ROCHESTER & PITTSBURGH COAL CO
PREM14A, 1998-06-25
BITUMINOUS COAL & LIGNITE MINING
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                            SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
                              (Amendment No.     )

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[X]  Preliminary Proxy Statement
[ ]  Confidential, for Use of the Commission Only (as permitted by
     Rule 14a-6(e)(2))
[ ]  Definitive Proxy Statement
[ ]  Definitive Additional Materials
[ ]  Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12

                       Rochester & Pittsburgh Coal Company
- - - --------------------------------------------------------------------------------

- - - --------------------------------------------------------------------------------
                (Name of Registrant as Specified In Its Charter)

- - - --------------------------------------------------------------------------------
     (Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[ ]  No fee required.
[X]  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

     1)   Title of each class of securities to which transaction applies: Common
          Stock, no par value

     2)   Aggregate number of securities to which transaction applies: 3,440,984
          shares outstanding

     3)   Per unit price or other underlying value of transaction computed
          pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
          filing fee is calculated and state how it was determined): $43.50 for
          each share outstanding

     4)   Proposed maximum aggregate value of transaction: approximately
          $149,682,800

     5)   Total fee paid: $29,937

[ ]  Fee paid previously with preliminary materials.
[ ]  Check box if any part of the fee is offset as provided by the Exchange Act
     Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
     paid previously. Identify the previous filing by registration statement
     number, or the Form or Schedule and the date of its filing.

     1)   Amount Previously Paid:
     2)   Form, Schedule or Registration Statement No.:
     3)   Filing Party:
     4)   Date Filed:


<PAGE>


                       ROCHESTER & PITTSBURGH COAL COMPANY
                                655 Church Street
                           Indiana, Pennsylvania 15701


Dear Shareholder:

     You are cordially invited to attend a Special Meeting of Shareholders (the
"Special Meeting") of Rochester & Pittsburgh Coal Company (the "Company") to be
held at 10:00 a.m., local time, on August __, 1998 at the offices of Duane,
Morris & Heckscher LLP at One 4200 Liberty Place, Philadelphia, Pennsylvania
19103.

     At the Special Meeting, you will be asked to consider and vote upon the
approval and adoption of an Agreement and Plan of Merger (the "Merger
Agreement") dated as of May 28, 1998 among the Company, CONSOL Inc. ("CONSOL")
and CONSOL Commonwealth Inc. ("Merger Sub"). A copy of the Merger Agreement is
attached as Appendix A to the Proxy Statement accompanying this letter. Pursuant
to the Merger Agreement, Merger Sub will be merged with and into the Company
(the "Merger") and the Company will become an indirect subsidiary of CONSOL.

     In summary, the Merger Agreement provides that upon the Merger each share
of Common Stock, no par value per share, of the Company (the "Common Stock")
that is issued and outstanding at the time the Merger is consummated (the
"Effective Time"), other than shares held by shareholders who perfect their
statutory dissenters rights and shares held by the Company as treasury stock,
will be cancelled and extinguished and converted automatically into the right to
receive an amount in cash, without interest, equal to $43.50 per share of Common
Stock (the "Merger Price").

     Complete information concerning the Merger, a description of the business
of the Company and certain financial information relating to the Company is set
forth in the accompanying Proxy Statement and the complete text of the Merger
Agreement is contained in Appendix A thereto.

     The Company's Board of Directors has received the opinion, dated as of May
28, 1998, of J.P. Morgan Securities Inc. ("J.P. Morgan"), the Company's
financial advisor, to the effect that, based upon and subject to the various
considerations set forth therein, as of the date of such opinion, the
consideration to be paid to the Company's shareholders in connection with the
Merger was fair from a financial point of view to the Company's shareholders.
The full text of such opinion is set forth as Appendix C to the accompanying
Proxy Statement. The Company's Board of Directors has unanimously approved the
proposed Merger after considering various factors, including the fairness
opinion of J.P. Morgan, competitive conditions prevailing in the coal industry
and the losses encountered to date at the Mine No. 84 project and believes that
the Merger is in the best interests of the Company and its shareholders.


<PAGE>


     The Company has had a proud history since its inception more than 100 years
ago. It was, therefore, only after lengthy negotiations and deliberations that
the Board of Directors concluded that the shareholders' best interests would be
served by the Merger with CONSOL. Given the intense competition in the coal
industry among fewer and ever larger companies with increasingly greater
financial resources, the Board of Directors believes its decision is the best
alternative for shareholders.

     Approval and adoption of the Merger Agreement requires the affirmative vote
of a majority of the votes cast in person or by proxy at the Special Meeting by
the holders of the Common Stock. It is important that your shares be represented
at the Special Meeting, regardless of the number of shares you hold. Therefore,
please complete, sign and date the enclosed proxy card and return it in the
enclosed envelope as soon as possible, whether or not you plan to attend the
Special Meeting. Returning the proxy card will not affect your right to revoke
your proxy as described in the accompanying Proxy Statement or to attend the
Special Meeting.

                                          Sincerely,


                                          Thomas W. Garges, Jr.
                                          President and Chief Executive Officer

July __, 1998


<PAGE>


                       ROCHESTER & PITTSBURGH COAL COMPANY


                    NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
                          TO BE HELD ON AUGUST __, 1998


To the Shareholders of Rochester & Pittsburgh Coal Company:

     A Special Meeting of Shareholders (the "Special Meeting") of Rochester &
Pittsburgh Coal Company (the "Company") will be held at 10:00 a.m., local time,
on _______________, August __, 1998, at the offices of Duane, Morris & Heckscher
LLP at 4200 One Liberty Place, Philadelphia, Pennsylvania 19103, for the
following purposes:

     1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger dated as of May 28, 1998 (the "Merger Agreement") among the
Company, CONSOL Inc. ("CONSOL") and CONSOL Commonwealth Inc. ("Merger Sub"), a
copy of which is attached as Appendix A to the Proxy Statement accompanying this
Notice. Pursuant to the Merger Agreement, Merger Sub will be merged with and
into the Company (the "Merger") and the Company will become an indirect
subsidiary of CONSOL. As a result of the Merger, each share of Common Stock, no
par value per share, of the Company (the "Common Stock") that is issued and
outstanding at the time the Merger is consummated (the "Effective Time"), other
than shares held by shareholders who perfect their statutory dissenters rights
and shares held by the Company as treasury stock, will be cancelled and
extinguished and converted automatically into the right to receive an amount in
cash, without interest, equal to $43.50 per share of Common Stock (the "Merger
Price"); and

     2. To transact such other business as may properly come before the Special
Meeting and any adjournment, postponement or continuation thereof.

     The Company's Board of Directors has fixed the close of business on June
26, 1998 as the record date for the determination of shareholders entitled to
notice of and to vote at the Special Meeting. Approval and adoption of the
Merger Agreement will require the affirmative vote of a majority of the votes
cast in person or by proxy by the holders of Common Stock at the Special
Meeting, provided a quorum is present.

     Holders of Common Stock have the right to dissent from the Merger and to
obtain payment for their shares by following the procedures prescribed in
Subchapter 15D of the Pennsylvania Business Corporation Law of 1988, as amended,
the text of which is attached as Appendix D to, and summarized under "The Merger
and the Merger Agreement - Dissenters Appraisal Rights" in, the accompanying
Proxy Statement.

     THE BOARD OF DIRECTORS OF THE COMPANY HAS CAREFULLY CONSIDERED THE TERMS OF
THE MERGER AGREEMENT AND HAS UNANI MOUSLY APPROVED THE PROPOSED MERGER AND HAS
DETERMINED THAT THE PROPOSED MERGER IS FAIR TO AND IN THE BEST INTERESTS OF THE
COMPANY AND ITS SHAREHOLDERS.


<PAGE>


ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
COMMON STOCK VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT.

                                          By Order of the Board of Directors,


                                          Thomas W. Garges, Jr.
                                          President and Chief Executive Officer

July __, 1998


                                    IMPORTANT

     IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING
REGARDLESS OF THE NUMBER OF SHARES THAT YOU HOLD. THEREFORE, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE AS
SOON AS POSSIBLE. IF YOU ARE UNABLE TO ATTEND THE SPECIAL MEETING, YOUR SHARES
WILL BE VOTED AS SPECIFIED IN ANY COMPLETED PROXY CARD RETURNED BY YOU.
RETURNING THE ENCLOSED PROXY CARD WILL NOT AFFECT YOUR RIGHT TO REVOKE YOUR
PROXY AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT OR TO ATTEND THE SPECIAL
MEETING IN PERSON.


<PAGE>


                       ROCHESTER & PITTSBURGH COAL COMPANY
                                655 Church Street
                           Indiana, Pennsylvania 15701

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

                                 PROXY STATEMENT

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


      SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ________, AUGUST __, 1998



     This Proxy Statement is being furnished to shareholders of Rochester &
Pittsburgh Coal Company, a Pennsylvania corporation (the "Company"), in
connection with the solicitation of proxies by the Company's Board of Directors
(the "Board of Directors") for use at a special meeting of the Company's
shareholders and any adjournment, postponement or continuation thereof (the
"Special Meeting") to be held on _________, August __, 1998 at 10:00 a.m., local
time, at the offices of Duane, Morris & Heckscher LLP, 4200 One Liberty Place,
Philadelphia, Pennsylvania 19103. This Proxy Statement, the accompanying letter
to shareholders, the Notice of Special Meeting and the proxy card enclosed
herewith are first being mailed to the Company's shareholders on or about July
__, 1998.

     This Proxy Statement relates to the proposed merger (the "Merger") of
CONSOL Commonwealth Inc., a Pennsylvania corporation ("Merger Sub") and an
indirect subsidiary of CONSOL Inc., a Delaware corporation ("CONSOL"), with and
into the Company with the Company being the surviving entity pursuant to an
Agreement and Plan of Merger dated as of May 28, 1998 (the "Merger Agreement")
among the Company, CONSOL and Merger Sub. See "The Merger and the Merger
Agreement."

     At the Special Meeting, the Company's shareholders will consider and vote
upon a proposal to approve and adopt the Merger Agreement. Pursuant to the
Merger Agreement, each share of Common Stock, no par value per share, of the
Company (the "Common Stock") that is issued and outstanding at the time the
Merger is consummated (the "Effective Time"), other than shares held by
shareholders who perfect their statutory dissenters rights ("Dissenting Shares")
and shares held by the Company as treasury stock ("Treasury Shares"), will be
cancelled and extinguished and converted automatically into the right to receive
an amount in cash, without interest, equal to $43.50 per share of Common Stock
(the "Merger Price"). See "The Merger and the Merger Agreement - Payment for
Common Stock."

     Shares of Common Stock represented by proxies in the accompanying form, if
duly executed and received by the Board of Directors before the Special Meeting,
will be voted at the Special Meeting in accordance with the specifications made
thereon by the shareholders. Any proxy not specifying to the contrary will be
voted in favor of the approval and adoption of the proposal referred to in the
Notice of Special Meeting. A shareholder who signs and


<PAGE>


returns a proxy in the accompanying form may revoke it at any time before it is
voted by giving written notice of revocation or a duly executed proxy bearing a
later date to the Secretary of the Company or by attending the Special Meeting
and voting in person.

     The cost of solicitation of proxies in the accompanying form will be borne
by the Company, including expenses in connection with preparing and mailing this
Proxy Statement. Such solicitation will be made by mail and may also be made on
behalf of the Company in person or by telephone or telegram by the Company's
regular officers and employees, none of whom will receive special compensation
for such services. The Company, upon request therefor, will also reimburse
brokers or persons holding shares in their names or in the names of nominees for
their reasonable expenses in sending proxies and proxy material to beneficial
owners.

     Only holders of Common Stock of record at the close of business on June 26,
1998 will be entitled to notice of and to vote at the Special Meeting. Each
share of Common Stock is entitled to one vote on all matters to come before the
Special Meeting.

     As of the close of business on June 26, 1998, the Company had outstanding
3,440,984 shares of Common Stock. The presence in person or by proxy of the
holders of a majority of the outstanding shares will constitute a quorum at the
Special Meeting.

     Holders of Common Stock have the right to dissent from the Merger and to
obtain payment for their shares by following the procedures prescribed in
Subchapter 15D of the Pennsylvania Business Corporation Law of 1988, as amended
(the "PBCL"), which is attached as Appendix D to, and summarized under "The
Merger and the Merger Agreement - Dissenters Appraisal Rights" in, this Proxy
Statement. See "The Merger and the Merger Agreement - Dissenters Appraisal
Rights."


<PAGE>


                                Table of Contents
                                                                            Page
                                                                            ----

SUMMARY...................................................................    1
         Parties to the Merger............................................    1
         The Special Meeting..............................................    2
         Vote Required; Record Date.......................................    2
         The Merger and the Merger Agreement..............................    3
         The Stockholders Agreement.......................................    7
         Market Prices and Dividends......................................    7
         Selected Consolidated Financial Data.............................    9
INTRODUCTION..............................................................   10
VOTING AND PROXIES........................................................   10
         Record Date; Solicitation of Proxies.............................   10
         Vote Required....................................................   11
         Stock Ownership of Management and Certain Beneficial Owners......   12
THE MERGER AND THE MERGER AGREEMENT.......................................   15
         General..........................................................   15
         Background of the Merger.........................................   15
         Recommendation of the Board of Directors; Reasons for the
           Merger; Opinion of Financial Advisor...........................   16
         Interests of Certain Persons in the Merger.......................   20
         Effective Time of the Merger.....................................   21
         Payment for Common Stock.........................................   21
         Certain Other Effects of the Merger..............................   22
         Antitrust Matters................................................   22
         Accounting Treatment.............................................   22
         Terms of the Merger; Amendments..................................   22
         Conditions to Consummation of the Merger; Representations
           and Warranties; Certain Covenants..............................   23
         Certain Other Agreements of the Parties..........................   27
         Management of the Company after the Merger.......................   28
         Termination; Fees and Expenses; Plans of the Company If the
           Merger Is Not Consummated......................................   28
         Source and Amount of Funds.......................................   29
         Federal Income Tax Consequences of the Merger....................   29
         Dissenters Appraisal Rights......................................   30
THE STOCKHOLDERS AGREEMENT................................................   34
INFORMATION CONCERNING THE COMPANY........................................   36
         Business.........................................................   36
         Selected Consolidated Financial Data.............................   48
         Management's Discussion and Analysis of Financial Condition
           and Results of Operations......................................   49
ADDITIONAL INFORMATION....................................................   55
         Independent Public Accountants...................................   55
         Available Information............................................   55
OTHER PROPOSALS...........................................................   56
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................   57


                                       (i)

<PAGE>


APPENDICES:

         Agreement and Plan of Merger, dated as of May 28, 1998,
           among CONSOL Inc., CONSOL Commonwealth Inc. and
           Rochester & Pittsburgh Coal Company............................A-1
         Stockholders Agreement dated as of May 28, 1998 among
           CONSOL Inc., CONSOL Commonwealth Inc., Emilie I. Wiggin,
           Co-Trustee, Urling I. Searle, Co-Trustee, Peter Iselin,
           Emilie I. Wiggin, O'Donnell Iselin II, Columbus O'D. Iselin
           and Gordon B. Whelpley, Jr.....................................B-1
         Opinion of J.P. Morgan Securities Inc........................... C-1
         Subchapter 15D and Section 1930 of the Pennsylvania
           Business Corporation Law, as amended...........................D-1


                                      (ii)

<PAGE>


                                     SUMMARY


     The following is a summary of certain information contained elsewhere in
this Proxy Statement. This Summary does not purport to be complete and should be
read in conjunction with, and is qualified in its entirety by reference to, the
more detailed information appearing elsewhere in this Proxy Statement and the
Appendices hereto.

                              Parties to the Merger

Rochester & Pittsburgh Coal Company

     The Company and its predecessors have been engaged in the mining of coal in
central and western Pennsylvania since 1881. From the mid-1960's, the Company
has been principally engaged in the deep mining of bituminous coal for sale
pursuant to long-term coal supply agreements to electric generating plants
located adjacent to or near the Company's mines. The Company's coal production
totaled ___ million tons in 1997.

     In 1992, the Company acquired coal properties and Mine No. 84 in
southwestern Pennsylvania. Development and rehabilitation work at Mine No. 84
was completed in 1997, and the Company is now engaged, as a material portion of
its planned operations, in the eastern and midwestern utility coal markets in
addition to the continuing sale of coal pursuant to long-term coal supply
agreements.

     The mailing address of the Company's principal executive offices is 655
Church Street, Indiana, Pennsylvania 15701, and its telephone number is (724)
349-5800.

CONSOL Inc.

     CONSOL, through its predecessors, has been engaged in coal mining since
1864. CONSOL operating companies conduct mining at 24 complexes in six eastern
states and the Canadian province of Alberta. Production from these complexes
totaled 72.8 million tons in 1997. CONSOL is the leading U.S. producer of coal
from underground mines.

     CONSOL maintains a fleet of towboats and barges to transport coal to
customers located on the Monongahelia, Ohio and Mississippi River systems.

     CONSOL has more than 7,700 employees and had sales of $2.3 billion in 1997.
Three quarters of CONSOL's sales are to electric utilities in the U.S. and
overseas.

     The mailing address of CONSOL's principal executive offices is Consol
Plaza, 1800 Washington Road, Pittsburgh, Pennsylvania 15241, and its telephone
number is (412) 831-4000.


                                       -1-

<PAGE>


CONSOL Commonwealth Inc.

     Merger Sub, a Pennsylvania corporation, is an indirect subsidiary of CONSOL
that was formed by CONSOL solely for the purpose of effecting the Merger. The
mailing address of Merger Sub's principal executive offices is Consol Plaza,
1800 Washington Road, Pittsburgh, Pennsylvania 15241, and its telephone number
is (412) 831-4000.

                               The Special Meeting

Purposes of the Meeting; Date, Time and Place

     The Special Meeting will be held on _________, August __, 1998 at 10:00
a.m., local time, at the offices of Duane, Morris & Heckscher LLP, 4200 One
Liberty Place, Philadelphia, Pennsylvania 19103. for the following purposes:

     1. To consider and vote upon a proposal to approve and adopt the Merger
Agreement among the Company, CONSOL and Merger Sub, a copy of which is attached
as Appendix A to this Proxy Statement, pursuant to which, among other things,
each share of Common Stock that is issued and outstanding at the Effective Time,
other than Dissenting Shares and Treasury Shares, will be cancelled and
extinguished and converted automatically into the right to receive the Merger
Price; and

     2. To transact such other business as may properly come before the Special
Meeting and any adjournment, postponement or continuation thereof.

                           Vote Required; Record Date

     Approval and adoption of the Merger Agreement requires the affirmative vote
of a majority of the votes cast in person or by proxy at the Special Meeting by
the holders of the Common Stock, assuming a quorum is present. The Board of
Directors has fixed the close of business on June 26, 1998 as the record date
(the "Record Date") for the determination of shareholders entitled to notice of
and to vote at the Special Meeting. As of the Record Date, 3,440,984 shares of
Common Stock were outstanding, each of which is entitled to one vote on each
matter to be acted upon at the Special Meeting.

     In connection with the execution of the Merger Agreement, on May 28, 1998,
Emilie I. Wiggin and Urling I. Searle as Co-Trustees of certain trusts, Peter
Iselin, Emilie I. Wiggin, O'Donnell Iselin II, Columbus O'D. Iselin and Gordon
B. Whelpley, Jr. (collectively, the "Majority Shareholders") entered into a
Stockholders Agreement with CONSOL and Merger Sub whereby the Majority
Shareholders, who collectively own beneficially 1,741,705 shares of Common Stock
(the "Majority Shares"), or approximately 50.6% of the outstanding Common Stock,
agreed, among other things, to grant CONSOL an irrevocable proxy to vote the
Majority Shares in favor of the approval and adoption of the Merger Agreement
and an option, exercisable under certain circumstances, to purchase all of the
Common Stock held by such shareholders at a price of $43.50 per share in cash.
Since either the Majority Shareholders or CONSOL's nominees voting by proxy will
vote the Majority Shares in favor of the approval and adoption of the Merger
Agreement at the Special Meeting, the Merger


                                       -2-

<PAGE>


Agreement will be approved and adopted at the Special Meeting regardless of the
votes of the Company's shareholders other than the Majority Shareholders. A copy
of the Stockholders Agreement is attached as Appendix B to this Proxy Statement.
See The "Stockholders Agreement."

                       The Merger and the Merger Agreement

General

     At the Effective Time, (i) the separate existence of Merger Sub will cease
and Merger Sub will be merged with and into the Company, and the Company will be
the surviving corporation (the "Surviving Corporation"), (ii) the Company will
become an indirect subsidiary of CONSOL and (iii) each issued and outstanding
share of Common Stock of the Company, other than Dissenting Shares and Treasury
Shares, will be cancelled and extinguished and be converted into the right to
receive $43.50 in cash payable to the holder thereof, without interest.

Background of the Merger

     For information relating to the background and chronology of the Merger and
the Merger Agreement, see "The Merger and the Merger Agreement - Background of
the Merger" in this Proxy Statement.

Recommendation of the Board of Directors of the Company; Reasons for the Merger

     The Board of Directors, at a regular meeting held on May 28, 1998,
unanimously approved and adopted the Merger Agreement and directed that the
Merger Agreement be submitted to the Company's shareholders for their approval
and adoption. The Board of Directors has determined that the Merger Agreement is
fair to and in the best interests of the Company and its shareholders and
recommends that shareholders vote FOR approval and adoption of the Merger
Agreement. Among the factors considered by the Board of Directors were the
prospects of the Company in view of competitive conditions prevailing in the
coal industry, the losses encountered to date at Mine No. 84, the Merger Price
and the opinion of J. P. Morgan Securities Inc. ("J.P. Morgan") to the Board of
Directors that, based upon and subject to the various considerations set forth
therein, as of May 28, 1998, the consideration to be paid to the shareholders of
the Company in connection with the Merger was fair to the shareholders of the
Company from a financial point of view. See "The Merger and the Merger Agreement
- - - - Reasons for the Merger; Recommendation of the Board of Directors; Opinion of
Financial Advisor."

