LIMITED LIABILITY COMPANY OPERATING AGREEMENT

OF

AEI HOLDIN COMPANY, LLC

          Membership Interests in the Company have not been registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended, or under the securities laws of any state. Without such registration, Membership Interests may not be sold, pledged, hypothecated, or otherwise transferred by a Member at any time whatsoever, except upon delivery to the Company of an opinion of counsel satisfactory to the Company that such registration is not required for such transfer and/or the submission to the Company of such other evidence as may be satisfactory to the Company to the effect that such transfer will not violate the Securities Act of 1933, as amended, and/or applicable state securities laws, and/or any rule or regulation promulgated thereunder. In addition, any sale or other transfer of Membership Interests is subject to certain restrictions that are set forth in this Agreement.

          THIS LIMITED LIABILITY COMPANY OPERATING AGREEMENT of AEI HOLDING COMPANY, LLC (the "Company"), a Delaware limited liability company, is made and entered into as of May 9, 2002, by AEI RESOURCES, LLC ("Parent") and such other Persons (as hereinafter defined) or Entities (as hereinafter defined) as may be admitted from time to time as members of the Company in accordance with the terms of this Agreement and the Delaware Act (as hereinafter defined).

          As used in this Agreement, the term "Member" shall mean Parent (so long as it is a member of the Company) or any other Person or Entity who is admitted as a member of the Company in accordance with this Agreement and the Delaware Act, and the term "Members" (whether one or more) shall mean Parent (so long as it is a member of the Company) and any other Person or Entity admitted as a member of the Company in accordance with this Agreement and the Delaware Act.

W I T N E S S E T H:

          WHEREAS, the Company was formed as a corporation in the State of Delaware by the filing of a Certificate of Incorporation with the Secretary of State of Delaware on September 19, 1997; and

          WHEREAS, in accordance with Section 6.10 of the Joint Plan of Reorganization of AEI Resources Holding, Inc. and its subsidiaries (including the Company) under Chapter 11 of the United States Bankruptcy Code, confirmed by Order of the United States Bankruptcy Court for the Eastern District of Kentucky, the Company is converting to a limited liability company by filing a Certificate of Conversion and a Certificate of Formation with the Secretary of State of Delaware on May 9, 2002, pursuant to Section 18-214 of the Delaware Limited Liability Company Act (the "Act"); and

           WHEREAS, the Member desires to set forth herein the manner in which the Company, as a limited liability company, shall be governed and operated.

          NOW, THEREFORE, in consideration of the covenants contained herein and other good and valuable consideration, the Member and any other Person or Entity admitted as a Member of the Company in accordance with this Agreement and the Delaware Act, intending to be legally bound hereby, agree as follows.

ARTICLE I
DEFINITIONS

          The following terms have the definitions hereinafter indicated whenever used in this Agreement with initial capital letters.

          "Affiliate" of any specified Person shall mean any other Person controlling, controlled by or under common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities or other beneficial interests, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

          "Agreement" shall mean this Operating Agreement as originally executed and as amended from time to time.

          "Capital Account" shall mean a financial account to be established and maintained by the Company for each Member as computed from time to time in accordance with the capital account maintenance rules set forth in Regulations Section 1.704-1(b)(2), as such Regulations may be amended from time to time.

          "Capital Contribution" shall mean the total amount of money or the net fair market value of property (as determined in good faith by the Members) contributed by each Member to the Company pursuant to the terms of this Agreement.

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

          "Company" shall mean AEI Holding Company, LLC, a Delaware limited liability company.

          "Company Minimum Gain" shall mean the amount determined in accordance with Regulations Section 1.704-2(d) by (i) computing with respect to each Nonrecourse Liability of the Company the amount of income or gain, if any, that would be realized by the Company if it disposed of the property securing such Nonrecourse Liability in full satisfaction thereof, and (ii) aggregating all separate amounts so computed.

          "Delaware Act" shall mean the Delaware Limited Liability Company Act, Title 6 of the Delaware Code, Section 18-101, et seq., as same may be amended from time to time.

          "Distributable Cash" shall mean, with respect to any period, all cash (i) derived by the Company from normal business operations, (ii) received as proceeds from any Company financing, refinancing or other extraordinary event (including cash received from the sale of all or substantially all the Company's property) or (iii) withdrawn from reserves during such period, minus (w) all expenses (other than depreciation and other similar noncash expenses) incurred incident to the normal operation of the Company's business, (x) all capital expenditures made during such period, (y) all payments of principal and interest made during such period with respect to Company loans, including loans from Members, and (z) all funds set aside during such period for the creation or addition to such reserves as the Members deem necessary for the reasonable needs and prudent operation of the Company's business.

           "Entity" shall mean any general partnership, limited partnership, limited liability company, corporation, joint venture, trust, business trust,
 

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