TO TERM LOANS.

            The  obligations  of each Bank to make a Term  Loan to the  Borrower
shall be in the proportion  that such Bank's Term Loan  Commitment  bears to the
Term Loan Commitments of all Banks to the Borrower, but each Bank's Term Loan to
the  Borrower  shall never exceed its Term Loan  Commitment.  The failure of any
Bank to make a Term Loan shall not relieve any other Bank of its  obligations to
make a Term Loan nor shall it impose any additional  liability on any other Bank
hereunder. The Banks shall have no obligation to make Term Loans hereunder after
the  Closing  Date.  The  Term  Loan   Commitments  are  not  revolving   credit
commitments,  and the  Borrower  shall not have the right to  borrow,  repay and
reborrow the Term Loans.


                                     - 25 -


            2.3    TERM LOAN NOTES.

            The Obligation of the Borrower to repay the unpaid  principal amount
of the Term Loan made to it by each Bank, together with interest thereon,  shall
be evidenced by a Term Note dated the Closing Date, payable to the order of each
Bank in a face amount equal to the Term Loan of such Bank. The principal  amount
of each Term Note as provided therein shall be due and payable on the Expiration
Date.

            2.4    USE OF PROCEEDS.

            The proceeds of the Term Loans shall be used to finance a portion of
the Distribution and in accordance with Section 7.1.9 [Use of Proceeds].

            2.5    REQUEST TO SELECT INTEREST RATE OPTIONS.

            Except as otherwise provided herein, the Borrower may on the Closing
Date select the initial  Interest  Rate Option  applicable to the Term Loans and
thereafter  from time to time prior to the Expiration  Date request the Banks to
renew or convert the  Interest  Rate Option  applicable  to existing  Term Loans
pursuant to Section 3.2 [Interest Periods],  by delivering to the Administrative
Agent,  not later than 10:00 a.m.,  Pittsburgh time, (i) three (3) Business Days
prior to the  proposed  Borrowing  Date with  respect  to the making of the Term
Loans on the Closing Date or the  conversion  to or the renewal of the Euro-Rate
Option for any Term Loans,  and (ii) one (1) Business Day prior to the making of
the Term Loans on the Closing Date to which the Base Rate Option  applies or the
last day of the preceding  Interest Period with respect to the conversion to the
Base  Rate  Option  for any Term  Loan,  of a duly  completed  request  therefor
substantially  in the form of EXHIBIT 2.5 (each a "Rate  Request")  or a request
therefor by telephone immediately  confirmed in writing by letter,  facsimile or
telex in the form of such Exhibit,  it being understood that the  Administrative
Agent may rely on the  authority  of any  individual  making  such a  telephonic
request without the necessity of receipt of such written confirmation. Each Rate
Request shall be irrevocable and shall specify (i) the proposed  Borrowing Date;
(ii) the aggregate amount of the Term Loans  comprising each Borrowing  Tranche,
which  shall  be  in  integral  multiples  of  $25,000,000  and  not  less  than
$25,000,000 for each Borrowing Tranche to which the Euro-Rate Option applies and
in integral multiples of $500,000 and not less than the lesser of $25,000,000 or
the  maximum  amount  available  for  Borrowing  Tranches to which the Base Rate
Option  applies;  (iii) whether the  Euro-Rate  Option or Base Rate Option shall
apply to the applicable  Borrowing Tranche;  and (iv) in the case of a Borrowing
Tranche to which the Euro-Rate  Option applies,  an appropriate  Interest Period
for the Term Loans comprising such Borrowing Tranche.


                                3. INTEREST RATES

            3.1    INTEREST RATE OPTIONS.

            The Borrower shall pay interest in respect of the outstanding unpaid
principal  amount of the Term Loans as  selected by it from the Base Rate Option
or Euro-Rate Option set forth below, it being  understood  that,  subject to the
provisions of this Agreement,  the Borrower



                                     - 26 -


may select  different  Interest Rate Options and different  Interest  Periods to
apply  simultaneously to the Term Loans comprising  different Borrowing Tranches
and may convert to or renew one or more  Interest  Rate  Options with respect to
all or any portion of the Term Loans comprising any Borrowing Tranche,  PROVIDED
that there shall not be at any one time outstanding more than four (4) Borrowing
Tranches in the  aggregate  among all of the Term Loans  accruing  interest at a
Euro-Rate Option. If at any time the designated rate applicable to any Term Loan
exceeds such Bank's  highest lawful rate, the rate of interest on such Term Loan
shall be limited to such Bank's highest lawful rate.

                  3.1.1  INTEREST RATE OPTIONS.

                  The Borrower shall have the right to select from the following
Interest Rate Options applicable to the Term Loans:

                         (i)    BASE RATE OPTION:  A  fluctuating rate per annum
(computed  on the  basis of a year of 365 or 366 days,  as the case may be,  and
actual days elapsed)  equal to the Base Rate plus the  Applicable  Margin,  such
interest  rate to change  automatically  from time to time  effective  as of the
effective date of each change in the Base Rate; or

                         (ii)  EURO-RATE OPTION:  A  rate per annum (computed on
the basis of a year of 360 days and actual days elapsed)  equal to the Euro-Rate
plus the Applicable Margin.

Notwithstanding the foregoing, it is expressly agreed that through and including
the Initial Delivery Date, the Applicable  Margin shall be the amount determined
in accordance  with the parameters set forth in SCHEDULE  1.1(A) but shall be no
less than the amount set forth on the pricing  grid under Level V of PART (A) of
SCHEDULE  1.1(A).  It