Opinion of Financial Advisor

     J.P. Morgan has acted as the Company's financial advisor in connection with
the Merger. J.P. Morgan has delivered its written opinion dated as of May 28,
1998 to the Board of Directors to the effect that, based upon and subject to the
various considerations set forth therein, as of the date of such opinion, the
consideration to be paid to the shareholders of the Company in connection with
the Merger was fair to the shareholders of the Company from a financial point of
view. The full text of J.P. Morgan's opinion, which sets forth a description


                                      -3-

<PAGE>


of the assumptions made, matters considered and limitations on the review
undertaken by J.P. Morgan, is included in this Proxy Statement as Appendix C.
Shareholders are urged to read the opinion in its entirety. J.P. Morgan's
opinion is directed only to the fairness of the consideration to be paid to the
Company's shareholders in connection with the Merger from a financial point of
view. J.P. Morgan's opinion does not address any other aspect of the Merger or
related transactions and does not constitute a recommendation to any shareholder
of the Company as to how such shareholder should vote such shareholder's Common
Stock at the Special Meeting. See "The Merger and the Merger Agreement -
Recommendation of the Board of Directors; Reasons for the Merger; Opinion of
Financial Advisor."

Interests of Certain Persons in the Merger

     In considering the recommendation of the Board of Directors with respect to
the Merger, shareholders should be aware that members of the Company's
management and the Board of Directors have certain interests in connection with
the Merger. See "The Merger and the Merger Agreement - Interests of Certain
Persons in the Merger."

     In connection with the consummation of the Merger and the resultant change
in control of the Company, 21 officers and senior employees of the Company with
long-term service to the Company will be entitled to receive from the Company at
the Effective Time severance payments, whether or not their employment with the
Company is terminated, in cash, without interest, aggregating approximately
[$6.5] million. See "The Merger and the Merger Agreement - Terms of the Merger."

     CONSOL, Merger Sub and the Company have agreed that neither CONSOL nor the
Company as the Surviving Corporation in the Merger shall have any claim or right
to damages or indemnification from any current or former officer, director or
shareholder of the Company or any of its subsidiaries acting in their capacities
as such based upon a breach of the representations and warranties of the Company
contained in the Merger Agreement with respect to any information (whether
written or oral), documents or material furnished to CONSOL by the Company or
any of its subsidiaries or any of their respective officers, directors,
employees, agents, counsel, accountants or advisors with respect to the
transactions contemplated by the Merger Agreement. In addition, the Merger
Agreement does not affect the rights of the Company's directors, officers or
employees to indemnification under the Company's Articles of Incorporation and
By-laws. See "The Merger and the Merger Agreement - Interests of Certain Persons
in the Merger."

Effective Time of the Merger; Payment for Common Stock

     The Merger will become effective upon the filing of Articles of Merger with
the Department of State of the Commonwealth of Pennsylvania in accordance with
the PBCL. The Articles of Merger will be presented for filing as soon as
practicable after the satisfaction or waiver of all conditions to consummation
of the Merger set forth in Article VII of the Merger Agreement. See "The Merger
and the Merger Agreement Conditions to Consummation of the Merger;
Representations and Warranties; Certain Covenants." Detailed instructions with
regard to the surrender of certificates, together with a letter of transmittal,
will be forwarded to holders of certificates formerly evidencing Common Stock as
promptly as practicable


                                      -4-

<PAGE>


following the Effective Time by _________________ ("__________" or the "Exchange
Agent"). Payment will be made to such former holders of Common Stock as promptly
as practicable following receipt by the Exchange Agent of certificates for their
Common Stock and other required documents. No interest will be paid or accrued
on the cash payable upon the surrender of certificates. See "The Merger and the
Merger Agreement - Payment for Common Stock."

Certain Other Effects of the Merger

     If the Merger is consummated, the Company's shareholders will not have the
opportunity to continue their equity interest in the Company as an independent
entity and therefore will not share in any future earnings and growth of the
Company. Moreover, if the Merger is consummated, the Common Stock will cease to
be traded in the over-the-counter market and the registration of the Common
Stock under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), will be terminated. See "Additional Information - Available Information."

Antitrust Matters

     The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations thereunder (the "HSR Act") provides that certain
acquisition transactions, including the Merger, may not be consummated unless
certain information has been furnished to the Antitrust Division of the
Department of Justice (the "Department of Justice") and the Federal Trade
Commission (the "FTC"). The required information was supplied by the Company and
CONSOL on July __, 1998 and, unless further information is requested, the
applicable waiting period under the HSR Act will expire on August __, 1998.
Expiration of the HSR Act waiting period is a condition precedent to the
obligations of CONSOL, Merger Sub and the Company to consummate the Merger. See
"The Merger and the Merger Agreement - Antitrust Matters."

Conditions to Consummation of the Merger

     The obligations of CONSOL and Merger Sub to consummate the Merger are
subject to the satisfaction, at or before the closing of the Merger (the
"Closing Date"), of certain conditions, including approval of the Merger
Agreement by the Company's shareholders at the Special Meeting. See "The Merger
and the Merger Agreement - Conditions to Consummation of the Merger;
Representations and Warranties; Certain Covenants."

     The Merger Agreement may be amended at any time before or after shareholder
approval by written agreement of CONSOL, Merger Sub and the Company except that
after approval and adoption of the Merger Agreement by the shareholders of the
Company, no amendment may be made, without the further approval of the
shareholders of the Company, which either decreases the amount of cash to which
the shareholders of the Company are entitled pursuant to the Merger Agreement or
otherwise materially adversely affects the shareholders of the Company.


                                      -5-

<PAGE>


Termination; Fees and Expenses

     The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time, before or after the approval and adoption thereof
by the shareholders of the Company: (i) by mutual written consent of the Boards
of Directors of the Company and CONSOL; (ii) by either the Company or CONSOL if
the Closing (as defined in the Merger Agreement) of the Merger shall not have
occurred by September 30, 1998; (iii) by either the Company or CONSOL if a court
of competent jurisdiction or a governmental, regulatory or administrative agency
or other governmental entity (a "Governmental Entity") shall have issued an
order, decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by the Merger
Agreement provided that the party seeking to terminate the Merger Agreement
shall have used commercially reasonable efforts to remove such injunction, order
or decree; (iv) by CONSOL in the event of a breach by the Company of any
representation, warranty, covenant or other agreement in the Merger Agreement
which (a) would give rise to the failure of a condition precedent to the
obligations of CONSOL and Merger Sub under the Merger Agreement and (b) has not
been cured or cannot be cured within 20 days after the giving by CONSOL of
written notice to the Company; (v) by the Company in the event of a breach by
CONSOL of any representation, warranty, covenant or other agreement in the
Merger Agreement, which (a) would give rise to the failure of a condition
precedent to the obligations of the Company under the Merger Agreement and (b)
has not been cured or cannot be cured within 20 days after the giving by the
Company of written notice to CONSOL or (vi) by CONSOL or the Company if the
Merger Agreement shall not have been approved and adopted by the requisite vote
of the Company's shareholders at the Special Meeting.

     Whether or not the Merger is consummated, all fees and expenses incurred in
connection with the Merger and the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such expenses.

Federal Income Tax Consequences of the Merger

     The receipt of cash for Common Stock pursuant to the Merger or pursuant to
the exercise of dissenters appraisal rights under Pennsylvania law will be a
taxable transaction to the Company's shareholders for United States federal
income tax purposes and may also be a taxable transaction for state, local,
foreign and other tax purposes. See "The Merger and the Merger Agreement -
Federal Income Tax Conse quences of the Merger." Shareholders are urged to
consult their own tax advisors as to the particular tax consequences to them of
the Merger, including the applicability and effect of state, local, foreign and
other taxes.

Dissenters Appraisal Rights

         Under the PBCL, shareholders of the Company who file a written
objection prior to the vote on the Merger Agreement and do not vote in favor of
approval and adoption of the Merger Agreement have the right to demand an
appraisal of the "fair value" of their Common Stock if the required procedures
under Subchapter 15D of the PBCL are followed. Appraisal rights will be
forfeited if the requirements of Subchapter 15D are not fully and precisely
satisfied. See "The Merger and the Merger Agreement Dissenters Appraisal Rights"
and a


                                       -6-

<PAGE>


copy of the text of Subchapter 15D and Section 1930 of the PBCL included
in this Proxy Statement as Appendix D.

                           The Stockholders Agreement

     In connection with the execution of the Merger Agreement, on May 28, 1998,
the Majority Shareholders, who in the aggregate own beneficially 1,741,705
shares of Common Stock, or approximately 50.6% of the Common Stock outstanding
on the Record Date, entered into the Stockholders Agreement with CONSOL and
Merger Sub. Under the Stockholders Agreement, the Majority Shareholders (i)
agree, until the termination of the Merger Agreement in accordance with its
terms, that they will not, directly or indirectly, initiate, solicit or
knowingly encourage or take any action knowingly to facilitate any Competitive
Proposal (as defined in the Merger Agreement), (ii) appoint nominees of CONSOL
as proxies for the Majority Shareholders to attend any meetings of shareholders
of the Company and to vote the Majority Shares, which appointment is irrevocable
until September 30, 1998 and (iii) grant CONSOL an irrevocable option,
exercisable in whole but not in part until September 30, 1998, to purchase the
Majority Shares at a price per share, payable in cash, of $43.50. CONSOL has
agreed that, if it exercises the option, CONSOL shall vote the Majority Shares
in favor of the approval and adoption of the Merger Agreement. For a more
complete description of the Stockholders Agreement, see "The Stockholders
Agreement."

                           Market Prices and Dividends

     The shares of Common Stock are traded in the over-the-counter market under
the symbol "RPTC." The following table sets forth, for each of the quarters
indicated, the quarterly cash dividends declared and the high and low bid prices
per share of Common Stock. The quotations, taken from daily newspapers,
represent prices between dealers and do not include retail mark up, mark down or
commission and do not necessarily represent actual transactions. 

                                                                 Cash Dividends
                                      High             Low         Declared(1)
                                      ----             ---       --------------
1998:
- - - -----
   First Quarter...................  $               $                $.15
   Second Quarter..................                                    .15
   Third Quarter (through
     July __, 1998)................

1997:
- - - -----
   First Quarter...................  $28.50          $25.25           $.15
   Second Quarter..................   43.00           28.25            .15
   Third Quarter...................   43.50           35.00            .15
   Fourth Quarter..................   43.00           35.00            .15

1996:
- - - -----
   First Quarter...................  $33.00          $28.00           $.15
   Second Quarter..................   33.00           31.50            .15
   Third Quarter...................   31.50           30.50            .15
   Fourth Quarter..................   32.25           25.00            .15


                                       -7-

<PAGE>


- - - ----------
(1)  All dividends were declared and paid in the same period shown with the
     exception of the dividends declared in the fourth quarters of 1997 and 1996
     which were paid in January 1998 and January 1997, respectively.


     On May 27, 1998, the last trading day prior to the first public
announcement of the Merger, the last reported bid price for the Common Stock in
the over-the-counter market was $46.25 per share. Shareholders are urged to
obtain current market quotations for the Common Stock. On June 26, 1998, there
were approximately 530 holders of record of the Common Stock. On July __, 1998,
the last reported bid price for the Common Stock in the over-the-counter market
was $____ per share.


                                       -8-

<PAGE>


                      Selected Consolidated Financial Data

<TABLE>
<CAPTION>
                                          1997(3)          1996              1995              1994            1993
                                        --------         --------          --------          --------        -------
                                                         (amounts in thousands, except per share data)
<S>                                     <C>              <C>               <C>               <C>             <C>  
Results of Operations
   Tons of coal produced                   4,985            4,290             4,492             4,976           3,218
   Sales                                $210,345         $202,265          $216,686          $191,991        $153,628
   Depreciation, depletion
      and amortization                    17,765           11,795            13,285            12,215          10,406
   Provision (credit) for
      income taxes                         1,493            3,969              (337)            1,838           1,502
   Net income (loss)(1)                   (3,724)          11,261            (3,535)            2,466           7,083

Financial Position
   Working capital                      $ 30,838         $ 36,547          $ 41,969          $ 50,145        $ 31,025
   Property, plant and
      equipment - net                    355,446          356,625           322,363           230,169         183,009
   Net capital expenditures               32,452           46,878            88,090            58,848          48,213
   Total assets                          518,134          531,398           491,407           410,994         356,884
   Long-term debt                         84,535          100,501           120,784            75,693          29,455
   Shareholders' equity                  205,515          211,185           203,114           207,450         210,794

Per Share Data
   Average shares outstanding              3,441            3,441             3,439             3,439           3,441
   Net income (loss)(1)                   $(1.08)           $3.27            $(1.03)             $.72           $2.06
   Cash dividends declared                   .60              .60               .75              1.50            1.50
   Book value at year-end                  59.73            61.37             59.06             60.33           61.31
</TABLE>

- - - ------------------
(1)  Net income (loss) and net income (loss) per share for 1997 was impacted by
     a $17,000,000 write-down of the property, plant and equipment related to
     Helvetia, which was substantially offset by pretax gains on the sales of
     nonstrategic coal reserves and land of $14,000,000.

(2)  Net income and net income per share for 1993 include a credit of $4,709,000
     and $1.37, respectively, for the cumulative effect to January 1, 1993 of a
     change in accounting for income taxes.

(3)  The Company's subsidiary, Eighty-Four, completed development of its Mine
     No. 84 in October 1997. Consequently, all revenues and expenses, other than
     its provision for income taxes, certain real estate tax expenses, and
     certain general and administration expenses, were not included in the 1997
     results in the accompanying Consolidated Condensed Operating Statements.

                                      -9-

<PAGE>


                                  INTRODUCTION

     This Proxy Statement is being furnished to the shareholders of the Company
in connection with the solicitation of proxies by the Board of Directors for use
at a Special Meeting of the Company's shareholders to be held on _________,
August __, 1998 at 10:00 a.m., local time, at the offices of Duane, Morris &
Heckscher LLP, 4200 One Liberty Place, Philadelphia, Pennsylvania and at any
adjournment, postponement or continuation thereof. This Proxy Statement, the
attached Notice of Special Meeting and the enclosed form of proxy are first
being mailed to shareholders of the Company entitled to notice of and to vote at
the Special Meeting on or about July __, 1998.

     The purpose of the Special Meeting is to consider and vote upon the
approval and adoption of the Merger Agreement as more fully described in this
Proxy Statement.

     As a result of the Merger, all shareholders of the Company will cease to
have an equity interest in, or possess any rights as shareholders of, the
Company. See "The Merger and the Merger Agreement - General." A copy of the
Merger Agreement is included in this Proxy Statement as Appendix A. The summary
of the portions of the Merger Agreement set forth in this Proxy Statement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, the text of the Merger Agreement.

     The Board of Directors has unanimously approved the Merger Agreement and
recommends that you vote FOR approval and adoption of the Merger Agreement and
has directed that the Merger Agreement be submitted for consideration and vote
to the shareholders of the Company.

     Approval and adoption of the Merger Agreement requires the affirmative vote
of a majority of the votes cast in person or by proxy by the holders of the
outstanding Common Stock at the Special Meeting on the Merger Agreement
providing a quorum is present at the Special Meeting.

                               VOTING AND PROXIES

Record Date; Solicitation of Proxies

     The Board of Directors has fixed the close of business on June 26, 1998 as
the Record Date for the determination of shareholders entitled to notice of and
to vote at the Special Meeting. Accordingly, only holders of Common Stock of
record on the books of the Company at the close of business on the Record Date
will be entitled to vote at the Special Meeting. At the close of business on the
Record Date, 3,440,984 shares of Common Stock were issued and outstanding and
entitled to vote at the Special Meeting held by approximately 530 holders of
record.

     In addition to soliciting proxies by mail, officers and employees of the
Company, without receiving additional compensation therefor, may solicit proxies
on behalf of the Company personally or by telephone, telegram or other forms of
wire or facsimile


                                      -10-

<PAGE>


communication. The Company will bear the cost of the Special Meeting and of
soliciting proxies therefor, including the cost of printing and mailing of this
Proxy Statement and related materials, and the reasonable expenses incurred by
brokerage houses, custodians, nominees and fiduciaries in forwarding proxy
materials to the beneficial owners of Common Stock.

Vote Required

     The holders of a majority of the outstanding shares of Common Stock
entitled to vote, represented in person or by proxy, will constitute a quorum at
the Special Meeting. However, those holders of Common Stock entitled to vote who
attend, in person or by proxy, any adjournment or adjournments of the Special
Meeting that have been previously adjourned for one or more periods aggregating
at least 15 days because of an absence of a quorum shall constitute a quorum for
the purposes of approving and adopting the Merger Agreement although they
constitute less than a quorum as fixed by law or in the Articles of
Incorporation or By-laws of the Company for the originally scheduled date of the
Special Meeting.

     Providing that a quorum is present at the Special Meeting, under the PBCL
the affirmative vote of a majority of the votes cast in person or by proxy at
the Special Meeting by the holders of the outstanding shares of Common Stock
entitled to vote is required for approval and adoption of the Merger Agreement.

     Common Stock that is represented by properly executed proxies, unless such
proxies shall have previously been properly revoked, will be voted in accordance
with the instructions indicated in such proxies. If no contrary instructions are
indicated, such shares will be voted FOR approval and adoption of the Merger
Agreement and in the discretion of the proxy holder as to any other matter that
may properly come before the Special Meeting. Brokers may not give a proxy to
vote without instructions from beneficial owners when the matter to be voted
upon involves a merger or consolidation. Under the PBCL, if a shareholder,
including a nominee or other record owner, either records the fact of abstention
or otherwise withholds authority to vote or fails to vote in person or by proxy,
such action would not be considered a "vote cast" and would have no effect on
the approval and adoption of the Merger Agreement, other than to reduce the
number of affirmative votes needed for approval. Any other matter which may
properly come before the Special Meeting at which a quorum is present for such
purpose requires the affirmative vote of the majority of the votes cast on the
matter by the holders of shares of Common Stock, unless a greater vote is
required by law or the Articles of Incorporation or By-laws of the Company. A
shareholder who has given a proxy may revoke it at any time prior to its
exercise at the Special Meeting by delivering a written notice of revocation of
the proxy or by submission of a properly executed proxy bearing a later date to
the Secretary of the Company at 655 Church Street, Indiana, Pennsylvania 15701,
or by voting the Common Stock covered thereby in person at the Special Meeting.

     Shareholders have the right to dissent from the Merger and, subject to
certain conditions provided under the PBCL, to receive payment for the fair
value of their Common Stock. See "The Merger and the Merger Agreement -
Dissenters Appraisal Rights" and Appendix D hereto.


                                      -11-

<PAGE>


     In connection with the execution of the Merger Agreement, on May 28, 1998,
the Majority Shareholders, who in the aggregate own beneficially 1,741,705
shares of Common Stock, or approximately 50.6% of the Common Stock outstanding
on the Record Date, entered into the Stockholders Agreement with CONSOL and
Merger Sub. Under the Stockholders Agreement, the Majority Shareholders (i)
agree, until the termination of the Merger Agreement in accordance with its
terms, that they will not, directly or indirectly, initiate, solicit or
knowingly encourage or take any action knowingly to facilitate any Competitive
Proposal (as defined in the Merger Agreement), (ii) appoint nominees of CONSOL
as proxies for the Majority Shareholders to attend any meetings of shareholders
of the Company and to vote the Majority Shares, which appointment is irrevocable
until September 30, 1998 and (iii) grant CONSOL an irrevocable option,
exercisable in whole but not in part until September 30, 1998, to purchase the
Majority Shares at a price per share, payable in cash, of $43.50, subject to
certain conditions, including the condition that CONSOL, if it exercises the
option, shall vote the Majority Shares in favor of the approval and adoption of
the Merger Agreement. For a more complete description of the Stockholders
Agreement, a copy of which is included as Appendix B to this Proxy Statement,
see "The Stockholders Agreement."

     Since either the Majority Shareholders or CONSOL's nominees voting by proxy
will vote the Majority Shares in favor of the approval and adoption of the
Merger Agreement at the Special Meeting, the Merger Agreement will be approved
and adopted at the Special Meeting regardless of the votes of the Company's
shareholders other than the Majority Shareholders. A copy of the Stockholders
Agreement is attached as Appendix B to this Proxy Statement. See "The
Stockholders Agreement."

     The transactions to be considered at the Special Meeting involve matters of
great importance to the shareholders of the Company. Accordingly, shareholders
are urged to read and carefully consider the information presented in this Proxy
Statement, and to complete, date, sign and promptly return the enclosed proxy
card in the enclosed prepaid envelope. Stock certificates should not be sent
with the enclosed proxy card. If the Merger is consummated, shareholders will be
furnished instructions for surrendering their Common Stock for cash.

Stock Ownership of Management and Certain Beneficial Owners

     The following table sets forth as of the Record Date the amount and
percentage of the Company's outstanding Common Stock beneficially owned by (i)
each person who is known by the Company to own beneficially more than 5% of its
Common Stock, (ii) each director, (iii) each of the five highest paid executive
officers of the Company whose compensation exceeded $100,000 during 1997 and
(iv) all executive officers and directors of the Company as a group.


                                      -12-

<PAGE>


<TABLE>
<CAPTION>
                                                         Shares                 Percent of
Name of Individual                                    Beneficially              Outstanding
or Identity of Group                                    Owned(1)              Common Stock(2)
- - - --------------------                                  ------------            ---------------

5% or Greater Holders:
- - - ----------------------
<S>                                                   <C>                         <C>
Urling I. Searle................................      1,646,932(3)                 47.9%
655 Church Street
Indiana, Pennsylvania 15701

Emilie I. Wiggin................................      1,634,161(4)                 47.5
655 Church Street
Indiana, Pennsylvania 15701

Trust Under Will of
  O'Donnell Iselin, Urling I. Searle
  and Emilie I. Wiggin, Co-Trustees.............        820,427(5)                 23.8
655 Church Street
Indiana, Pennsylvania 15701

Trust dated July 6, 1964 of
  O'Donnell Iselin, Urling I. Searle
  and Emilie I. Wiggin, Co-Trustees.............        667,178(5)                 19.4
655 Church Street
Indiana, Pennsylvania 15701

CONSOL Inc......................................      1,741,705(6)                 50.6
Consol Plaza
1800 Washington Road
Pittsburgh, Pennsylvania 15241

Franklin Resources, Inc.........................        180,900(7)                  5.3
777 Mariners Island Boulevard, 6th Floor
San Mateo, California 94404

Directors:
- - - ----------

David H. Davis..................................          2,663                      --
Thomas W. Garges, Jr............................          5,940                      --
L. Blaine Grube.................................          7,258                      --
Thomas M. Hyndman, Jr...........................          1,260                      --
Columbus O'D. Iselin, Jr........................         14,908                      --
O'Donnell Iselin II.............................         20,552                      --
Peter Iselin....................................         82,470(8)                   --
William G. Kegel................................          3,482                      --
John L. Schroder, Jr............................          1,497                      --
Gordon B. Whelpley, Jr..........................         21,796                      --
</TABLE>


                                      -13-

<PAGE>

<TABLE>
<CAPTION>
Executive Officers: (9)
- - - -------------------
<S>                                                    <C>                         <C>
W. Joseph Engler, Jr...........................          3,200                       --
George M. Evans................................            812                       --
Thomas M. Majcher..............................            250                       --
A. W. Petzold..................................            250                       --

All Directors and executive
  officers as a group (14 persons).............        166,338                       --
</TABLE>

- - - --------------
(1)  Information furnished by each individual named. The securities
     "beneficially owned" are determined in accordance with the definitions of
     "beneficial ownership" as set forth in the releases of the Securities and
     Exchange Commission (the "Commission") applicable as of the date hereof
     and, accordingly, may include securities owned by or for, among others,
     spouses and/or minor children of the individual and other relatives who
     have the same home as such individual as well as other securities as to
     which the individual has or shares voting or investment power. Beneficial
     ownership may be disclaimed as to certain of the securities.

(2)  Less than 1% unless otherwise indicated.

(3)  Under the rules of the Commission, the maximum beneficial ownership of the
     Company's Common Stock which Urling I. Searle could be deemed to have is
     47.9%. Of this total, Urling I. Searle has sole voting and dispositive
     power with respect to 16,240 shares and shared voting and dispositive power
     with respect to 820,427 shares held by the Trusts Under the Will of
     O'Donnell Iselin, 667,178 shares held by the Trusts Under Deed dated July
     6, 1964 and 118,141 shares held by the Trusts Under the Will of Urling S.
     Iselin, all of which shares are subject to the Stockholders Agreement. This
     total also includes 4,148 shares held by the E.I. Wiggin Trust No. 1, 8,325
     shares held by the E.I. Wiggin Trust No. 2, 4,148 shares held by the Peter
     Iselin Trust No. 1 and 8,325 shares held by the Peter Iselin Trust No. 2,
     with regard to which Urling I. Searle has shared voting and dispositive
     power.

(4)  Under the rules of the Commission, the maximum beneficial ownership of the
     Company's Common Stock which Emilie I. Wiggin could be deemed to have is
     47.5%. Of this total, Emilie I. Wiggin has sole voting and dispositive
     power with respect to 15,942 shares and shared voting and dispositive power
     with respect to 820,427 shares held by the Trusts Under the Will of
     O'Donnell Iselin, 667,178 shares held by the Trusts Under Deed dated July
     6, 1964 and 118,141 shares held by the Trusts Under the Will of Urling S.
     Iselin, all of which shares are subject to the Stockholders Agreement. This
     total also includes 4,148 shares held by the Peter Iselin Trust No. 1 and
     8,325 shares held by the Peter Iselin Trust No. 2, with respect to which
     Emilie I. Wiggin has shared voting and dispositive power.

(5)  The Co-Trustee of these Trusts are Urling I. Searle and Emilie I. Wiggin.


                                      -14-

<PAGE>


(6)  This total represents the Majority Shares subject to the Stockholders
     Agreement. See "The Stockholders Agreement."

(7)  Based on information as of December 31, 1997 as contained in a filing made
     with the Commission by Franklin Resources, Inc.

(8)  Of these shares, 19,719 shares are held by Mr. Iselin's wife.

(9)  Excludes executive officers listed under Directors.



                                 PROPOSAL NO. 1

                       THE MERGER AND THE MERGER AGREEMENT

General

     The following information with respect to the Merger is qualified in its
entirety by reference to the full text of the Merger Agreement, a copy of which
is included in this Proxy Statement as Appendix A. The Merger Agreement sets
forth the terms and conditions upon which the Merger is to be effected. If the
Merger Agreement is approved and adopted at the Special Meeting by the requisite
vote of the holders of Common Stock and all other conditions to the obligations
of the parties thereto are satisfied or waived, the Merger will be consummated.
At the Effective Time, Merger Sub will be merged with and into the Company. The
Company will be the Surviving Corporation in the Merger and will thereby become
an indirect subsidiary of CONSOL. Pursuant to the Merger, each share of Common
Stock that is issued and outstanding at the Effective Time, other than
Dissenting Shares and Treasury Shares, will be cancelled and extinguished and
converted automatically into the right to receive the Merger Price in cash. Upon
consummation of the Merger, holders of Common Stock will possess no further
interest in, or rights as shareholders of, the Company.

Background of the Merger

     On September 29, 1997, the Company retained J.P. Morgan as its financial
advisor to evaluate the strategic alternatives available to the Company to
maximize shareholder value, including a possible sale or merger of the Company.
During late December 1997 and early January 1998, J.P. Morgan contacted a number
of potential acquirers of the Company, and distributed a confidential
information memorandum to interested parties. On February 13, 1998, upon
analysis of the information memorandum, several potential acquirers submitted
preliminary, non-binding bids and subsequently conducted further due diligence
on the Company. On April 20, 1998 final, binding proposals for the acquisition
of the Company were submitted, and the Board of Directors deemed the proposal by
CONSOL to be the most attractive.

     Between April 29, 1998 and May 28, 1998, representatives of the Company,
including J.P. Morgan, and CONSOL and their respective legal counsel negotiated
the terms and


                                      -15-

<PAGE>


conditions of the Merger Agreement and the Stockholders Agreement and concluded
those negotiations on May 28, 1998. On May 28, 1998, J.P. Morgan delivered its
oral and written opinion to the Board of Directors to the effect that, based
upon and subject to the various considerations set forth therein, as of the date
of such opinion, the consideration to be paid to the Company's shareholders in
connection with the Merger was fair to the shareholders of the Company from a
financial point of view. On May 28, 1998, the Board of Directors met and
unanimously approved the Merger Agreement. Immediately thereafter, the Company,
CONSOL and Merger Sub executed the Merger Agreement and the Majority
Shareholders, CONSOL and Merger Sub executed the Stockholders Agreement and
jointly issued a press release regarding the execution of the Merger Agreement
and the Stockholders Agreement.

Recommendation of the Board of Directors; Reasons for the Merger; Opinion of
Financial Advisor

Reasons for the Merger; Recommendation of the Board of Directors

     At its meeting on May 28, 1998, the Board of Directors determined that the
Merger is fair to, and in the best interests of, the Company and its
shareholders. Therefore, the Board of Directors approved the Merger Agreement.
The Board of Directors unanimously recommends that the Company's shareholders
vote FOR approval and adoption of the Merger Agreement.

     The determination of the Board of Directors to approve the Merger was based
upon consideration of a number of factors. The following list includes all
material factors considered by the Board of Directors:

     (1) Alternatives to the Merger were considered, including prospects for the
Company resulting from the continued operation of the Company as an independent
publicly owned entity in view of competitive conditions prevailing in the coal
industry as well as recent and significant developments and consolidations in
the coal industry, weighed against the risks associated with such alternatives,
including current industry, economic and market conditions;

     (2) The process conducted by J.P. Morgan on behalf of the Company in which
a number of companies were contacted to see if they had an interest in the
acquisition of the Company, of which several expressed sufficient interest to
conduct due diligence and submit preliminary, non-binding bids and of the final,
binding proposals, the CONSOL proposal being more beneficial to the Company's
shareholders; and

     (3) The opinion of J.P. Morgan delivered in writing to the Board of
Directors at its May 28, 1998 meeting to the effect that, based upon and subject
to various considerations set forth therein, as of the date of such opinion, the
consideration to be paid to the Company's shareholders pursuant to the Merger
was fair from a financial point of view to the shareholders of the Company. See
"Opinion of Financial Advisor" below.

     The Board of Directors recognizes that if the Merger is consummated, the
Company's shareholders will not have the opportunity to continue their equity
interest in any future


                                      -16-

<PAGE>


earnings and growth of the Company as an independent entity. See "Certain Other
Effects of the Merger."

     However, the Board of Directors placed special consideration on the losses
and difficulties encountered in the past at Mine No. 84, the Company's
relatively small size in a consolidating and heavily competitive coal industry
and the process conducted by J.P. Morgan. The foregoing discussion of the
information and factors considered by the Board of Directors is not meant to be
exhaustive but is believed to include the material factors considered by the
Board of Directors. The Board of Directors did not quantify or attach any
specific weight to the various factors that it considered in reaching its
determination that the Merger Agreement and the transactions contemplated
thereby, including the Merger, are advisable and in the best interests of the
shareholders of the Company. In reaching its determination, the Board of
Directors took the various factors into account collectively and the Board of
Directors did not perform a factor-by-factor analysis.

Opinion of Financial Advisor

     Pursuant to an engagement letter dated September 29, 1997, the Company
retained J.P. Morgan as its financial advisor in connection with an examination
of the strategic alternatives available to the Company in an effort to maximize
shareholder value and to deliver a fairness opinion in connection with any
acquisition transaction resulting therefrom.

     At a meeting of the Board of Directors on May 28, 1998, J.P. Morgan
rendered its oral and written opinion to the Board of Directors that, as of such
date, the consideration proposed to be paid to the Company's shareholders in the
proposed Merger was fair, from a financial point of view, to such shareholders.
No limitations were imposed by the Board of Directors upon J.P. Morgan with
respect to the investigations made or procedures followed by it in rendering its
opinion.

     The full text of the written opinion of J.P. Morgan dated May 28, 1998,
which sets forth the assumptions made, matters considered and limits on the
review undertaken, is attached as Appendix C to this Proxy Statement and is
incorporated herein by reference. The Company's shareholders are urged to read
the opinion in its entirety. J.P. Morgan's written opinion is addressed to the
Board of Directors, is directed only to the consideration to be paid in the
Merger and does not constitute a recommendation to any shareholder of the
Company as to how such shareholder should vote at the Special Meeting. The
summary of the opinion of J.P. Morgan set forth in this Proxy Statement is
qualified in its entirety by reference to the full text of such opinion.

     In arriving at its opinion, J.P. Morgan reviewed, among other things, the
Merger Agreement; the audited financial statements of the Company for the fiscal
year ended December 31, 1997 and the unaudited financial statements of the
Company for the period ended March 31, 1998; current and historical market
prices of the Common Stock; certain publicly available information concerning
the business of the Company and of certain other companies engaged in businesses
comparable to those of the Company and the reported market prices for certain
other companies' securities deemed comparable; publicly available terms of
certain transactions involving companies comparable to the Company and the


                                      -17-

<PAGE>


consideration received for such companies; the terms of other business
combinations deemed relevant by J.P. Morgan; certain internal financial analyses
and forecasts prepared by the Company and its management and certain agreements
with respect to outstanding indebtedness or obligations of the Company. J.P.
Morgan also held discussions with certain members of the management of the
Company with respect to certain aspects of the Merger, the past and current
business operations of the Company, the financial condition and future prospects
and operations of the Company, the effects of the Merger on the financial
condition and future prospects of the Company and certain other matters believed
necessary or appropriate to J.P. Morgan's inquiry. In addition, J.P. Morgan
visited certain representative facilities of the Company, and reviewed such
other financial studies and analyses and considered such other information as it
deemed appropriate for the purposes of its opinion.

     J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or that
was furnished to it by the Company or was otherwise reviewed by J.P. Morgan, and
J.P. Morgan has not assumed any responsibility or liability therefor. J.P.
Morgan has not conducted any valuation or appraisal of any assets or
liabilities, nor have any valuations or appraisals been provided to J.P. Morgan.
In relying on financial analyses and forecasts provided to J.P. Morgan, J.P.
Morgan has assumed that they have been reasonably prepared based on assumptions
reflecting the best currently available estimates and judgments by management of
the Company as to the expected future results of operations and financial
condition of the Company to which such analyses or forecasts relate. J.P. Morgan
has also assumed that the Merger will have the tax consequences described in
this Proxy Statement, and in discussions with, and materials furnished to J.P.
Morgan by, representatives of the Company, and that the other transactions
contemplated by the Merger Agreement will be consummated as described in the
Merger Agreement and in this Proxy Statement.

     The projections furnished to J.P. Morgan by the Company were prepared by
the management of the Company. The Company does not publicly disclose internal
management projections of the type provided to J.P. Morgan in connection with
J.P. Morgan's analysis of the Merger, and such projections were not prepared
with a view toward public disclosure. These projections were based on numerous
variables and assumptions that are inherently uncertain and may be beyond the
control of management, including, without limitation, factors related to general
economic and competitive conditions and prevailing interest rates. Accordingly,
actual results could vary significantly from those set forth in such
projections.

     J.P. Morgan's opinion is based on economic, market and other conditions as
in effect on, and the information made available to J.P. Morgan as of, the date
of such opinion. Subsequent developments may affect the written opinion dated
May 28, 1998, and J.P. Morgan does not have any obligation to update, revise or
reaffirm such opinion.

     In accordance with customary investment banking practice, J.P. Morgan
employed generally accepted valuation methods in reaching its opinion. The
following is a summary of the material financial analyses utilized by J.P.
Morgan in connection with providing its opinion.


                                      -18-

<PAGE>


     Public Trading Multiples. J.P. Morgan compared selected financial data of
the Company with similar historical and current data for publicly traded
companies engaged in businesses which J.P. Morgan judged to be analogous to the
Company. The companies selected by J.P. Morgan for such analysis were Arch Coal,
Inc., Zeigler Coal Holding Co. and Pittston Minerals Group. Because the public
market for coal companies is thin and relatively illiquid, the multiples derived
from such analysis were modified by J.P. Morgan and then applied to the
Company's operating cash flow ("OCF") and earnings before interest, taxes,
depreciation, depletion and amortization ("EBITDDA"), yielding implied trading
values for the Company's Common Stock of approximately $21.00 to $36.00 per
share.

     Selected Transaction Analysis. Using publicly available information, J.P.
Morgan examined selected transactions with respect to the coal industry from
1989 to the present. The transactions selected by J.P. Morgan for such analysis
were Arch Mineral Corporation's acquisition of Agipcoal U.S.A., CONSOL's
acquisition of Kentucky Criterion from Westmoreland Coal Company, Rheinbraun
A.G.'s acquisition of 50% of CONSOL from E.I. DuPont de Nemours & Co. ("DuPont")
and Ashland Coal Inc.'s acquisition of the Mingo Logan coal property from the
British Petroleum Co. PLC. The analysis was conditioned by J.P. Morgan to
account for economic trends in the coal-property markets and adjusted to suit
the specific production and market conditions for the Company. J.P. Morgan
applied a range of multiples of dollars per ton of annual production derived
from such analysis to the Company's annual production, and arrived at an
estimated range of equity values for the Common Stock of between approximately
$36.00 and $45.00 per share.

     Discounted Cash Flow Analysis. J.P. Morgan conducted a discounted cash flow
analysis for the purpose of determining the fully diluted equity value per share
for the Common Stock. J.P. Morgan calculated the unlevered free cash flows that
the Company is expected to generate during fiscal years 1998 through 2008, the
year in which all of the Company's current mines are projected to exhaust their
assigned reserves, based upon financial projections prepared by the management
of the Company through the years ended 2002 and upon management projections
adjusted by J.P. Morgan to reflect more moderate growth in revenues and lower
operating margins during the 11-year period. J.P. Morgan also estimated the
present value of the Company's unassigned reserves. The unlevered free cash
flows were then discounted to present values using a range of real discount
rates from 11% to 13%, which were chosen by J.P. Morgan based upon an analysis
of the risk associated with the free cash flows of the Company. The present
value of the unlevered free cash flows and the present value of the unassigned
reserves were then adjusted for the Company's estimated March 31, 1998 balances
of excess cash and total debt. Based on the adjusted management projections and
real discount rates of 11% to 13%, the discounted cash flow analysis indicated a
range of equity values of between approximately $39.00 and $45.00 per share of
the Common Stock on a stand-alone basis (i.e., without synergies).

     The summary set forth above does not purport to be a complete description
of the analyses or data presented by J.P. Morgan. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. J.P. Morgan believes that the summary set forth
above and its analyses must be considered as a whole and that selecting portions
thereof, without considering all of its analyses, could create an incomplete
view of the processes underlying its analyses and opinion. J.P. Morgan based


                                      -19-

<PAGE>


its analyses on assumptions that it deemed reasonable, including assumptions
concerning general business and economic conditions and industry-specific
factors. The other principal assumptions upon which J.P. Morgan based its
analyses are set forth above under the description of each such analysis. J.P.
Morgan's analyses are not necessarily indicative of actual values or actual
future results that might be achieved, which values may be higher or lower than
those indicated. Moreover, J.P. Morgan's analyses are not and do not purport to
be appraisals or otherwise reflective of the prices at which businesses could
actually be bought or sold.

     As a part of its investment banking business, J.P. Morgan and its
affiliates are continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, investments for passive
and control purposes, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. J.P. Morgan was selected to advise the Company
with respect to the Merger on the basis of such experience and its familiarity
with the Company.

     J.P. Morgan and its affiliates maintain banking and other business
relationships with the Company and its affiliates, for which it receives
customary fees. In the ordinary course of their businesses, affiliates of J.P.
Morgan may actively trade the debt and equity securities of the Company for
their own accounts or for the accounts of customers and, accordingly, they may
at any time hold long or short positions in such securities.

     For services rendered in connection with the Merger, the Company has paid
J.P. Morgan retainer fees totaling $500,000 and has agreed to pay J.P. Morgan a
transaction fee of approximately [$1,670,000], against which the retainer fees
will be credited, upon consummation of the Merger. In addition, the Company has
agreed to reimburse J.P. Morgan for its expenses incurred in connection with its
services, including the fees and disbursements of counsel, and will indemnify
J.P. Morgan against certain liabilities, including liabilities arising under the
federal securities laws.

Interests of Certain Persons in the Merger

     In considering the recommendation of the Board of Directors with respect to
the Merger, shareholders should be aware that members of the Company's
management and the Board of Directors have certain interests in connection with
the Merger.

     Severance Payments. In connection with the consummation of the Merger and
the resultant change in control of the Company, 21 officers and senior employees
of the Company with long-term service to the Company will be entitled to receive
from the Company at the Effective Time severance payments, whether or not their
employment with the Company is terminated, in cash, without interest aggregating
approximately [$6.5] million.

     Indemnification. CONSOL, Merger Sub and the Company have agreed that
neither CONSOL nor the Company as the Surviving Corporation in the Merger shall
have any claim or right to damages or indemnification from any current or former
officer, director or shareholder of the Company or any of its subsidiaries
acting in their capacities as such based


                                      -20-

<PAGE>


upon a breach of the representations and warranties of the Company contained in
the Merger Agreement with respect to any information (whether written or oral),
documents or material furnished to CONSOL by the Company or any of its
subsidiaries or any of their respective officers, directors, employees, agents,
counsel, accountants or advisors with respect to the transactions contemplated
by the Merger Agreement. In addition, the Merger Agreement does not affect the
rights of the Company's directors, officers or employees to indemnification
under the Company's Articles of Incorporation and By-laws.

Effective Time of the Merger

     The Effective Time of the Merger will occur upon the filing of Articles of
Merger with the Department of State of the Commonwealth of Pennsylvania in
accordance with the PBCL. The Articles of Merger are expected to be presented
for filing as soon as practicable after the approval and adoption of the Merger
Agreement by the Company's shareholders at the Special Meeting and upon
satisfaction or waiver of all other conditions to consummation of the Merger.
See "Conditions to Consummation of the Merger; Representations and Warranties;
Certain Covenants."

Payment for Common Stock

     As a result of the Merger, holders of certificates formerly representing
Common Stock will cease to have any equity interest in the Company. After
consummation of the Merger, all certificates formerly evidencing Common Stock,
other than Dissenting Shares and Treasury Shares, will be required to be
surrendered to the Exchange Agent in order to receive the Merger Price to which
holders thereof will be entitled as a result of the Merger. No interest will be
paid or accrued on the cash payable upon the surrender of such certificates.
Detailed instructions with regard to the surrender of certificates, together
with a letter of transmittal, will be forwarded to former holders of Common
Stock by the Exchange Agent as promptly as practicable following the Effective
Time. Holders of Common Stock should not submit their certificates to the
Exchange Agent until they have received such materials. Upon surrender of stock
certificates and other required documents to the Exchange Agent, the Exchange
Agent will distribute by bank check the Merger Price for each share represented
by such stock certificates to the holder thereof. See "Terms of the Merger." If
payment in respect of cancelled Common Stock is to be made to a person other
than the person in whose name a surrendered certificate or instrument is
registered, it shall be a condition to such payment that the certificate or
instrument so surrendered shall be properly endorsed or shall be otherwise in
proper form for transfer and that the person requesting such payment shall have
paid any transfer and other taxes required by reason of such payment in a name
other than that of the registered holder of the certificate or instrument
surrendered or shall have established to the satisfaction of the Surviving
Corporation or the Exchange Agent that such tax either has been paid or is not
payable.

        Shareholders Should Not Send Any Stock Certificates at This Time.


                                      -21-

<PAGE>


Certain Other Effects of the Merger

     If the Merger is consummated, the Company's shareholders will not have an
opportunity to continue their equity interest in the Company as an independent
entity and therefore will not share in future earnings and growth, if any, of
the Company.

     If the Merger is consummated, the Common Stock will cease to be traded in
the over-the-counter market and the registration of the Common Stock under the
Exchange Act will be terminated. See "Additional Information - Available
Information" for information concerning the effect of the Merger on the
Surviving Corporation's obligation to file periodic reports and other
information with the Commission.

     For information concerning the income tax consequences of the Merger, see
"Federal Income Tax Consequences of the Merger."

Antitrust Matters

     The HSR Act provides that certain acquisition transactions, including the
Merger, may not be consummated unless certain information has been furnished to
the Department of Justice and the FTC and certain waiting period requirements
have been satisfied. The required information was supplied by the Company and by
CONSOL on July __, 1998, and, unless a request for further information is made,
the applicable waiting period under the HSR Act will expire on August __, 1998.
At any time before or after the consummation of the Merger, the Department of
Justice, the FTC or some other person could seek to enjoin or rescind the Merger
on antitrust grounds. See "Conditions to Consummation of the Merger;
Representations and Warranties; Certain Covenants."

Accounting Treatment

     The Merger will be accounted for by CONSOL as a "purchase" for accounting
and financial reporting purposes.

Terms of the Merger; Amendments

     General. The Company has agreed in the Merger Agreement to submit the
Merger Agreement to its shareholders for approval and adoption at a meeting to
be held as soon as practicable in accordance with the PBCL and the Company's
Articles of Incorporation and By-laws and, in connection therewith, to prepare
and file a proxy statement and cause the proxy statement to be mailed to the
Company's shareholders as soon as practicable. If the Merger Agreement is
approved and adopted by the Company's shareholders and the other conditions
contained in the Merger Agreement are satisfied or waived, Merger Sub will be
merged with and into the Company. Upon the filing of Articles of Merger, or at
such later time as specified in such filing, each share of Common Stock that is
issued and outstanding at the Effective Time, other than Dissenting Shares and
Treasury Shares, will be cancelled and extinguished and converted automatically
into the right to receive an amount, in cash, without interest, equal to the
Merger Price. The obligations of the Company, CONSOL and Merger Sub to effect
the Merger are subject to the fulfillment of certain conditions set forth in the


                                      -22-

<PAGE>


Merger Agreement, including the approval and adoption of the Merger Agreement by
the shareholders of the Company. See "Conditions to Consummation of the Merger;
Representations and Warranties; Certain Covenants."

     The terms of the Merger are set forth in the Merger Agreement which is
attached as Appendix A to this Proxy Statement, and the description of the
Merger contained herein is qualified in its entirety by reference to the Merger
Agreement. Shareholders are urged to review the Merger Agreement carefully.

     Amendments. The Merger Agreement may be amended at any time before or after
shareholder approval by written agreement of CONSOL, Merger Sub and the Company,
except that after approval and adoption of the Merger Agreement by the
shareholders of the Company, no amendment may be made which by law requires
further approval by the shareholders of the Company without the further approval
of the shareholders of the Company.

Conditions to Consummation of the Merger; Representations and Warranties;
Certain Covenants

     Conditions to Consummation of the Merger. Under the Merger Agreement, the
obligations of the Company, CONSOL and Merger Sub to consummate the Merger are
subject to the satisfaction, on or before the Closing Date, of certain
conditions or the waiver thereof. Among such conditions are that (i) the Merger
Agreement shall have been approved and adopted by a majority of the votes cast
by the holders of the outstanding shares of Common Stock entitled to vote at the
Special Meeting; (ii) no Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation or order which is
then in effect and has the effect of making the Merger illegal or otherwise
prohibiting the consummation of the Merger, (iii) any waiting period or any
extension thereof under the HSR Act shall have expired or been terminated and
(iv) all consents, approvals and authorizations legally required to be obtained
to consummate the Merger shall have been obtained from all Governmental
Entities, except for such consents, approvals and authorizations the failure of
which to obtain would not have a material adverse effect on CONSOL, Merger Sub
or the Company assuming that the Merger shall have been effected.

     Under the Merger Agreement, the obligations of CONSOL and Merger Sub to
consummate the Merger are also subject to the satisfaction or waiver by CONSOL
on or prior to the Closing Date of the following conditions: (i) the
representations and warranties of the Company contained in the Merger Agreement
that are qualified by materiality shall be true and correct on and as of the
Closing Date as if made on and as of such date (other than representations and
warranties which address matters only as of a certain date which shall be true
and correct as of such certain date) and each of the representations and
warranties that is not so qualified shall be true and correct in all material
respects on and as of the Closing Date as if made on and as of such date (other
than representations and warranties which address matters only as of a certain
date which shall be true and correct in all material respects as of such certain
date), and CONSOL shall have received a certificate of the President or Chief
Financial Officer of the Company to such effect; (ii) the Company shall have
performed or complied in all material respects with all material agreements and


                                      -23-

<PAGE>


covenants required by the Merger Agreement to be performed or complied with by
it on or prior to the Closing Date (in each case except as contemplated or
permitted by the Merger Agreement) and CONSOL shall have received a certificate
of the President or Chief Financial Officer of the Company to that effect and
(iii) all permits, authorizations, licenses, approvals and notifications of
Governmental Entities that are necessary for the Company and its subsidiaries to
conduct their businesses after the Effective Time in the same manner as such
businesses are conducted as of the Effective Time, including, but not limited
to, Environmental Permits, shall have been provided, issued, obtained,
transferred or reissued, to the extent necessary under applicable law, except
for such permits, authorizations, licenses, approvals and notifications the
failure of which to provide, issue, obtain, transfer or reissue would not have a
material adverse effect on the Company and its subsidiaries taken as a whole.

     Under the Merger Agreement, the obligations of the Company to consummate
the Merger are subject to the satisfaction or waiver by the Company on or prior
to the Closing Date of the following conditions: (i) each of the representations
and warranties of each of CONSOL and Merger Sub contained in the Merger
Agreement that is qualified by materiality shall be true and correct on and as
of the Closing Date as if made on and as of such date (other than
representations and warranties which address matters only as of a certain date
which shall be true and correct as of such certain date) and each of the
representations and warranties that is not so qualified shall be true and
correct in all material respects on and as of the closing Date as if made on and
as of such date (other than representations and warranties which address matters
only as of a certain date which shall be true and correct in all material
respects as of such certain date), in each case except as contemplated or
permitted by the Merger Agreement, and the Company shall have received a
certificate of the President or Chief Financial Officer of each of CONSOL and
Merger Sub to such effect; (ii) each of CONSOL and Merger Sub shall have
performed or complied in all material respects with all material agreements and
covenants required by the Merger Agreement to be performed or complied with by
it on or prior to the Closing Date, and the Company shall have received a
certificate of the President or Chief Financial Officer of each of CONSOL and
Merger Sub to such effect and (iii) the Company shall have received the written
opinion of its financial advisor, J.P. Morgan, that the consideration to be
received in the Merger by the holders of the Common Stock is fair to the holders
of the Common Stock from a financial point of view.

     Representations and Warranties. The representations and warranties of the
Company and of CONSOL and Merger Sub contained in the Merger Agreement include
various representations and warranties typical in such agreements and are
included in Articles III and IV, respectively, of the Merger Agreement, a copy
of which is included in this Proxy Statement as Appendix A.

     Certain Covenants. The Company, CONSOL and Merger Sub covenanted to certain
matters in the Merger Agreement including, among others, the following:

     Conduct of Business by the Company Pending the Merger. The Merger Agreement
provides that between the date of the Merger Agreement and the Effective Time,
unless CONSOL shall otherwise agree in writing or except as otherwise expressly
contem plated by the Merger Agreement, (i) the Company and its subsidiaries will
carry on their respective businesses in the usual, regular and ordinary course
in substantially the same manner as theretofore


                                      -24-

<PAGE>


conducted, shall preserve intact their present business organizations and shall
use commercially reasonable efforts to keep available the services of their
present officers and employees and preserve their relationships with customers,
suppliers and others having business dealings with the Company and its
subsidiaries; (ii) except for the payment on June 1, 1998 of a cash dividend of
$.15 per share, the Company shall not (a) declare or pay any quarterly dividends
on or make any other distributions in respect of any of its capital stock, (b)
split, combine or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (c) repurchase, redeem or
otherwise acquire, or permit any subsidiary to repurchase, redeem or otherwise
acquire, any shares of its capital stock; (iii) the Company shall not, and it
shall not permit any of its subsidiaries to, issue, deliver or sell or authorize
or propose the issuance, delivery or sale of, any shares of its capital stock of
any class or any securities convertible into, or any rights, warrants, calls,
subscriptions or options to acquire, any such shares or convertible securities,
or any other ownership interest other than issuances by a wholly owned
subsidiary of the Company of its capital stock to the Company; (iv) the Company
shall not amend or propose to amend its Articles of Incorporation or By-laws;
(v) the Company shall not, and it shall not permit any of its subsidiaries to,
acquire or agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in or substantial portion of the assets of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof; (vi) the Company shall not, and
it shall not permit any of its subsidiaries to, sell, lease, encumber or
otherwise dispose of, any of its assets, other than (a) sales of equipment
between the Company and its subsidiaries in the ordinary course of business that
do not result in the generation of taxable income on a consolidated basis, (b)
assets having an aggregate book value of not more than $100,000 with it being
understood that this provision shall not permit the sale or other disposition of
Helvetia Coal Company and (c) those properties listed on a schedule to the
Merger Agreement; (vii) with the exception of indebtedness between the Company
and its subsidiaries, the Company shall not, and it shall not permit any of its
subsidiaries to, incur (which shall include entering into credit agreements,
lines of credit or similar arrangements) any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or warrants
or rights to acquire any debt securities of the Company or any of its
subsidiaries or guarantee any debt securities of others, other than (a)
indebtedness outstanding on February 28, 1998 and (b) takedowns under the
Company's and its subsidiaries existing credit facilities, provided, however,
that at the Closing Date the sum of the Company's indebtedness and current
liabilities (excluding the current portion of the Company's long-term
indebtedness and the deferred compensation and severance pay payable to
employees of the Company and its subsidiaries in connection with the Merger)
less the Company's current assets, determined in accordance with generally
accepted accounting principles, shall not be greater than the amount thereof at
February 28, 1998 plus $12,000,000; (viii) the Company shall not make, and will
not permit any of its subsidiaries to make, any tax election or settle or
compromise any income tax liability of the Company or of any of its subsidiaries
for an amount in excess of $25,000, and the Company shall, before filing or
causing to be filed any material tax return of the Company or any of its
subsidiaries, consult with CONSOL and its advisors as to the positions and
elections that may be taken or made with respect to such return; (ix) the
Company shall not, and it shall not permit any of its subsidiaries to, pay,
discharge, settle or satisfy any claim, liabilities or obligations (absolute,
asserted or unasserted, contingent or otherwise) for an amount in excess of
$100,000 in the


                                      -25-

<PAGE>


aggregate (other than the settlement of certain litigation matters set forth in
a schedule to the Merger Agreement, payments of accounts payable and accrued
liabilities and reductions of indebtedness of the Company and its subsidiaries
in the ordinary course of business of the Company and its subsidiaries and
payments for goods and services under the written agreements in effect on the
date of the Merger Agreement and listed on a schedule to the Merger Agreement)
or waive the benefit of, or agree to modify in any manner, any confidentiality,
standstill or similar agreement to which the Company or any of its subsidiaries
is a party; (x) the Company shall not, and shall not permit any of its
subsidiaries to, enter into, modify, amend or terminate, any contract to which
the Company or any subsidiary is a party or waive, release or assign any
material rights or claims thereunder other than spot purchases of supplies
necessary for the operation of the business of the Company and its subsidiaries
in the ordinary course which do not result in the Company's acquisition of
supplies in excess of those that would be consumed in 30 days of operations in
the ordinary course of business; (xi) the Company shall not, and shall not
permit any of its subsidiaries to, (a) grant any increase in the compensation of
any of its directors, officers or key employees, (b) pay or agree to pay any
pension, retirement allowance or other employee benefit not required or
contemplated by any of the existing Company Benefit Plans (as defined in the
Merger Agreement) as in effect on the date of the Merger Agreement to any
director, officer or key employee, (c) enter into any new employment severance
or termination agreement with any such director, officer or key employee or (d)
except as may be required to comply with applicable law, become obligated under
any Company Benefit Plan which was not in effect on the date of the Merger
Agreement or amend any such plan in existence on the date of the Merger
Agreement to enhance the benefits thereunder; (xii) except as listed in a
schedule to the Merger Agreement for the month of June 1998, the Company shall
not, and shall not permit any of its subsidiaries to, authorize or make any
capital expenditures (excluding capital expenditures for which commitments
existed as of the date of the Merger Agreement) which in the aggregate exceed
$250,000, except for repairs and rebuilding expenditures of less than $250,000
each necessary to keep existing mining equipment in operation and (xiii) the
Company shall not, and shall not permit any of its subsidiaries to, take any
action that would, or would reasonably be expected to, result in (a) any of the
conditions to the Merger set forth in Article VII of the Merger Agreement not
being satisfied, (b) any of the representations and warranties of the Company
contained in the Merger Agreement that are qualified as to materiality becoming
untrue or (c) any of such representations and warranties that are not so
qualified becoming untrue in any material respect.

     Conduct of Business by CONSOL Pending the Merger. The Merger Agreement
provides that between the date of the Merger Agreement and the Effective Time,
unless the Company shall otherwise agree in writing or except as otherwise
expressly contemplated by the Merger Agreement, (i) CONSOL Energy, Inc. ("CEI"),
the parent of CONSOL, shall not, and shall not permit any of its subsidiaries
other than in conjunction with the sale of capital stock of CEI held directly or
indirectly by DuPont to, acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of or equity in, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets if the entering into of a definitive agreement
relating to or the consummation of such acquisition, merger or consolidation
would (a) impose any material delay in the obtaining of, or increase the risk of
not obtaining, any authorizations, consents, orders, declarations or approvals
of any


                                      -26-

<PAGE>


Governmental Entity necessary to consummate the Merger or the expiration or
termination of any applicable waiting period, (b) increase the risk of any
Governmental Entity entering an order prohibiting the consummation of the Merger
or (c) increase the risk of not being able to remove any such order on appeal or
otherwise; (ii) CEI shall not, and shall not permit any of its subsidiaries to,
take other than in conjunction with the sale of capital stock of CEI held
directly or indirectly by DuPont, or fail to take, any other action which would,
or would reasonably be expected to, impede, interfere with, prevent or
materially delay the Merger; (iii) CONSOL shall take all necessary action to
cause Merger Sub to perform its obligations under the Merger Agreement and to
consummate the Merger on the terms set forth in the Merger Agreement and (iv)
each of CONSOL and Merger Sub shall not, and shall not permit any of its
subsidiaries to, take any action that would, or would reasonably be expected to,
result in (a) any of its representations or warranties set forth in the Merger
Agreement that are qualified as to materiality becoming untrue, (b) any of such
representations and warranties that are not so qualified becoming untrue in any
material respect or (c) any of the conditions to the Merger set forth in Article
VII of the Merger Agreement not being satisfied.

Certain Other Agreements of the Parties

     In the Merger Agreement, CONSOL agrees as follows with respect to the
Company's Benefit Plans:

         (i) CONSOL shall cause the Surviving Corporation to maintain the
Company's existing compensation, severance, welfare and pension benefit plans,
programs and arrangements (the "Existing Plans") for the benefit of the current
and former employees of the Company and its subsidiaries, subject to such
modification as may be required by applicable law or to maintain the tax exempt
status of any such plan; provided, however, that the Merger Agreement does not
prohibit CONSOL from (a) replacing any such existing plans, programs or
arrangements with plans, programs or arrangements (the "Replacement Plans")
which provide current active or inactive employees or former employees with
benefits which, in the reasonable opinion of CONSOL, are not less favorable in
the aggregate than the benefits that would have been provided under the Existing
Plans to the extent such replacement is permitted under the terms of the
Existing Plans; provided, however, CONSOL may not subsequently replace such
Replacement Plans with other plans, programs or arrangements, unless such plans,
programs or arrangements provide such employees with benefits which, in the
reasonable opinion of CONSOL, are not less favorable in the aggregate than the
benefits provided under CONSOL's plans, programs or arrangements or (b)
including the current active or inactive employees or former employees of the
Company in the plans, programs and arrangements generally available to employees
of CONSOL and its subsidiaries other than the Surviving Corporation in lieu of
participation in any Company plan, program or arrangement provided that such
Parent plans, programs and arrangements (1) provide such employees with benefits
which, in the reasonable opinion of CONSOL, are not less favorable in the
aggregate than the benefits that would have been provided under the Existing
Plans and (2) do not discriminate against such employees compared to other
employees of CONSOL and its subsidiaries;

         (ii) (a) all service credited to each employee by the Company or its
subsidiaries through the Effective Time shall be recognized by CONSOL for all
purposes,


                                      -27-

<PAGE>


including for purposes of eligibility, vesting and benefit accruals under any
employee benefit plan provided by CONSOL, provided, however, that to the extent
necessary to avoid duplication of benefits, amounts payable under employee
benefit plans provided by CONSOL may be reduced by amounts payable under similar
Company plans with respect to the same periods of service; (b) any benefits
accrued by employees of the Company and its subsidiaries prior to the Effective
Time under any of the Company's defined benefit pension plans that employ a
final average pay formula shall be calculated based on such employees' final
average pay with the Surviving Corporation or any successor to the Surviving
Corporation or other affiliate of CONSOL employing such employees and (c) with
respect to any welfare benefit plan established or maintained by CONSOL or its
subsidiaries for the benefit of employees of the Company, CONSOL shall, or shall
cause the relevant subsidiary to, waive any pre-existing condition exclusion
other than any pre-existing condition that was not waived by the Existing Plans
and provide that any covered expense incurred on or before the Effective Time in
respect of the current plan year by any employee of the Company or any covered
dependent of such an employee shall be taken into account for purposes of
satisfying applicable deductible, coinsurance and maximum out-of-pocket
provisions after the Effective Time in respect of such current plan year;

         (iii) CONSOL agrees to cause the Surviving Corporation to honor,
without modification, and assume the severance policies, employment agreements,
executive termination agreements and individual benefit arrangements previously
disclosed to CONSOL; and

         (iv) the foregoing provisions are not applicable to any employee of the
Company or its subsidiaries subject to the terms of a collective bargaining
agreement.

Management of the Company After the Merger

     After the Effective Time, the directors and officers of Merger Sub
immediately before the Effective Time will be the initial directors and officers
of the Surviving Corporation, in each case until their successors are duly
elected or appointed.

Termination; Fees and Expenses; Plans of the Company If the Merger Is Not
Consummated

     Termination. The Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time, before or after the approval
and adoption thereof by the shareholders of the Company: (i) by mutual written
consent of the Boards of Directors of the Company and CONSOL; (ii) by either the
Company or CONSOL if the Effective Time shall not have occurred on or before
September 30, 1998; provided that the right to terminate the Merger Agreement in
such event will not be available to any party whose failure to fulfill any
obligation thereunder has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date; (iii) by either the Company or
CONSOL if a court of competent jurisdiction or a Governmental Entity shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
the Merger Agreement, provided that the party seeking to terminate the Merger
Agreement shall have used commercially reasonable efforts to remove such
injunction, order or decree; (iv) by CONSOL in the event of a breach by the
Company


                                      -28-

<PAGE>


of any representation, warranty, covenant or other agreement in the Merger
Agreement which (a) would give rise to the failure of a condition precedent to
the obligations of CONSOL and Merger Sub under the Merger Agreement and (b) has
not been cured or cannot be cured within 20 days after the giving by CONSOL of
written notice to the Company; (v) by the Company in the event of a breach by
CONSOL of any representation, warranty, covenant or other agreement in the
Merger Agreement which (a) would give rise to the failure of a condition
precedent to the obligations of the Company under the Merger Agreement and (b)
has not been cured or cannot be cured within 20 days after the giving by the
Company of written notice to CONSOL or (vi) by CONSOL or the Company if the
Merger Agreement shall not have been approved and adopted by the requisite vote
of the Company's shareholders at the Special Meeting.

     Fees and Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger and the Merger Agreement and the
transactions contemplated thereby will be paid by the party incurring such
expenses.

     Plans of the Company If the Merger Is Not Consummated. If the shareholders
fail to approve and adopt the Merger Agreement, the Merger will not be
consummated. In the event the Merger Agreement is not adopted by the
shareholders of the Company, the Merger Agreement will terminate, and it is not
known whether a sale of the Company would occur in the foreseeable future.

Source and Amount of Funds

     CONSOL will require approximately $150 million to pay the Merger Price for
all of the outstanding Common Stock of the Company. CONSOL has advised the
Company that it currently expects that the funds necessary to pay the aggregate
Merger Price will be financed from available cash and proceeds from various
transactions in commercial paper.

Federal Income Tax Consequences of the Merger

     The discussion set forth below concerning federal income tax consequences
to a particular shareholder may vary depending upon such shareholder's
particular circumstances. Each shareholder is urged to consult such
shareholder's own tax advisor with respect to the particular tax consequences to
such shareholder of the Merger or the exercise of dissenters appraisal rights,
including the applicability and effect of state, local, foreign and other taxes.

     Exchange of Common Stock pursuant to the Merger and the receipt of cash in
respect of the exercise of dissenters appraisal rights will be taxable
transactions for federal income tax purposes under the Internal Revenue Code of
1986, as amended, and may also be taxable transactions under applicable state,
local and other tax laws. For federal income tax purposes, each holder of Common
Stock whose shares are exchanged in the Merger will generally recognize gain or
loss equal to the difference between the amount of cash received by such
shareholder in the Merger and such shareholder's tax basis in such shares. Gain
or loss recognized will be treated as a long-term capital gain or loss if the
Common Stock is held as a


                                      -29-

<PAGE>


capital asset and if the Common Stock exchanged has a holding period of more
than one year at the Effective Time.

     If a noncorporate shareholder recognizes a capital loss in connection with
the sale of Common Stock, the shareholder may offset such capital loss against
any other capital gains realized by such shareholder in the taxable year and
against up to $3,000 of such shareholder's ordinary income for individuals
filing joint returns. Any excess loss may be carried forward indefinitely. A
corporate shareholder may use a capital loss recognized in connection with the
Merger to offset any capital gains realized by it in the same taxable year but
not to offset ordinary income. Any unused capital loss of a corporation may
generally be carried back to its three preceding taxable years and then, to the
extent unused, forward for five succeeding taxable years, in each case to offset
capital gains, if any.

Dissenters Appraisal Rights

     For purposes of this section, the term "Company" will be deemed to refer
also to the Surviving Corporation with respect to actions taken after the
Effective Time.

     Pursuant to the Merger Agreement and the PBCL, the owners of Common Stock
will have dissenters rights in connection with the Merger under Sections 1571
through 1580 of Subchapter 15D of the PBCL (hereinafter "Subchapter 15D"), a
copy of which (as well as a copy of Section 1930 of the PBCL) is included in
this Proxy Statement as Appendix D, and may object to the Merger Agreement and
demand in writing that the Company pay the fair value of their Common Stock.

     If any holders of Common Stock properly exercise dissenters rights of
appraisal in connection with the Merger under Subchapter 15D (a "Dissenting
Shareholder"), any shares held by such holders will not be converted into the
right to receive the Merger Price, but instead will be converted into the right
to receive the "fair value" of such shares pursuant to Subchapter 15D. THE
FOLLOWING SUMMARY OF THE PROVISIONS OF SUBCHAPTER 15D IS NOT INTENDED TO BE A
COMPLETE STATEMENT OF SUCH PROVISIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUBCHAPTER 15D, A COPY OF WHICH (AS WELL AS A COPY
OF SECTION 1930 OF THE PBCL) IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX D
AND INCORPORATED HEREIN BY REFERENCE. The Company will not give any notice of
the following requirements other than as described in this Proxy Statement and
as required by the PBCL.

     General. Any holder of Common Stock who has duly demanded the payment of
the fair value of his or her shares under Subchapter 15D will not, after the
Effective Time, be a shareholder of the Company for any purpose or be entitled
to the payment of dividends or other distributions on any such Common Stock;
moreover, the Common Stock of any Dissenting Shareholder will be converted into
the right to receive either (i) the fair value of such Common Stock, determined
in accordance with Subchapter 15D, or (ii) the right to receive the Merger
Price, if any Dissenting Shareholder effectively withdraws his or her demand for
appraisal rights.


                                      -30-

<PAGE>


     SHAREHOLDERS OF THE COMPANY SHOULD NOTE THAT, UNLESS ALL THE REQUIRED
PROCEDURES FOR CLAIMING DISSENTERS RIGHTS ARE FOLLOWED WITH PARTICULARITY,
DISSENTERS RIGHTS WILL BE LOST. VOTING AGAINST APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT, WHETHER IN PERSON OR BY PROXY, IS NOT SUFFICIENT NOTICE TO
PERFECT DISSENTERS RIGHTS.

     Filing Notice of Intention to Demand Fair Value. Before any shareholder
vote is taken on the Merger Agreement, a Dissenting Shareholder must deliver to
the Company a written notice of his or her intention to demand the fair value of
his or her Common Stock if the Merger is effected. Such written notice may be
sent to the Secretary of the Company at the Company's address set forth on Page
1 of this Proxy Statement. Neither the return of a proxy by the Dissenting
Shareholder with instructions to vote the Common Stock represented thereby
against the approval and adoption of the Merger Agreement nor a vote against the
approval and adoption of the Merger Agreement or an abstention from voting on
the approval and adoption of the Merger Agreement is sufficient to satisfy the
requirement of delivering a written notice to the Company. In addition, the
Dissenting Shareholder must not effect any change in the beneficial ownership of
his or her Common Stock from the date of filing the notice with the Company
through the Effective Time, and the Dissenting Shareholder must not vote his or
her Common Stock for which payment of fair value is sought in favor of the
approval and adoption of the Merger Agreement. The submission of a signed blank
proxy will serve to waive appraisal rights if not revoked, but a failure to
vote, a vote against or an abstention from voting on the approval and adoption
of the Merger Agreement will not waive such rights. Proper revocation of a
signed blank proxy or a signed proxy instructing a vote for approval and
adoption of the Merger Agreement will also preserve dissenters rights under the
PBCL. Failure by a Dissenting Shareholder to comply with any of the foregoing
will result in such Dissenting Shareholder's forfeiting any right to payment of
the fair value of such Dissenting Shareholder's Common Stock.

     Record and Beneficial Owners. A record holder of Common Stock may assert
dissenters rights as to fewer than all the Common Stock of the same class or
series registered in his or her name only if the holder dissents with respect to
all the Common Stock beneficially owned by any one person and discloses the name
and address of the person or persons on whose behalf he or she dissents. A
beneficial owner of Common Stock who is not the record holder may assert
dissenters rights with respect to Common Stock held on his or her behalf if such
Dissenting Shareholder submits to the Company the written consent of the record
holder not later than the time of assertion of dissenters rights. The beneficial
owner may not dissent with respect to less than all the Common Stock he or she
owns, whether or not such Common Stock is registered in the beneficial owner's
name.

     Notice to Demand Payment. If the Merger is approved by the requisite vote
at the Special Meeting, the Company shall mail to all Dissenting Shareholders
who gave due notice of their intention to demand payment of fair value and who
refrained from voting in favor of the Merger a notice stating where and when a
demand for payment must be sent, and stock certificates representing the Common
Stock held by the Dissenting Shareholder must be deposited to obtain payment.
The notice shall be accompanied by a copy of Subchapter 15D of the PBCL and
include a form for demanding payment, which form shall have a request for
certification of the date that beneficial ownership of the Common Stock was
acquired by the


                                      -31-

<PAGE>


Dissenting Shareholder or the person on whose behalf the Dissenting Shareholder
dissents. The time set for the receipt of a demand and the Dissenting
Shareholder's stock certificates shall not be less than 30 days from the mailing
of the notice. Failure by a Dissenting Shareholder to timely demand payment and
deposit the stock certificates pursuant to such notice will cause such
Dissenting Shareholder to lose all right to receive payment of the fair value of
his or her Common Stock. All mailings to the Company are at the risk of the
dissenter. However, the Company recommends that the notice of intention to
dissent, the demand form and the holder's stock certificates be sent by
certified mail. If the Merger has not been effected within 60 days after the
date set for demanding payment and depositing stock certificates, the Company
shall return any stock certificates that have been deposited. The Company,
however, may at any later time send a new notice regarding demand for payment
and deposit of stock certificates with like effect.

     Payment of Fair Value of Common Stock. Promptly after the Effective Time,
or upon timely receipt of demand for payment if the Merger has already been
effected, the Company shall either remit to Dissenting Shareholders who have
made demand and deposited their stock certificates the amount the Company
estimates to be the fair value of the Common Stock or give written notice that
no remittance will be made under Section 1577 of the PBCL. Such remittance or
notice shall be accompanied by:

         (i) the Company's closing balance sheet and statement of income for a
fiscal year ending not more than 16 months prior to the date of remittance or
notice, together with the latest available interim financial statements;

         (ii) a statement of the Company's estimate of the fair value of the
Common Stock; and

         (iii) a notice of the right of a Dissenting Shareholder to demand
payment or supplemental payment, as the case may be, accompanied by a copy of
Subchapter 15D.

If the Company does not remit the amount of its estimate of the fair value of
the Common Stock, it will return all stock certificates that have been deposited
and may make a notation thereon that a demand for payment has been made. If
shares carrying such notation are thereafter transferred, each new stock
certificate issued therefor will bear a similar notation, together with the name
of the original dissenting holder or owner of such shares. A transferee of such
shares will not acquire by such transfer any rights in the Company other than
those which the original dissenter had after making demand for payment of their
fair value.

     Estimate by Dissenting Shareholder of Fair Value of Common Stock. If a
Dissenting Shareholder believes that the amount estimated or paid by the Company
for his or her Common Stock is less than their fair value, the Dissenting
Shareholder may send to the Company his or her own estimate of the fair value,
which shall be deemed a demand for payment of the amount of the deficiency. If
the Dissenting Shareholder does not file his or her own estimate of the fair
value within 30 days after such remittance or notice has been mailed by the
Company, the Dissenting Shareholder will be entitled to no more than the amount
estimated in the notice or remitted by the Company.


                                      -32-

<PAGE>


     Valuation Proceedings. Within 60 days after the latest of (i) the Effective
Time, (ii) timely receipt of any demands for payment or (iii) timely receipt of
any Dissenting Shareholder estimates of fair value, if any demands for payment
remain unsettled, the Company may file in court an application for relief
requesting that the fair value of the Common Stock be determined by the court.
Each Dissenting Shareholder whose demands have not been settled will be made a
party to the proceeding and will be entitled to recover the amount by which the
fair value of such Dissenting Shareholder's Common Stock is found to exceed the
amount, if any, previously remitted. Such Dissenting Shareholder will also be
entitled to interest on such amount from the Effective Time until the date of
payment. There is no assurance, however, that the Company will file such an
application. If the Company fails to file an application within the 60-day
period, any Dissenting Shareholder who has not settled his or her claim may do
so in the Company's name within 30 days after the expiration of the 60-day
period. If no Dissenting Shareholder files an application within such 30-day
period, each Dissenting Shareholder who has not settled his or her claim will be
paid no more than the Company's estimate of the fair value of the Common Stock
and may bring an action to recover any amount not previously remitted.

     Costs and Expenses of Valuation Proceedings. The costs and expenses of any
valuation proceeding, including the reasonable compensation and expenses of any
appraiser appointed by the court, will be determined by the court and assessed
against the Company, except that any part of such costs and expenses may be
assessed as the court deems appropriate against all or some of the Dissenting
Shareholders whose action in demanding supplemental payment is found by the
court to be dilatory, obdurate, arbitrary, vexatious or in bad faith. The court
may also assess the fees and expenses of counsel and experts for any or all of
the Dissenting Shareholders against the Company if it fails to comply
substantially with Subchapter 15D or acts in a dilatory, obdurate, arbitrary or
vexatious manner or in bad faith. The court can also assess any such fees or
expenses incurred by the Company against any Dissenting Shareholder if such
Dissenting Shareholder is found to have acted in a dilatory, obdurate, arbitrary
or vexatious manner or in bad faith. If the court finds that the services of
counsel for any Dissenting Shareholder were of substantial benefit to the other
Dissenting Shareholders and should not be assessed against the Company, it may
award to such counsel reasonable fees to be paid out of the amounts awarded to
the Dissenting Shareholders who were benefited.

     Under the PBCL, a shareholder of the Company has no right to obtain, in the
absence of fraud or fundamental unfairness, an injunction against the Merger,
nor any right to valuation and payment of the fair value of the holder's shares
because of the Merger, except to the extent provided by the dissenters rights
provisions of Subchapter 15D. The PBCL also provides that absent fraud or
fundamental unfairness, the rights and remedies provided by Subchapter 15D are
exclusive.

     The foregoing description of the rights of dissenters under Subchapter 15D
should be read in conjunction with Appendix D to this Proxy Statement, and is
qualified in its entirety by reference to the provisions of Subchapter 15D.

     The Board of Directors recommends that shareholders vote "FOR" the proposal
to approve and adopt the Merger Agreement.


                                      -33-

<PAGE>


                           THE STOCKHOLDERS AGREEMENT

General

     Simultaneously with the execution of the Merger Agreement and in consider
ation thereof, on May 28, 1998 the Majority Shareholders entered into the
Stockholders Agreement with CONSOL and Merger Sub. The following summary of the
Stockhold ers Agreement is qualified in its entirety by reference to the
Stockholders Agreement, a copy of which is included as Appendix B to this Proxy
Statement.

     In the Stockholders Agreement, the Majority Shareholders agree, until the
termination of the Merger Agreement in accordance with its terms, that none of
the Majority Shareholders shall, in his or her capacity as such, directly or
indirectly, initiate, solicit or knowingly encourage, including by way of
furnishing non-public information or assistance, or take any other action
knowingly to facilitate, any inquiries or the making of any proposal that
constitutes, or reasonably may be expected to lead to a competitive proposal, or
enter into or maintain or continue discussions or negotiate with any person or
entity in furtherance of such inquiries or to obtain, or agree to or endorse a
competitive proposal, or authorize or permit any person or entity acting on
behalf of a Majority Shareholder to do any of the foregoing. The Majority
Shareholders further agree that if any of them receives any inquiry or proposal
regarding a competitive proposal, such Majority Shareholder shall provide
reasonable notice to CONSOL of that inquiry or proposal. For purposes of the
Stockholders Agreement, "competitive proposal" means any tender or exchange
offer involving the Company, any proposal for a merger, consolidation, business
combination or similar transaction involving the Company or its subsidiaries,
any proposal or offer to acquire in any manner more than 10% of the Common Stock
of the Company or a substantial portion of the business or assets of the Company
or its subsidiaries, other than immaterial or insubstantial assets or inventory
in the ordinary course of business or assets held for sale, any proposal or
offer with respect to any recapitalization or restructuring with respect to the
Company or its subsidiaries or any proposal or offer with respect to any other
transaction similar to any of the foregoing with the Company other than pursuant
to the transactions to be effected pursuant to the Merger Agreement.

     The Majority Shareholders and CONSOL make certain representations and
warranties to each other in the Stockholders Agreement typical in agreements of
that nature, including the incorporation by reference of CONSOL's
representations and warranties in Article IV of the Merger Agreement.

     Pursuant to the Stockholders Agreement, each of the Majority Shareholders
revokes any previously granted proxies with respect to the Majority Shares and
appoints each of Michael F. Nemser and Samuel P. Skeen, who are officers of
CONSOL, as such Majority Shareholders' attorney and proxy, with full power of
substitution, to attend any and all meetings of shareholders of the Company and
to vote the Majority Shares and any voting securities issued in exchange
therefor or in respect thereof, and to represent and otherwise to act for such
Majority Shareholders in the same manner and with the same effect as if such
Majority Shareholders were personally present, when any matter, including, but
not limited to any proposed merger or other transaction, is submitted to the
shareholders of the Company for


                                      -34-

<PAGE>


a vote. The Stockholders Agreement provides that such appointment as a proxy
shall (i) be irrevocable, (ii) remain in effect until September 30, 1998 and
(iii) be deemed to be coupled with an interest in that CONSOL has the right to
purchase the Majority Shares and is also a party to the Merger Agreement.

     Pursuant to the Merger Agreement, each of the Majority Shareholders also
grants CONSOL an irrevocable option (the "Option") to purchase all of the
Majority Shares at a price per share payable in cash of $43.50. The Stockholders
Agreement provides that the Option may be exercised, in full and not in part,
until September 30, 1998. In order to exercise the Option, CONSOL must give the
Majority Shareholders written notice thereof specifying a place, time and date
not earlier than one day and not later than 20 days from the date of notice for
the closing of the purchase. The obligation of the Majority Shareholders to sell
and deliver the Majority Shares upon exercise of the Option by CONSOL is subject
to the condition that there shall be no preliminary or permanent injunction or
other order preventing or restricting the purchase of the Majority Shares.
CONSOL agrees in the Stockholders Agreement that if it purchases the Majority
Shares, it shall vote the Majority Shares in favor of the approval and adoption
of the Merger Agreement at the Special Meeting.

     The Majority Shareholders also agree in the Stockholders Agreement that,
except as provided in the Stockholders Agreement and prior to the termination of
the Merger Agreement in accordance with its terms, (i) no Majority Shareholder
shall, directly or indirectly, offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of or enter into any agreement,
arrangement or understanding with respect to, or consent to the offer for sale,
transfer, tender, pledge, encumbrance, assignment or other disposition of, any
of the Majority Shares or any interest in the Majority Shares; (ii) grant any
proxies or powers of attorney with respect to any of the Majority Shares,
deposit any of the Majority Shares into a voting trust or enter into a voting
agreement with respect to any of the Majority Shares or (iii) take any action
that would make any representation of a Majority Shareholder in the Stockholders
Agreement untrue or have the effect of preventing or disabling the Majority
Shareholders from performing their obligations under the Stockholders Agreement.
In the Stockholders Agreement, each of the Majority Shareholders also waives any
dissenters appraisal rights that any Majority Shareholder may have to dissent
from the Merger.

         The Stockholders Agreement further provides that (i) no person
executing the Stockholders Agreement who is, or during the term of the
Stockholders Agreement becomes, a director of the Company makes any agreement in
his or her capacity as a director of the Company, (ii) each of the Majority
Shareholders executed the Stockholders Agreement solely in his or her capacity
as the record and beneficial owner of the Majority Shares and (iii)
notwithstanding anything to the contrary in the Stockholders Agreement, no
action or inaction by a Majority Shareholder in his or her capacity as a
director of the Company shall be deemed to contravene the Stockholders
Agreement.


                                      -35-

<PAGE>


                       INFORMATION CONCERNING THE COMPANY

Business

     The Company and its predecessors have been engaged in the mining of coal in
central and western Pennsylvania since 1881. From the mid-1960's, the Company
and its subsidiaries have been principally engaged in the deep mining of
bituminous steam coal for sale to electric generating plants located adjacent to
or near the Company's mines. During 1997, sales to two of the utility customers
of the Company's subsidiaries were close to minimum contract requirements and
represented approximately 43% of the Company's sales of deep-mined coal.
Deep-mined coal included coal produced by Eighty-Four Mining Company
("Eighty-Four") during its development stage. In 1992, through a subsidiary, the
Company acquired coal properties and an underground coal mine (Mine No. 84) in
southwestern Pennsylvania. Development and rehabilitation work continued at Mine
No. 84 through October 1997 when Mine No. 84 completed its development stage. As
a result, the Company is engaged, as a material portion of its planned
operations, in the eastern and midwestern utility coal markets in addition to
the continuing sales of coal pursuant to long-term coal supply contracts.

     The Company, through its subsidiaries, is currently principally engaged in
deep and, to a minor extent, surface mining of bituminous coal in Pennsylvania
serving the eastern and midwestern coal markets. Sales by two of the Company's
subsidiaries under their respective long-term coal supply contracts, described
herein, to the mine-mouth electric generating plants adjacent to the
subsidiaries' mines accounted for approximately 43% of the Company's deep-mined
production in 1997. Deep-mined production included coal produced by Eighty-Four
during its development stage.

     In 1992, the Company established two wholly-owned subsidiaries, Eighty-Four
and Lucerne Land Company ("Lucerne Land"), which acquired coal properties and
Mine No. 84 from Bethlehem Steel Corporation and affiliated entities
("Bethlehem") on December 31, 1992. The final purchase price of the coal
properties and Mine No. 84 was $53.6 million after taking into account
post-closing adjustments.

     From February 1993 through October 1997, while producing some coal,
Eighty-Four was primarily engaged in the renovation, rehabilitation and
replacement of key operating systems at Mine No. 84. This work included
installation of a new five-mile long, 6,700 ton per hour underground belt
conveyor system, a new portal and ventilating shaft and other underground
rehabilitation work, construction of new above-ground coal storage and
unit-train load out facilities, upgraded coal handling and preparation
facilities and development work to accommodate the installation of two planned
longwall mining units and is substantially completed. The first longwall
commenced operations in the third quarter of 1995 and the second unit became
operational in the fourth quarter of 1997. Eighty-Four's facilities will permit
production of approximately 6.3 to 6.7 million tons of coal in 1998 and
approximately 7.0 million tons of coal per year thereafter. In connection with
the development of the longwall panels and the mining in longwall panels,
Eighty-Four produced 4,783,950 tons of coal in 1997, substantially all of which
were sold in the commercial market to 18 customers which included utilities,
industrial coal users and, to a lesser degree, foreign customers.


                                      -36-

<PAGE>


     Since longwall operations commenced in 1995, Eighty-Four has experienced
problems in achieving continuous miner advance rates required for economical
longwall mining. A plan to enhance advance rates in the continuous miner
sections, developed with an independent consultant, was implemented during 1997
and advance rates improved in 1997 and in 1998. However, the cumulative effect
of past delays has increased the time required for scheduled longwall moves in
1998. Future longwall delays cannot be avoided without maintaining the improved
advance rates in the continuous miner sections. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

     A citizens group has appealed various provisions of Eighty-Four's Mining
Activity Permits (the "Permits"). The appeals are pending before the
Pennsylvania Environmental Hearing Board. See also "Legal Proceedings."

     The properties acquired from Bethlehem are estimated to contain
approximately 175 million saleable(1) tons of high quality Pittsburgh Seam steam
and metallurgical coal, of which approximately 75 million tons are within
Eighty-Four's current mine plan which provides for mining through 2008. The 175
million ton estimate, which was developed by the Company's Geology and
Engineering personnel and which is subject to continuing review and verification
by them, is based upon review of data and test results provided by Bethlehem,
data available from outside sources, application of generally accepted mining
practices in the geographic area of mining by Eighty-Four and generally accepted
mining practices in the Pittsburgh Seam utilizing longwall mining techniques.

     Eighty-Four expects to sell between 6.3 and 6.7 million tons of coal from
Mine No. 84 in 1998 to utility and industrial customers, in either spot market
sales or under longer-term contracts none of which, at present, extends beyond
2002. Eighty-Four has been successful selling Mine No. 84 coal to utilities that
use the coal as blender with Western low sulphur coals. Based upon the location
of Mine No. 84, the quality of the coal produced from Mine No. 84, the
availability of adequate rail transportation capacity and the announced
compliance strategies of its customers, Eighty-Four believes its coal will
continue to have a strong market because, after cleaning, the coal will remain a
cost-effective product for electric generating stations utilizing scrubbers,
emission allowances or blending. Additionally, a significant portion of the coal
from Mine No. 84 has historically been sold on the domestic and international
metallurgical market. Marketing activities undertaken by Eighty-Four are
directed to a diverse geographic and customer base in order to reduce reliance
upon a single customer, group of customers or type of market while enabling
price escalation risks to be partially hedged due to varying contract durations.

     The Company's wholly owned subsidiary, Keystone Coal Mining Corporation
("KCMC") is a party to a coal supply agreement effective as of January 1, 1991
(the "Keystone Agreement") with the seven public utilities (the "Keystone
Owners") that own the Keystone Steam Electric Station (the "Keystone Station")
near Shelocta, Pennsylvania. The Keystone Agreement, which was amended in 1995,
has a term ending on December 31, 2004, and

- - - ----------
(1)  Saleable means total coal mine output less tonnage rejected during
     processing for market.


                                      -37-

<PAGE>


provides that KCMC will sell and deliver 3,250,000 tons annually subject to
increase or decrease by up to 250,000 tons through 1999. In 1997, KCMC delivered
3,000,013 tons to the Keystone Station pursuant to the Keystone Agreement.
Should the parties not agree prior to 2000 to an extension of the Keystone
Agreement beyond 2004, as to which no assurance can be given, production and
deliveries will decrease between 2000 and 2004 with an aggregate of 6,500,000
tons to be delivered during that five-year period. Coal sold pursuant to the
Keystone Agreement is delivered by a series of conveyor belts directly from
KCMC's mines (the "Keystone Mines") or by truck to the Keystone Station.

     In connection with its Keystone Mines, KCMC also owns and operates a coal
handling and preparation facility (the "Keystone Cleaning Plant") which
processes coal to enhance its thermal value prior to delivery to the Keystone
Station.

     The price paid by the Keystone Owners to KCMC pursuant to the Keystone
Agreement consists of an amount, subject to a price cap, equal to all costs of
production incurred by KCMC in mining, processing and delivering the coal,
including mine development costs and capital expenditures, mine closing costs,
general and administrative costs and interest costs plus a profit that varies
according to KCMC's ability to meet or exceed certain cost standards plus a
royalty of $.25 per ton, with an annual minimum royalty payment of $375,000. The
profit calculation is subject to adjustment for cumulative changes in the Gross
National Product Implicit Price Deflator ("GNP Deflator") based upon the Btu
content of the coal delivered and KCMC's cost of production compared to standard
costs established in the Keystone Agreement. The standard costs are adjusted
according to various cost and market price indices.

     KCMC dedicated approximately 90 million tons of coal at January 1, 1991
pursuant to the Keystone Agreement which coal cannot be mined for sale to others
without the Keystone Owners' consent. Substantially all of the dedicated coal
properties are leased or subleased by KCMC from the Company. Under certain
limited conditions described in the Keystone Agreement, the Keystone Owners have
the option to purchase all of the capital stock of KCMC at the net book value
thereof at the time of exercising the option ($16,680,961 at December 31, 1997)
or KCMC's net assets at book value and to lease KCMC's coal properties from the
Company. In such event, the Company would receive a royalty equal to
approximately $1.03 per ton, a substantial portion of which would be adjusted
for changes in the GNP Deflator from December 1990. See Note C of the Notes to
the Consolidated Financial Statements included herein. The Keystone Owners also
have the right to terminate the Keystone Agreement effective at the end of 1999
or any calendar year thereafter, upon five years prior notice, if the Keystone
Owners determine, in their sole discretion, that it is unlawful or commercially
impracticable, in light of the then applicable governmental regulations, to
operate the Keystone Station with the quality of the coal KCMC is able to
produce. The Keystone Owners also have the right to terminate the Keystone
Agreement if certain coal size and quality requirements are not met by KCMC.

     In 1997, KCMC delivered 1,938,546 tons of coal from its Keystone Mines and
1,061,466 tons of purchased coal to the Keystone Station, compared with
deliveries to the Keystone Station in 1996 of 2,404,753 tons of coal from its
Keystone Mines and 777,827 tons of purchased coal.


                                      -38-

<PAGE>


     The Company's wholly owned subsidiary, Helvetia Coal Company ("Helvetia"),
is a party to a coal sales agreement effective January 1, 1995 (the "Homer City
Agreement") with the two public utilities (the "Homer City Owners") that own the
Homer City Steam Electric Station (the "Homer City Station") near Homer City,
Pennsylvania.

     The Homer City Agreement provides that Helvetia will sell and deliver to
the Homer City Owners approximately 14 million tons of coal through 2003 at an
initial rate of 1.8 million tons of coal per year. Helvetia's coal reserves are
leased from the Company. Coal sold pursuant to the Homer City Agreement is
delivered to the Homer City Station by conveyor belts and trucks. To enhance the
quality of delivered coal and thereby gain the benefit of premiums under the
pricing structure of the Homer City Agreement, Helvetia built a new coal
cleaning plant (the "Helvetia Cleaning Plant") which began operation in February
1995.

     The price paid by the Homer City Owners to Helvetia pursuant to the Homer
City Agreement is a base price with escalation and adjustments based on the
quality of the coal delivered. The Homer City Agreement also provides for early
termination by either party under hardship provisions as defined in the Homer
City Agreement and further allows the Homer City Owners to terminate the Homer
City Agreement for their convenience, in which event they are required to make
certain payments to Helvetia. See Note C of the Notes to Consolidated Financial
Statements included herein.

     In 1997, Helvetia delivered 1,695,738 tons of coal from its deep mines and
106,221 tons of purchased coal to the Homer City Station compared with
deliveries to the Homer City Station in 1996 of 1,822,792 tons of deep-mined
coal and 115,677 tons of purchased coal.

     In 1997, five deep mines of the Company's subsidiaries supplied coal to the
Homer City and Keystone Stations (the "Stations"). See "Properties" for a
description of the mines.

     The Company maintains comprehensive general liability and umbrella
liability, pollution liability and boiler and machinery insurance for all of its
operations. The Company also maintains business interruption and property damage
insurance for all of its subsidiaries' operations and properties except for
KCMC. KCMC, pursuant to agreement with the Keystone Owners, is not fully insured
for business interruption and property damage because it is able to recover such
losses in whole or in part under the Keystone Agreement. The Company has
self-insurance programs for workers' compensation and has insurance coverage for
catastrophic losses. The Company also has automobile liability, fiduciary
liability and fidelity insurance.

     The bituminous coal industry in general is intensely competitive. Although
approximately 43% of the Company's deep-mined coal production in 1997 was sold
pursuant to the Keystone and Homer City Agreements (the "Agreements"), because
of the nature of the power supply system in the Mid-Atlantic Region of the
United States, the Company remains subject to material competition from other
coal suppliers primarily as to price, coal quality and environmental
considerations, and suppliers of other types of fuel, principally oil, natural
gas, hydroelectric power and nuclear fuel. That system is operated as a pool of
electric power so that to the extent other sources of power within the system,
or available to it, are cheaper than the power produced at the Stations, the
Keystone and Homer City Owners could reduce


                                      -39-

<PAGE>


the amount of power produced by those Stations and, consequently, the amount of
coal purchased from the Company under the Agreements could be reduced. In
addition, the deregulation of the electric generating industry, the dimensions
of which are not yet fully apparent, could have a material effect on the
Company's business if the utilities to which its subsidiaries supply coal are
unable to compete effectively in a deregulated environment.

     During 1997, a substantial portion of the Company's surface-mined coal was
sold to Helvetia. To the extent that the Company is engaged in the wholesale and
retail sale of coal, it constitutes a minor competitive factor in such industry
and is in competition with other sellers of coal and other fuels, principally
oil and natural gas.

     The Company's business is materially dependent on the Agreements. See also
Note C of the Notes to the Consolidated Financial Statements included herein.
Gross sales pursuant to the Keystone Agreement and the Homer City Agreement
accounted for approximately 52% and 24%, respectively, of the Company's sales in
the year ended December 31, 1997, excluding development stage coal sales of
Eighty-Four. If the Owners of the Stations were to use other stations not served
by the Company to meet a greater percentage of their power generation demand, or
if power were procured from other sources, their requirements for the Stations
could decrease, and if such decrease were significant, the change could
materially adversely affect the business of the Company.

     United Eastern Coal Sales Corporation ("United Eastern"), a wholly owned
subsidiary of the Company, is a coal broker and sales agent which buys and
sells, either as principal or agent, coal produced in the United States. The
Company's wholly owned subsidiary, Rochester & Pittsburgh Coal Co. (Canada)
Limited ("R&P Canada"), is engaged in the sale of coal to customers in Canada.
United Eastern and R&P Canada serve customers principally in the Mid-Atlantic
states and the Province of Ontario, respectively.

     Leatherwood, Inc. ("Leatherwood"), a wholly owned subsidiary of the
Company, was formed to engage in developing solid waste management facilities.
In 1995, the Pennsylvania Department of Environmental Protection (the "DEP")
issued a permit to operate a 1,500 ton-per-day municipal solid waste landfill in
Jefferson County, Pennsylvania. In October 1996, Congress passed the Federal
Aviation Reauthorization Act of 1996 (the "Reauthorization Act"). Leatherwood's
site does not comply with a provision of the Reauthorization Act which addresses
the siting of landfills in relation to the location of a municipal airport. The
DEP subsequently suspended Leatherwood's permit until such time as the site is
in compliance with the Reauthorization Act. Leatherwood is not actively engaged
in efforts to challenge the suspension of its permit or to develop its business.

     Information concerning backlog is not considered material to an
understanding of the Company's business.


                                      -40-

<PAGE>


     At December 31, 1997, the Company had an estimated recoverable(2) reserve
base(3) in leased or owned properties in Armstrong, Indiana, Westmoreland,
Washington and other nearby Pennsylvania counties, of approximately 701 million
tons of coal. During 1997, the Company produced approximately 4,985,000 tons of
coal excluding coal produced from Mine No. 84 during the development stage. Of
the 701 million tons of estimated recoverable reserve base, approximately 66
million tons of coal (9%), are dedicated under the Agreements. With the
exception of approximately 80 million of the 175 million saleable tons of coal
acquired from Bethlehem, recovery of the remaining unassigned recoverable
reserve base would require new mines which would entail substantial capital
expenditures the amount of which cannot be estimated at this time. The Company
has made no decision regarding any new mines and, depending upon the Company's
continuing evaluation of economic conditions affecting the sale of coal in the
Company's present area of operations and the effect of increasingly stringent
environmental requirements, the Company might not open new mines to access its
existing, undedicated coal. The estimated recoverable reserve base stated herein
was determined by the Company's staff based upon the prior experience of the
Company in mining in the area of its present recoverable reserve base and upon
data from tests conducted by the Company, and the Company's mining experience in
the seams and area of the Company's present recoverable reserve base and
represents coal which is recoverable on the basis of current mining practices
and techniques. Consequently, the Company's estimates are subject to continuing
review and refinement.

     The Company also owns coal lands in West Virginia, some of which are under
lease to CONSOL. The leased reserves are near exhaustion. The Company also
subleases coal lands in West Virginia to another coal company.

     Patents and licenses are not material to the operation of the Company's
business.

     The Company has made no public announcement, nor has information otherwise
become public, about any new product or line of business which would require the
investment of a material amount of the Company's total assets, other than the
possible development of Leatherwood. While a substantial capital investment may
ultimately be made in development of Leatherwood's projects, the amount of such
investment has not yet been determined. Through December 31, 1997, the Company
has made an investment in the Mine No. 84 project of $160 million in the form of
equity and loans (including the $53.6 million adjusted purchase price). In
addition, Eighty-Four has entered into $36 million of capital leases. Over the
life of Mine No. 84, additional funding, including capital and operating leases
to provide remaining funding requirements of the project will be necessary. See
also

- - - ----------
(2)  Those portions of the reserve base that are owned or leased by the Company
     that are potentially extractable using an appropriate recovery factor(s) to
     account for coal lost-in-mining and dilution introduced during the mining
     process.

(3)  Reserve base means those parts of an identified resource, proven and
     probable, that are currently economic, and some of those that are currently
     sub-economic that have a reasonable potential for becoming economically
     available within planning horizons beyond those that assume proven
     technology and current economics.


                                      -41-

<PAGE>


 Notes B and D of the Notes to the Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

     The Company's business is subject to numerous state and federal statutes
which establish strict standards with respect to mining health and safety and
environmental consequences. In addition to prescribing civil and criminal
penalties for violations, both state and federal laws authorize the closure
under certain circumstances of noncomplying operations. Pennsylvania statutes
applicable to the Company's mining operations are both more and less stringent
than the federal statutes. Numerous federal and state laws and regulations
pertaining to the discharge of materials into the environment impose
requirements for capital expenditures in the normal course of mine development
and for subsequent events which cause adverse environmental effects,
irrespective of fault or willfulness by the mining company involved. These
statutes have in the past and will in the future require substantial capital
investments and may adversely affect productivity of the Company's subsidiaries.
Because of the inclusion of environmental-related elements in the normal
expenditures for mine development and operation, environmental-related costs
cannot be precisely isolated but the Company does not believe such costs have
materially adversely affected the Company's financial condition.

     Both federal and state law and regulations impose sulphur emission
standards on uses of coal, which will increase in stringency during the next
several years. However, to the extent the Company's coal is sold pursuant to the
Agreements, which contain no provisions warranting that the sulphur content of
the coal will meet emission standards when burned, such regulations will not
adversely affect the Company. Should the cost of compliance as an element of
production costs become burdensome to the customers of the Company's
subsidiaries, the competitive position and earnings of the Company could be
adversely affected. The impact of recent legislation and related regulations on
the Company's business, especially the Clean Air Act Amendments of 1990 and
related regulations, on the Company's business remains uncertain at this time.
The Company believes that improvements in clean coal technologies or in
techniques to neutralize or treat emissions from generating stations are such
that, with the benefit of such technologies, its coal will meet standards under
currently enacted legislation. However, these amendments could have an adverse
effect on the sales of coal to the Stations. Also, as described above, at the
end of 1999 and any year thereafter, the Keystone Owners have the right to
terminate the Keystone Agreement if it is unlawful or commercially
impracticable, in light of then applicable government regulations, to operate
the Keystone Station with the quality of the coal KCMC is able to produce.
Moreover, in the event of the enactment of legislation or regulations imposing
more stringent environmental standards on the Stations, the Company could be
adversely affected if the Owners of the Stations purchased more coal from others
or generated less electricity from these Stations. Environmental legislation and
regulation may have an adverse effect on the Company's ability to market its
coal reserves not dedicated under existing contracts and may require
modifications to the marketing plans of Eighty-Four.

     As indicated in the Consolidated Financial Statements included herein, the
Company has made substantial capital investments in the past three years in
addition to the development of Mine No. 84. Inasmuch as a substantial portion of
these investments has been for several purposes, e.g., to extend mine and
equipment life, to increase productivity, and to


                                      -42-

<PAGE>


comply with safety and/or environmental legislation, the Company cannot indicate
with precision capital investments required solely to comply with environmental
and safety legislation. However, the Company estimates such expenditures totaled
approximately $3.3 million in the five years ended December 31, 1997, and it is
estimated that annual capital expenditures of approximately $1.2 million per
year for the next several years will be attributable to environmental and safety
laws. Such legislation also has a negative effect on productivity. No assurance
can be given that additional, more stringent mining and environmental
legislation will not be enacted or that such legislation, if enacted, would not
have a material adverse effect upon the Company's operations.

     The Company currently employs approximately 1,800 persons, of whom 1,650
are engaged directly in the production and processing of coal for sale and 150
are engaged in executive, administrative, engineering, exploration, sales and
clerical functions. The Company's subsidiaries have approximately 1,365
employees who are covered by the National Bituminous Coal Wage Agreement of 1998
(the "1998 Agreement") with the United Mine Workers of America (the "UMWA"). The
1998 Agreement has a term from January 1, 1998 until December 31, 2002, and may
be terminated on or after December 31, 2002 by either party giving at least 60
days written notice to the other party.

     The Company's business is not seasonal in any material respect.

     The Company is engaged principally in a single line of business, the mining
and sale of coal. Excluding the sales of Eighty-Four during its development
stage, the following table sets forth the amount of the Company's sales
contributed by each class of the Company's products which accounted for more
than 10% of the Company's total sales during each of the Company's three fiscal
years ended December 31, 1997, 1996 and 1995.

                     Sales of
                    Coal Under
Year Ended           Long-Term         Other Sales
December 31          Contracts           of Coal         Other      Total Sales
- - - -----------         ----------         -----------      -------     -----------
                                     (in thousands)

   1997              $172,865            $27,390        $10,090       $210,345
   1996               185,841              7,450          8,974        202,265
   1995               198,394             10,730          7,562        216,686


     In the years ended December 31, 1997, 1996 and 1995, R&P Canada had sales
of $13,528,685, $7,235,578 and $10,268,032, respectively, primarily to customers
located in Canada. The Company does not consider its sales of coal in Canada to
be subject to any particular risks merely because its customers are located in
Canada. However, foreign business in general can be subject to special risks,
including exchange controls, changes in currency valuations, restrictions on the
repatriation of funds, restrictions on the ownership of foreign corporations or
the composition of their boards of directors, export restrictions, the
imposition or increase of taxes and tariffs and international financial
instability. No assurance can be


                                      -43-

<PAGE>


given that any of these factors might not have an adverse effect on the
Company's future foreign operations.

Properties

     The Company's executive and administrative offices are located in a 76,309
square foot building in Indiana, Pennsylvania, which the Company owns. The
Company also owns approximately 24,000 acres of surface land in Pennsylvania.
The Company's subsidiaries lease various properties in the United States and
Canada under leases having a current annual aggregate rental of approximately
$294,000. These leases expire at various times over the next five years and the
amount of aggregate rental payable during that period will depend on the extent
of renewals.

     As of December 31, 1997, based upon the prior experience of the Company in
mining in the area of the Company's operations and data from tests conducted by
it and, in the case of the coal properties acquired by Eighty-Four and Lucerne
Land, a review of data provided by others and mining practices in the area and
seam acquired, the Company had an estimated recoverable reserve base in leased
or owned properties in Indiana, Armstrong, Westmoreland, Washington and other
nearby Pennsylvania counties of approximately 701 million tons of coal.
Substantially all of the coal leased by the Company is leased until exhaustion.
The Company has not conducted sufficient tests to determine the degree to which
reserves, if any, exist on its owned or leased properties located outside of
Indiana, Armstrong, Westmoreland, Washington and other nearby Pennsylvania
counties.

     The Company operated six underground mines in 1997. Information on the
production of those mines and on the estimated recoverable reserve base of these
mines and the estimated recoverable reserve base of the Company is provided in
the following table:

<TABLE>
<CAPTION>
                                     Recoverable Reserve Base
                                 ---------------------------------                   Production in Tons
                                           (Tons x 1000) (1)             -------------------------------------------
                                 Proven       Probable      Total           1997             1996            1995
                                 ------       --------      ------       ----------     ------------      ----------
<S>                              <C>           <C>          <C>         <C>             <C>              <C>       
Underground:

KCMC
   Assigned - Dedicated
      Emilie(3)                   2,007           862        2,869       996,162(4)      1,004,314(4)     843,104(4)
      Emilie #4(3)                    0             0            0             0(4)              0(4)     249,617(4)
      Jane(3)                         0             0            0             0(4)              0(4)     358,813(4)
      Margaret #11-2(3)               0             0            0             0(4)              0(4)     361,343(4)
      Plumcreek #1(3)             2,543         1,816        4,359       464,654(4)        440,942(4)     296,244(4)
      Urling #1(3)                    0         2,516        2,516       599,055(4)        865,027(4)     726,567(4)
   Unassigned - Dedicated        35,508        12,417       47,925             0                 0              0
</TABLE>


                                      -44-

<PAGE>


<TABLE>
<S>                              <C>           <C>          <C>         <C>             <C>              <C>       
Helvetia
   Assigned - Dedicated
      Lucerne #6-E(2)             3,423         2,257        5,680       956,864(4)        999,245(4)     988,945(4)
      Marshall Run(2)             1,630           657        2,287       723,321(4)        819,850(4)     451,768(4)
   Unassigned - Dedicated             0             0            0             0                 0              0

Lucerne Land
   Assigned
      Mine No. 84(5)             78,026             0       78,026     4,783,950(4)      3,026,551(4)   1,344,189(4)
   Unassigned                         0        92,166       92,166             0                 0              0

Registrant
   Unassigned                   192,086       270,331      462,416             0                 0              0

   Total - Underground          315,223       383,022      698,245     8,523,956         7,155,929      5,620,590
                                -------       -------      -------     ---------         ---------      ---------

Surface:
   Assigned                         165            44          209       113,955           160,981        210,827
   Unassigned                       847         1,269        2,116             0                 0              0
   Total - Surface                1,012         1,313        2,325       113,995           160,981        210,827
                                -------       -------      -------     ---------         ---------      ---------

TOTAL                           316,235       384,334      700,569     8,637,951(4)      7,316,910(4)   5,831,417(4)
                                =======       =======      =======     =========         =========      =========
</TABLE>

Notes:

      Recoverable -   Those portions of the reserve base that are owned or
                      leased by the Company that are potentially extractable
                      using an appropriate recovery factor(s) to account for
                      coal lost-in-mining and dilution introduced during the
                      mining process.

      Assigned    -   Areas that can be mined through the use of existing mine
                      openings and coal handling and processing facilities based
                      on the Company's current mining plans. Additional
                      ventilation openings may be required for underground mines
                      due to normal mine expansion.

      Unassigned  -   Areas that would require substantial capital expenditures
                      for new mine openings and equipment prior to any mining
                      activity.

      Dedicate    -   Areas committed under coal sales agreements.

- - - ----------
(1)  These figures represent calculations based upon continuing evaluation and
     refinement of estimates reflecting evaluation of new and existing geologic
     data, improved computational methods, and the effects of legal and
     environmental considerations. "Proven" tonnage is estimated by projection
     of thickness and quality data for a radius of 2,000 feet from a point of
     measurement. "Probable" tonnage is estimated by projection of thickness and
     quality data for a radius greater than 2,000 feet and less than 5,000 feet
     from a point of measurement and when consideration is made for other
     factors, such as mining conditions, coal quality and mine operating
     experience.

(2)  Operated by Helvetia.


                                      -45-

<PAGE>


(3)  Operated by KCMC.

(4)  Tonnage figures represent clean coal after washing and preparation at the
     Keystone Cleaning Plant, the Helvetia Cleaning Plant or at Mine No. 84's
     preparation facilities.

(5)  Operated by Eighty-Four.


     Surface mining is also conducted by the Company and by independent
contractors utilized by the Company, who are obligated by law and by contract
with the Company to restore the surface in accordance with Pennsylvania and
federal laws. Production from surface mining for the last three years has been
as follows: 1995 -- 210,827 tons, 1996 -- 160,982 tons and 1997 -- 113,995 tons.
All surface-mined coal produced in 1997 was sold on the commercial market. The
Company anticipates limited surface mining activity in the near future. No
assurance can be given that the Company will be able to maintain adequate
resources for surface-mined coal in the future.

     All of the properties of the Company and KCMC dedicated under the Keystone
Agreement are subject to a mortgage given as security for indebtedness of KCMC.
All of the properties of Eighty-Four and Lucerne Land are subject to a mortgage
given as security for their indebtedness. See Note D of Notes to Consolidated
Financial Statements included herein.

     The Company has miscellaneous other non-coal mineral interests, primarily
natural gas, which it leases to unrelated parties. The Company also participates
in gas well joint ventures in Pennsylvania and nearby states.

Legal Proceedings

     The nature of the Company's business subjects it to numerous state and
federal laws and regulations pertaining to environmental matters and
administrative and judicial proceedings involving alleged violations thereof are
considered incidental to the Company's business.

     Other than the matter discussed herein, the Company is not a party to any
pending litigation which it deems material to its financial condition, although
it is a party to litigation incidental to the conduct of its business.

     A citizens group, People United To Save Homes (the "Appellant") filed an
appeal of the issuance by DEP of Eighty-Four's Permit. The appeal is pending
before the Pennsylvania Environmental Hearing Board (the "EHB") at EHB Docket
No. 95-233-R. Briefing has been completed and the matter is pending before the
entire EHB. During 1997, DEP issued a new Mining Activity Permit (the "1997
Permit") to Eighty-Four, the previous one (the subject of the appeal at EHB
Docket No. 95-233-R) having expired by its terms. The Appellant has also filed
an appeal to the issuance of the 1997 Permit. The appeal, which addresses issues
substantially identical to those raised in Docket No. 95-233-R, is pending
before the EHB at Docket No. 97-262-R. Motions for consolidation of the two
appeals and incorporation of


                                      -46-

<PAGE>


portions of the record from Docket No. 95-233-R into the appeal at Docket No.
97-262-R are pending. While the Company believes that the appeals of the Permit
are not meritorious and will be denied by the EHB, the outcome of such appeals
cannot be determined at this time. In the event that the Appellant were to
prevail with respect to material provisions of the Permit and/or the 1997
Permit, Eighty-Four might then be required to amend its mining plan or to incur
additional operating expenses which could have an adverse financial effect on
the Company.


                                      -47-

<PAGE>


                      Selected Consolidated Financial Data
                (Amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                          1997          1996          1995          1994          1993
                                        --------      --------      --------      --------      --------
<S>                                     <C>           <C>           <C>           <C>           <C>
Results of Operations
   Tons of coal produced                   4,985         4,290         4,492         4,976         3,218
   Sales                                $210,345      $202,265      $216,686      $191,991      $153,628
   Depreciation, depletion
      and amortization                    17,765        11,795        13,285        12,215        10,406
   Provision (credit) for
      income taxes                         1,493         3,969          (337)        1,838         1,502
   Net income (loss)(1)                   (3,724)       11,261        (3,535)        2,466         7,083

Financial Position
   Working capital                      $ 30,838      $ 36,547      $ 41,969      $ 50,145      $ 31,025
   Property, plant and
      equipment - net                    355,446       356,625       322,363       230,169       183,009
   Net capital expenditures               32,452        46,878        88,090        58,848        48,213
   Total assets                          518,134       531,398       491,407       410,994       356,884
   Long-term debt                         84,535       100,501       120,784        75,693        29,455
   Shareholders' equity                  205,515       211,185       203,114       207,450       210,794

Per Share Data
   Average shares outstanding              3,441         3,441         3,439         3,439         3,441
   Net income (loss)(1)                 $  (1.08)     $   3.27      $  (1.03)     $    .72      $   2.06
   Cash dividends declared                   .60           .60           .75          1.50          1.50
   Book value at year-end                  59.73         61.37         59.06         60.33         61.31
</TABLE>

- - - ----------
(1)  Net income (loss) and net income (loss) per share for 1997 was impacted by
     a $17,000,000 write-down of the property, plant and equipment related to
     Helvetia, which was substantially offset by pretax gains on the sales of
     nonstrategic coal reserves and land of $14,000,000.

(2)  Net income and net income per share for 1993 include a credit of $4,709,000
     and $1.37, respectively, for the cumulative effect to January 1, 1993 of a
     change in accounting for income taxes.

(3)  The Company's subsidiary, Eighty-Four, completed development of its Mine
     No. 84 in October 1997. Consequently, all revenues and expenses, other than
     its provision for income taxes, certain real estate tax expenses, and
     certain general and administration expenses, were not included in the 1997
     results in the accompanying Consolidated Condensed Operating Statements.


                                      -48-

<PAGE>


Management's Discussion and Analysis of Financial Condition and Results of
Operations

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 and the
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Results of Operations

     As discussed in Note B to the Consolidated Financial Statements, the second
longwall mining system was installed at Eighty-Four in September 1997. Major
underground construction and development projects necessary to prepare the mine
for two operating longwall mining systems were essentially complete as of
October 31, 1997 and, thus, the development phase accounting treatment in effect
since 1993 ended as of that date. A total of $161 million in cost of
development, net of sales revenue from coal produced incidental to development,
were capitalized during the develop ment period. The results of the Mine No. 84
project, other than the provisions for income taxes, certain property taxes and
certain general and administrative costs, are not included in the Consolidated
Statements of Operations for prior periods through October 31, 1997. The project
recorded pretax losses of $4.2 million, $2.8 million and $1.9 million for the
years 1997, 1996 and 1995, respectively. The inclusion of Eighty-Four's sales,
cost of sales, interest expense and depreciation, depletion and amortization in
the consolidated operating results for the months of November and December 1997
affect the comparison of 1997 amounts to those of prior years.

     As previously reported, the underground construction and development
projects reduced the efficiency, availability and advancement rates of the
continuous miner units resulting in advancement rates which continued to fall
short of levels necessary for economical operations of the mine. Projections for
1998 indicate that the first longwall, which completed mining a section of the
mine in early February 1998, will experience a delay of up to three and one-half
months in starting its next mining panel. This delay is due to the cumulative
effect of not attaining acceptable continuous miner advance rates over the last
several years. This delay, coupled with the idle capacity associated with the
scheduled outage for the movement of the second longwall unit to a new mining
section in April 1998, will result in sizeable losses at Eighty-Four for the
first and second quarters of 1998. Such losses are not expected to be offset by
profitable operations at Eighty-Four for the balance of the year. Current
projections indicate that the Mine No. 84 project will incur a pretax loss for
1998 of approximately $11 million after elimination of interest charges from
consolidated affiliates. Many factors influence this estimate. For example,
continued improvement in continuous miner advance rates, which have improved
thus far in 1998, could shorten the delay and reduce projected losses, while
lower advance rates would increase losses.

     Eighty-Four's profitability beyond 1998 will be dependent on improvements
in productivity, cost reductions and overall better performance of all aspects
of its operations. In addition, sales price increases will be required to cover
cost increases resulting from inflation.

     KCMC had essentially break-even operating results in 1997 after recording a
pretax profit of $750,000 in 1996 and a pretax loss of $8.4 million in 1995.
KCMC recorded profits of $1.1 million for the first nine months of 1997.
However, it shipped approximately 82% of its annual delivery obligations under
its coal supply agreement during that period. The


                                      -49-

<PAGE>


consequent limitation on fourth quarter deliveries and the normally fewer
operating days in that quarter compared to other quarters resulted in higher
operating costs and losses for the fourth quarter. Productivity at KCMC's deep
mines increased slightly in 1997. However, increased costs of coal purchased
from third parties for resale impaired profit margins.

     The closing of three of KCMC's six deep mines at the end of 1995, which is
discussed in Note C to the Consolidated Financial Statements, and replacement of
this production with raw coal purchased from third parties improved KCMC's
operating costs in 1996. The remaining mines had productivity improvements in
1996 despite a major roof fall at one mine in the fourth quarter. Improvements
at KCMC's cleaning plant operations resulted in an enhanced quality of coal
sold. KCMC's 1996 results also benefitted from the favorable effect of
decreasing coal inventories under the pricing provisions of its coal supply
agreement and the effect of slightly improved market prices over 1995 on its
profit formula.

     In 1995, KCMC had experienced continuing problems in conjunction with major
modifications made to its coal cleaning plant in 1994, which caused inventories
of unprocessed coal to build to unusually high levels at the end of 1994 and in
early 1995. As a result, production was idled for over a month and further
modifications to the cleaning plant were completed in mid-1995. In addition, in
1995 KCMC continued to experience poor geological conditions, a reduction in the
market price index used to adjust its sales price and declining productivity
levels. As a result of these factors, KCMC's operating costs in 1995 were higher
than its sales revenue, which, while determined under a cost-plus pricing
mechanism, is subject to a maximum price cap.

     Helvetia, which recorded a pretax loss of $4.6 million in 1995 and pretax
income of $2.2 million in 1996, recorded a loss of $18.3 million in 1997. As
discussed in Note C to the Consolidated Financial Statements, Helvetia reduced
the $17 million carrying value of its fixed assets to zero in the second quarter
of 1997 in accordance with Statement of Financial Accounting Standards No. 121.
This write down was based on the existence of continuing operating losses, net
of cash outflows, and forecasts which indicated that such adverse conditions
were expected to continue at its existing operations. In 1996, Helvetia
benefitted from a full year of production from its Marshall Run mine, which
commenced operations during 1995, and the favorable effect on operating profit
of the adjustment to estimated workers' compensation liabilities for prior years
which is discussed more fully in Note H to the Consolidated Financial
Statements. While Marshall Run has continued to be profitable, Helvetia's other
mine, Lucerne 6E, has experienced losses in each of the past three years.
Efforts to improve its productivity continue.

     The Company's continuing program of selling certain nonstrategic coal and
surface properties resulted in pretax income of $14 million in 1997, $7.7
million in 1996 and $2.2 million in 1995.

     In 1997, the Company's other operating subsidiaries recorded pretax income
of $1.9 million compared to $1.7 million and $1.9 million for 1996 and 1995,
respectively. These profits derive from surface mining operations and
reclamation contracts with the Commonwealth of Pennsylvania for the restoration
of abandoned mine lands.


                                      -50-

<PAGE>


     Interest and dividend income decreased in 1997 due to the liquidation of a
$35 million investment portfolio, the proceeds of which were utilized for Mine
No. 84. The increases in interest and dividend income in 1996 compared to 1995
were due to higher amounts invested.

     Depreciation, depletion and amortization was substantially higher in 1997
due to the inclusion of Eighty-Four's operating results since November 1, 1997.
This category was lower in 1996 compared to 1995 due to the recording of
additional amounts of depreciation relating to the closure of three KCMC mines
in 1995.

     Interest expense reflects the inclusion of amounts relating to Eighty-Four
for the period beginning November 1, 1997. Interest on Eighty-Four's debt was
capitalized as mine development costs through October 1997. Interest expense in
1996 was lower than in 1995 due to reductions in the amount borrowed to finance
KCMC's operations. KCMC required financing for certain strike costs in 1995,
which were deferred in accordance with its long-term coal sales agreement, and
to finance higher inventory levels in that year.

     The Company's effective income tax rates are discussed in Note F to the
Consolidated Financial Statements.

     Coal prices, which stabilized and then increased slightly in 1996, after
five years of steady decline, decreased slightly in 1997. The general downward
trend in prices has forced the Company's subsidiaries, as well as its
competitors, to mitigate the effects of inflation on costs by endeavoring to
increase productivity and reduce overall operating costs. The change in market
prices is a significant element in the determina tion of sales prices under
KCMC's and Helvetia's long-term coal sales agreements. Thus, as a result of
lower market price indices, the respective sales prices have not kept pace with
cost inflation. While staff reductions and operating efficiencies have been
implemented over the past several years by the Company and its subsidiaries,
these subsidiaries have not been able to cover these inflationary effects and
there can be no assurance that they can do so in the future. The Company expects
market prices to remain highly competitive. The profitability of these
subsidiaries, including Eighty-Four, will be highly dependent on their ability
to maximize productivity and continue to implement additional sustained cost
reduction programs. In addition, market prices and competition in the Eastern
and Midwestern utility coal markets could be affected by the pending breakup of
Conrail, Eighty-Four's primary rail carrier.

     Eighty-Four's initial coal mining Permit is the subject of litigation
before the EHB. In November 1997, a new Permit was issued upon the expiration of
the initial Permit. A challenge to the new Permit has also been filed and is
concurrently pending before the EHB. Both Eighty-Four and the DEP, which issued
the Permits, have vigorously defended DEP's actions and believe that the
Permits' issuance will be upheld in all material respects. This litigation does
not involve a contingent liability, but a final adverse decision could have a
material adverse effect on the Company. See "Legal Proceedings."

     There has been no activity on Leatherwood's permit to develop and operate a
solid waste landfill in Jefferson County, Pennsylvania. The permit was suspended
in 1996 pursuant to enactment of new federal legislation which purports to ban
construction of Leatherwood's landfill. Even if successfully pursued, completion
of the Leatherwood project will be delayed


                                      -51-

<PAGE>


indefinitely. Leatherwood has previously expensed a substantial portion of the
costs incurred in securing its permit. Thus, if Leatherwood were to terminate
development of the landfill, the effect on the Company's Consolidated Financial
Statements would not be material.

     In 1997, Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" was issued which establishes new rules for the reporting
and display of comprehensive income and its components. The Company intends to
adopt this statement for its 1998 fiscal year. Also in 1997, Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" was issued which changes the way segment
information is required to be reported. The standard is required to be adopted
in 1998 and the additional disclosure, if any, will be determined during 1998.

     The Company is in the process of making modifications to a portion of its
computer programs that contain time sensitive software with limitation on
accepting dates after 1999. The Company has made an assessment of which computer
programs require modification or replacement and has, in fact, been making such
modifications over the last several years. All systems are scheduled to be
complete within one year. The costs of making necessary modifications or
ultimately replacing the software, if necessary, is not material.

     All statements contained in this Proxy Statement that are not historical
facts are based on current expectations. Such statements are forward-looking (as
defined in the Private Securities Litigation Reform Act of 1995) in nature and
involve a number of risks and uncertainties. Actual results may vary materially.
The factors that could cause actual results to vary materially include: the
ability of the Company to maintain profitable operations, general business and
economic conditions in the coal mining industry, the Company's ability to
maintain acceptable advance rates at Mine No. 84, labor developments, the cost
of coal compared to the cost of other fuels used by the Company's utility
customers, the quality of the coal mined by the Company, the availability of
adequate rail transportation and other risks that may be described
from time to time in reports the Company files with the Commission. Undue
reliance should not be placed on any such forward-looking statements.

Liquidity and Capital Resources

     As discussed in Notes B and D to the Consolidated Financial Statements, as
of December 31, 1997, the Company had contributed equity in the amount of $105
million and loaned $55 million through a consolidated affiliate to Mine No. 84.
In addition, long-term debt totaling $74.8 million and operating leases of
equipment have been utilized to provide the remaining funding requirements of
Mine No. 84.

     Eighty-Four, Lucerne Land and the Company, because of its guaranty, are
subject to numerous financial covenants and restrictions. At December 31, 1997,
Eighty-Four and Lucerne Land were in violation of certain covenants and were
projecting violations of several other covenants in the future. In January 1998,
the debt agreement was amended to waive the violations in existence at year end
and amend several other provisions affecting 1998 and future periods.


                                      -52-

<PAGE>


     Working capital was $31 million, $37 million and $42 million at December
31, 1997, 1996 and 1995, respectively. The Company's current ratio (ratio of
current assets to current liabilities) was 1.6 to 1 at December 31, 1997
compared to 1.6 to 1 and 2.2 to 1 at December 31, 1996 and 1995, respectively.
The decrease in working capital and current ratio in 1996 from 1995 was
primarily due to reductions in KCMC's coal inventory and receivables to more
normal operating levels. The classification of a portion of Eighty-Four's debt,
which was prepaid in March 1997 along with securities liquidated to provide for
the repayment, as current at December 31, 1996 also contributed to the lower
current ratio in 1996. An increase in scheduled debt repayment due within one
year caused the working capital to decline at December 31, 1997. As discussed in
Note E to the Consolidated Financial Statements, the amount of subsidiaries' net
assets which are restricted from being transferred to the Company under debt
agreements totals $105,225,000.

     Despite the losses incurred in 1997 and the reduction of the amount of
long-term debt during the year, the Company was able to maintain adequate levels
of cash and investments, primarily because the sale of nonstrategic coal and
surface lands provided approximately $16 million in cash flow. Efforts to
improve liquidity by the sale of nonstrategic assets are expected to continue in
1998.

     Even though losses are projected for the Company in 1998, due principally
to Eighty-Four's losses, forecasts indicate the Company will maintain adequate
levels of cash flow. These projections indicate that present debt facilities are
adequate to provide funding for debt requirements, however, leasing arrangements
will continue to be utilized for acquiring equipment to replace older equipment
previously under lease agreement.

Quarter Ended March 31, 1998 Compared to Quarter Ended March 31, 1997

Results of Operations

     Eighty-Four completed development of Mine No. 84 as of October 1997, and
the development phase accounting treatment in effect since 1993 ended as of that
date. The results of operations of Eighty-Four, other than the provisions for
income taxes, certain property taxes and certain general and administrative
costs are not included in the Consolidated Condensed Statements of Operations
for the periods through October 31, 1997. Therefore, the inclusion of
Eighty-Four's sales, cost of sales, interest expense and depreciation, depletion
and amortization in the consolidated operating results for 1998 affects the
comparison to 1997.

     Eighty-Four recorded a pretax loss of $7.5 million in the quarter ended
March 31, 1998. Eighty-Four was in the development stage through October 1997,
and capitalized all but $1.3 million of costs relating to development in the
quarter ended March 31, 1997. The loss for the quarter ended March 31, 1998 is
primarily the result of the first longwall mining system's being out of
operation in the months of February and March 1998 while the next mining panel
was being prepared for mining.

     Eighty-Four will also incur sizeable losses in the second quarter of 1998
due to the downtime associated with both longwall mining systems. While the
first longwall system


                                      -53-

<PAGE>


resumed mining in the north portion of the mine approximately three weeks ahead
of forecast, the second longwall mining unit experience poor mining conditions
in its panel completed in early April 1998 and will be out of operation
approximately three weeks longer than expected. Overall, continuous miner
advance rates continued to improve during the quarter ended March 31, 1998.

     KCMC operated at a profit in the quarter ended March 31, 1998 compared to a
slight loss in the first quarter of 1997 due to the favorable effect in 1998 of
decreasing coal inventories under the pricing provisions of KCMC's coal supply
agreement. The slight improvement in earnings was in spite of lower productivity
for the quarter ended March 31, 1998.

     Helvetia recorded pretax income of approximately $600,000 on a 7% increase
in tons sold for the quarter ended March 31, 1998 compared to a loss of
approximately $1.5 million for the quarter ended March 31, 1997. This
improvement was due to (1) productivity increases at both of Helvetia's
operating mines and (2) the lack of depreciation expense in the quarter ended
March 31, 1998 due to the write-down of Helvetia's plant and equipment to zero
in the second quarter of 1997. Had the write-down not occurred, depreciation
expense in the quarter ended March 31, 1998 would have been approximately $1
million.

     Pretax income was enhanced in the quarter ended March 31, 1997 by the sale
of certain nonstrategic properties resulting in gains of $2.1 million, compared
to similar gains in the quarter ended March 31, 1998 of $150,000.

     The Company recorded net investment losses of $171,000 in the quarter ended
March 31, 1997 due to the sale of securities in order to provide funding
required for Mine No. 84. The resulting reduction in investments reduced
interest and dividend income in the quarter ended March 31, 1998.

     Depreciation, depletion and amortization was substantially higher in the
quarter ended March 31, 1998 due to the inclusion of Eighty-Four's operating
results. The increase was partially offset by the aforementioned reduction in
Helvetia's depreciation and amortization due to the write-off in 1997.

     While long-term debt balances were lower in the quarter ended March 31,
1998 compared to the quarter ended March 31, 1997, interest expense thereon, as
recorded in the statement of operations, increased. This increase was due to the
inclusion of amounts relating to Mine No. 84 in the statement of operations for
the quarter ended March 31, 1998.

     The decrease in miscellaneous expense in the quarter ended March 31, 1998
reflects the write-off in the quarter ended March 31, 1997 of certain debt
issuance costs relating to the modification of Eighty-Four's debt arrangement in
March 1997.

     The income tax provision for the quarter ended March 31, 1998 is based upon
the estimated effective tax rate for 1998. The estimated effective tax rate
differs from statutory rates due to the reversal of state and federal deferred
tax liabilities for temporary differences


                                      -54-

<PAGE>


that arose during Eighty-Four's development and the relationship of those
amounts to pretax income (loss).

Liquidity and Capital Resources

     Working capital at March 31, 1998 was $28 million compared to $31 million
at December 31, 1997. The Company's current ratio (ratio of current assets to
current liabilities) was 1.5 to 1 at March 31, 1998 compared to 1.6 to 1 at
December 31, 1997. The reduction is due to the operating losses and reduction in
accounts receivable caused by the longwall outages at Eighty-Four.

                             ADDITIONAL INFORMATION

Independent Auditors

     A representative of Ernst & Young LLP, independent auditors of the
Company's financial statements, is expected to be present at the Special
Meeting, will have an opportunity to make a statement if such representative so
desires and will be available to respond to appropriate questions.

Available Information

     The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files periodic reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
informa tion can be inspected at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Regional Offices of the Commission at the
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661
and Suite 1300, Seven World Trade Center, New York, New York 10048. In addition,
copies of such materials may also be obtained at prescribed rates from the
Public Reference Section of the Commission at its principal office at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549. In addition, copies of such
documents may be obtained through the Commissions's Internet address at
http://www.sec.gov.

     After the Effective Time, the Common Stock will no longer be traded in
over-the-counter market. Moreover, the Surviving Corporation will no longer be
required to file informational reports under the Exchange Act, such as proxy
statements, and its officers, directors and more than 10% shareholders will be
relieved of the reporting requirements under, and the "short-swing" profit
recapture provisions of, Section 16 of the Exchange Act.


                                      -55-

<PAGE>


                                 OTHER PROPOSALS

     The Board of Directors does not know of any matters to be presented for
consideration other than the matters described in the Notice of Special Meeting,
but if any matters are properly presented, it is the intention of the persons
named in the accompanying proxy to vote on such matters in accordance with their
judgement.

                                          By Order of the Board of Directors,



                                          Thomas W. Garges, Jr.,
                                          President and Chief Executive Officer

July __, 1998


                                      -56-

<PAGE>


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                           Page
                                                                           ----
Audited:

     Report of Independent Accountants.....................................F-1
     Consolidated Balance Sheets as of December 31, 1997, 1996 and 1995....F-2
     Statements of Consolidated Operations for the years ended
       December 31, 1997, 1996 and 1995....................................F-4
     Statements of Consolidated Shareholders' Equity
       for the years ended December 31, 1997, 1996 and 1995................F-5
     Statements of Consolidated Cash Flows for the years ended
       December 31, 1997, 1996 and 1995....................................F-6
     Notes to Consolidated Financial Statements............................F-7

Unaudited:

     Consolidated Condensed Balance Sheets as of March 31,
       1998 and 1997.......................................................F-22
     Consolidated Condensed Statements of Operations for
       the three months ended March 31, 1998 and 1997......................F-23
     Consolidated Condensed Statements of Cash Flows for
       the three months ended March 31, 1998 and 1997......................F-24
     Notes to Consolidated Condensed Financial Statements..................F-25


                                      -57-

<PAGE>


                        REPORT OF INDEPENDENT AUDITORS


To the Shareholders
Rochester & Pittsburgh Coal Company
Indiana, Pennsylvania

     We have audited the accompanying consolidated balance sheets of Rochester &
Pittsburgh Coal Company and subsidiaries as of December 31, 1997, 1996 and 1995,
and the related statements of consolidated operations, shareholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Rochester &
Pittsburgh Coal Company and subsidiaries at December 31, 1997, 1996, and 1995,
and the consolidated results of their operations and their cash flows for the
years then ended, in conformity with generally accepted accounting principles.


                                            ERNST & YOUNG LLP

Pittsburgh, Pennsylvania
March 12, 1998


                                       F-1

<PAGE>


              Rochester & Pittsburgh Coal Company and Subsidiaries
                           Consolidated Balance Sheets
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                               December 31,
                                                  ------------------------------------
                                                    1997          1996          1995
                                                  --------      --------      --------
<S>                                               <C>           <C>           <C>
ASSETS:

CURRENT ASSETS
   Cash and cash equivalents                      $ 37,026      $ 34,466      $ 27,437
   Short-term investments and
      marketable securities                             --        25,000         2,645
   Receivables                                      29,414        21,945        29,576
   Coal inventories                                  9,189         5,835         6,128
   Mine supply inventories                           1,792         1,579         1,532
   Prepaid expenses and other current assets         2,933         4,475         6,086
   Deferred income taxes                             4,714         2,093         2,166
                                                  --------      --------      --------
      TOTAL CURRENT ASSETS                          85,068        95,393        75,570

OTHER ASSETS
   Investments in marketable securities             20,166        28,558        44,410
   Funding for:
      Workers' compensation benefits                12,950        14,229        16,915
      Mine closing reserves                         12,135        11,651        10,271
   Deferred income taxes                            14,894         8,839         7,712
   Prepaid royalties                                 5,903         6,242         6,323
   Miscellaneous                                    11,572         9,861         7,843
                                                  --------      --------      --------
                                                    77,620        79,380        93,474

PROPERTY, PLANT AND EQUIPMENT
   Coal and surface lands                           85,159        87,640        87,638
   Plant and equipment                             333,125       291,125       294,815
   Mine development                                160,660       133,236       108,720
   Construction in progress                          6,412        29,543        20,452
                                                  --------      --------      --------
                                                   585,356       541,544       511,625
   Less allowances for depreciation,
      depletion and amortization                   229,910       184,919       189,262
                                                  --------      --------      --------
                                                   355,446       356,625       322,363
                                                  --------      --------      --------
                                                  $518,134      $531,398      $491,407
                                                  ========      ========      ========



                See notes to consolidated financial statements.


                                       F-2

<PAGE>


              Rochester & Pittsburgh Coal Company and Subsidiaries
                           Consolidated Balance Sheets
                             (dollars in thousands)


LIABILITIES AND SHAREHOLDERS' EQUITY:

CURRENT LIABILITIES
   Accounts payable                               $ 16,264      $ 15,329      $ 14,809
   Accrued payrolls and related expenses             8,553         8,116         9,823
   Other accrued liabilities                        12,485         5,282         5,939
   Dividends payable                                   516           516           516
   Income taxes payable                              6,111         1,367            --
   Current portion of long-term debt                10,301        28,236         2,514
                                                  --------      --------      --------
      TOTAL CURRENT LIABILITIES                     54,230        58,846        33,601

OTHER LIABILITIES
   Other postretirement benefits                   81,469        72,346        46,458
   Workers' compensation benefits                  42,006        40,384        40,292
   Mine closing reserves                           24,300        23,929        23,153
   Black lung benefits                              8,708         9,231        11,348
   Deferred income taxes                           13,853        11,079         8,169
   Miscellaneous                                    3,518         3,897         4,488
                                                 --------      --------      --------
                                                  173,854       160,866       133,908

LONG-TERM DEBT (less current maturities)           84,535       100,501       120,784

LONG-TERM AGREEMENTS

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
   Common Stock, no par value (stated value
      $15); authorized, 5,000,000 shares;
      issued, 3,989,121 shares                     59,837        59,837        59,837
   Capital in excess of stated value              133,125       133,125       133,162
   Retained earnings                               40,358        46,028        38,007
                                                 --------      --------      --------
                                                  233,320       238,990       231,006

   Less treasury stock at cost--
      548,137; 548,137 and 549,846 shares          27,805        27,805        27,892
                                                 --------      --------      --------
                                                  205,515       211,185       203,114
                                                 --------      --------      --------
                                                 $518,134      $531,398      $491,407
                                                 ========      ========      ========
</TABLE>

                See notes to consolidated financial statements.


                                       F-3

<PAGE>


              Rochester & Pittsburgh Coal Company and Subsidiaries
                      Statements of Consolidated Operations
        (dollars in thousands, except those stated on a per share basis)

<TABLE>
<CAPTION>
                                                    Years Ended December 31,
                                             ----------------------------------------
                                               1997            1996           1995
                                             ---------       ---------      ---------
<S>                                          <C>             <C>            <C>      
Sales                                        $ 210,345       $ 202,265      $ 216,686
Other income
   Gain on sale of property                     13,955           7,678          2,164
   Interest and dividends                        3,299           4,723          3,917
   Net investment gains (losses)                  (165)            776          1,262
   Miscellaneous                                 1,594           1,840          1,850
                                             ---------       ---------      ---------
                                               229,028         217,282        225,879

Costs and Expenses
   Cost of sales                               185,344         180,302        205,283
   Depreciation, depletion and
      amortization                              17,765          11,795         13,285
   Selling, general and administrative           5,911           6,589          6,321
   Interest                                      3,090           2,032          3,238
   Write-down of property, plant and
      equipment                                 17,047              --             --
   Miscellaneous                                 2,102           1,334          1,624
                                             ---------       ---------      ---------
                                               231,259         202,052        229,751
                                             ---------       ---------      ---------

      Income (loss) before income taxes         (2,231)         15,230         (3,872)

Provision (credit) for income taxes              1,493           3,969           (337)
                                             ---------       ---------      ---------

      Net income (loss)                      $  (3,724)      $  11,261      $    (337)
                                             =========       =========      =========

Net income (loss) per share                  $   (1.08)      $    3.27      $   (1.03)
                                             =========       =========      =========
</TABLE>

                See notes to consolidated financial statements.


                                       F-4

<PAGE>


              Rochester & Pittsburgh Coal Company and Subsidiaries
                 Statements of Consolidated Shareholders' Equity
        (dollars in thousands, except those stated on a per share basis)

<TABLE>
<CAPTION>
                                                                 Capital in
                                                  Common          Excess of         Retained       Treasury
                                                  Stock          Stated Value       Earnings        Stock
                                                 --------        ------------       --------       --------
<S>                                              <C>              <C>               <C>            <C>    
Balance at January 1, 1995                       $ 59,837         $ 133,170         $42,360        $27,917
   Net loss for the year                                                             (3,535)
   Treasury stock issued                                                 (8)                           (25)
   Cash dividends - $.75 per share                                                   (2,579)
   Change for the year in net
      unrealized securities gains,
      net of income tax of $878                                                       1,701
   Foreign currency translation gain                                                     60
                                                 --------         ---------         -------        -------

Balance at December 31, 1995                       59,837           133,162          38,007         27,892
   Net income for the year                                                           11,261
   Treasury stock issued                                                (37)                           (87)
   Cash dividends - $.60 per share                                                   (2,065)
   Change for the year in net
      unrealized securities losses,
      net of income tax [benefit] of $598                                            (1,160)
   Foreign currency translation loss                                                    (15)
                                                 --------         ---------         -------        -------

Balance at December 31, 1996                       59,837           133,125          46,028         27,805
   Net loss for the year                                                             (3,724)
   Cash dividends -- $.60 per share                                                  (2,065)
   Change for the year in net
      unrealized securities gains,
      net of income tax of $139                                                         269
   Foreign currency translation loss                                                   (150)
                                                 --------         ---------         -------        -------

Balance at December 31, 1997                     $ 59,837         $ 133,125         $40,358        $27,805
                                                 ========         =========         =======        =======
</TABLE>

                 See notes to consolidated financial statements.


                                       F-5

<PAGE>


              Rochester & Pittsburgh Coal Company and Subsidiaries
                      Statements of Consolidated Cash Flows

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                          -----------------------------------------
                                                            1997            1996            1995
                                                          ---------       ---------       ---------
<S>                                                       <C>             <C>             <C>
Operating activities:
   Net income (loss)                                      $  (3,724)      $  11,261       $  (3,535)
   Adjustments to reconcile net income (loss)
       to net cash provided by operating activities:
      Depreciation, depletion and amortization               17,765          11,795          13,285
      Write-down of property, plant and equipment            17,047              --              --
      Gain on sale of property                              (13,955)         (7,678)         (2,164)
      Deferred income taxes                                  (6,040)          2,454           1,713
      Gain on investment activity                              (109)           (956)         (1,523)
      Loss in investment activity                               282             180             261
      Changes in certain assets and liabilities
         (using) or providing cash:
         Receivables                                         (7,469)          7,631          (4,363)
         Inventories                                         (3,567)            246           9,255
         Income taxes payable                                 4,745           3,186           2,194
         Workers' compensation benefits and funding           2,321             661           4,471
         Mine closing reserves and funding                     (147)           (604)          2,267
         Other postretirement benefits                        9,123          25,888          13,648
         Accounts payable                                       935             520          (2,268)
         Accrued liabilities                                  7,638          (2,364)          4,278
         Other                                                  373          (1,901)            890
                                                          ---------       ---------       ---------
      NET CASH PROVIDED BY
         OPERATING ACTIVITIES                                25,218          50,319          38,409
                                                          ---------       ---------       ---------

INVESTING ACTIVITIES
   Proceeds from available-for-sale securities               38,572          42,082          45,886
   Acquisition of available-for-sale securities              (2,775)        (48,740)        (43,077)
   Acquisition and development of property,
      plant and equipment                                   (23,231)        (41,164)        (72,223)
   Proceeds from the sale of property, plant
      and equipment                                          15,899           7,721           3,261
                                                          ---------       ---------       ---------
      NET CASH PROVIDED BY (USED IN)
         INVESTING ACTIVITIES                                28,465         (40,101)        (66,153)
                                                          ---------       ---------       ---------

FINANCING ACTIVITIES
   Proceeds from borrowings                                 124,425         109,925         151,790
   Payments on borrowings                                  (171,220)       (111,099)       (123,156)
   Debt issue costs                                          (2,263)             --              --
   Cash dividends paid                                       (2,065)         (2,065)         (4,126)
   Issuance of treasury stock                                    --              50              17
                                                          ---------       ---------       ---------
      NET CASH (USED IN) PROVIDED BY
         FINANCING ACTIVITIES                               (51,123)         (3,189)         24,525
                                                          ---------       ---------       ---------

      INCREASE (DECREASE) IN CASH AND
         CASH EQUIVALENTS                                     2,560           7,029          (3,219)
Cash and cash equivalents at beginning of year               34,466          27,437          30,656
                                                          ---------       ---------       ---------
      CASH AND CASH EQUIVALENTS AT END
         OF YEAR                                          $  37,026       $  34,466       $  27,437
                                                          =========       =========       =========
</TABLE>

                 See notes to consolidated financial statements.


                                       F-6

<PAGE>


              Rochester & Pittsburgh Coal Company and Subsidiaries
                   Notes to Consolidated Financial Statements

NOTE A - OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES

     Operations - Rochester & Pittsburgh Coal Company and its subsidiaries are
principally engaged in the deep mining of bituminous steam coal for sale to
electric generating plants in the eastern and midwestern United States. A
significant portion of these sales is made pursuant to long-term coal supply
contracts.

     A substantial portion of the employees of the Company's operating
subsidiaries are covered by the National Bituminous Coal Wage Agreement of 1998
(the "1998 Agreement") with the United Mine Workers of America (UMWA) which
became effective January 1, 1998 and expires December 31, 2002.

     Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries, all of
which are wholly owned. All significant intercompany accounts and transactions
have been eliminated in consolidation.

     Cash and Cash Equivalents - Cash and cash equivalents, which are primarily
maintained at three financial institutions, include highly liquid investments
that are readily convertible to known amounts of cash.

     Investments - The Company accounts for investments in accordance with the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities".

     The appropriate classification of securities is determined at the time of
purchase. Marketable equity securities and debt securities for which the Company
does not have the intent or ability to hold to maturity are classified as
available-for-sale. Available-for-sale securities are carried at fair value
based on quoted market prices, with the unrealized gains and losses, net of tax,
reported as a component of equity. The amortized cost of debt securities in this
category is adjusted for amortization of premiums and accretion of discounts.
Realized gains and losses, determined using specific cost identification, and
declines in the value of held-to-maturity and available-for-sale securities
determined to be other-than-temporary are included in investment income.

     Inventories - Inventories are carried at the lower of average cost or
market.

     Property, Plant, and Equipment - Property, plant, and equipment is recorded
on the basis of cost including capitalized mine development costs and the cost
of equipment leased under capital leases. Depreciation is computed principally
at rates applied to tonnage produced. Such rates are based on estimates of tons
to be produced, the cost of property, plant, and equipment employed, the
estimated economic lives of the mines and equipment, and the remaining lives of
the long-term coal sales agreements referred to in Note C. The rates are revised
periodically to reflect operating experience and the provisions of the long-term
coal sales agreements. The resulting rates approximate straight-line
depreciation for


                                      F-7

<PAGE>


normal annual periods. Depletion of coal lands and amortization of mine
development costs are computed on a tonnage basis calculated to amortize their
costs fully over the estimated recoverable reserves.

     Foreign Currency Translation - The Canadian subsidiary's balance sheet
accounts are translated at the year-end exchange rate and the resulting
adjustment is made directly to equity. Income statement items are translated at
the average exchange rate for the year. Gains or losses resulting from foreign
currency transactions, which are not material, are reported in income. As of
December 31, 1997, accumulated foreign currency translation losses charged to
equity amounted to $1,176,000.

     Per Share Amounts - Per share computations are based on the average number
of shares of common stock outstanding during the respective years.

     Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

     Newly Issued Accounting Statements - In the first quarter of 1997, the
Company adopted Statement of Position 96-1 "Environmental Remediation
Liabilities" which was issued by the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants. Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" was also adopted by the
Company in 1997. The adoption of these statements had no effect on the
accompanying financial statements.

     In 1997, Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" was issued which establishes new rules for the reporting
and display of comprehensive income and its components. The Company intends to
adopt this statement for financial statements for the 1998 fiscal year. Also in
1997, Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information" was issued which changes the
way segment information is required to be reported. The standard is required to
be adopted in 1998 and the additional disclosure, if any, will be determined
during 1998.

     Reclassifications - Certain accounts in the consolidated financial
statements for prior years have been reclassified to conform to the statement
presentation for the current year. The reclassifications had no effect on net
income.

NOTE B - ACQUISITION AND DEVELOPMENT OF MINING ASSETS

     In December 1992, the Company, through its wholly owned subsidiaries
Eighty-Four Mining Company (Eighty-Four) and Lucerne Land Company (Lucerne
Land), acquired Mine No. 84 and approximately 175,000,000 tons of coal reserves
in Washington County, Pennsylvania.


                                      F-8

<PAGE>


     Development of the underground haulage system began in February 1993 and
additional surface handling and preparation facilities have been upgraded.
Develop ment mining commenced in the second quarter of 1994 to prepare for the
first longwall system which became operational in the third quarter of 1995. The
second longwall mining unit was installed in September 1997, and became
operational in November. As a result, operations include mining activities of
Eighty-Four from this date. Costs of development, net of sales revenue from coal
produced incidental to development were capitalized through October 1997.
Accordingly, the accompanying Statements of Consolidated Operations excluded all
revenues and expenses pertaining to the development period.

     The costs of rehabilitating and developing these facilities in 1997 and
cumula tively, amounted to $27,424,000 and $160,660,000, respectively, exclusive
of expendi tures for plant and equipment of $20,520,000 and $125,562,000,
respectively. Eighty-Four has obtained the necessary permits to develop the mine
as planned; however, these permits have been appealed by several parties. The
Company believes that the issuance of these permits will be upheld. This
litigation does not involve a contingent liability, but a final adverse decision
could have a material adverse effect on the Company.

     The Company has made an equity investment of $105,000,000 in this project
and has loaned $55,000,000 to the project under a line of credit with a
consolidated affiliated company.

NOTE C - LONG-TERM COAL SALES AGREEMENTS

     Two of the Company's subsidiaries have long-term contracts to supply coal
to two mine-mouth electric generating stations, as follows: Keystone Coal Mining
Corporation to the Keystone Steam Electric Station under the Keystone Coal
Supply Agreement (Keystone, Keystone Station, and Keystone Agreement) and
Helvetia Coal Company to the Homer City Steam Electric Station under the 1995
Coal Sales Agreement for deliveries commencing January 1, 1995 and the Homer
City Coal Sales Agreement for deliveries through 1994 (Helvetia, Homer City
Station, 1995 Homer City Agreement, and Prior Homer City Agreement).

     Keystone - Under the terms of the Keystone Agreement, the price of coal
sold is based on the cost of production plus profit, subject to an annual price
cap which, if exceeded, can result in losses. Profitability also depends on the
quality of the coal sold, and the ability to control costs of production.
Certain funds generated by Keystone must be utilized within the operations
covered by the Keystone Agreement. The agreement, as well as debt agreements of
Keystone, includes certain restrictions on its net worth. Also, if Keystone is
in default under its loan agreements or the Keystone Agreement, the Keystone
Station Owners have an option to acquire Keystone at its net book value and to
lease the related coal and surface lands.

     In 1995, Keystone's costs exceeded the price cap which resulted in losses
before income taxes of $8,432,000 and a net loss of $5,045,000. On December 27,
1995, Keystone permanently closed its Jane, Emilie #4 and Margaret #11 mines.
Approxi mately $12 million in estimated costs associated with these mine
closings were accrued in 1995. Revenues increased by a similar amount as such
costs were recovered under terms of the Keystone Agreement.


                                      F-9

<PAGE>


Keystone sales were $110,282,000, $116,990,000 and $141,692,000, for 1997, 1996
and 1995, respectively. At December 31, 1997, Keystone's net book value was
$16,681,000.

     Helvetia - The 1995 Homer City Agreement provides for deliveries in excess
of 14 million tons from January 1, 1995 through 2003 at an initial rate of 1.8
million tons per year. The price to be paid by the Homer City Station is a
base-price with escalation and adjustment based on quality of the coal
delivered. The 1995 Homer City Agreement also provides for early termination by
either party under hardship provisions and further allows the Homer City Station
Owners to terminate the agreement for their convenience, in which event they
would have to make certain payments to Helvetia.

     In addition, the Prior Homer City Agreement was amended in November 1994 to
provide for the payment to Helvetia by the Homer City Station Owners for certain
costs including those for past service postretirement benefits not paid pursuant
to deliveries under that agreement. Substantially all of the costs under this
provision were settled and paid by the Homer City Station Owners in 1996 and
1997.

     In the second quarter of 1997, Helvetia's operating losses increased which
prompted management to revise forecasts of Helvetia's future operations. In
light of Helvetia's anticipated future operating losses and estimated discounted
future cash flows, property, plant, and equipment relating to Helvetia with a
carrying value of $17,047,000 was reduced to fair market value through a charge
to operations of an equivalent amount.

     Sales to the Homer City Station were $51,251,000 in 1997, $68,859,000 in
1996 and $56,701,000 in 1995.

     While Keystone and Helvetia each sell primarily to one customer,
Eighty-Four has sales agreements with a variety of customers the duration of
which varies from one to five years.

NOTE D - LONG-TERM DEBT AND COMMITMENTS

     Long-term debt consists of the following at December 31:

                                                1997         1996         1995
                                              --------     --------     --------
                                                        (in thousands)
Keystone:
   Revolving credit note                      $ 20,000     $ 20,000     $ 25,000
   Line of credit note                              --        2,800       10,000
   Term note                                        --           --          640
Eighty-Four and Lucerne Land:
   Revolving credit notes                       20,000       50,000       36,000
   Term note                                    24,785           --           --
   Senior fixed rate construction notes             --       35,000       35,000
   Capitalized lease obligations                30,051       20,937       16,658
                                              --------     --------     --------
                                                94,836      128,737      123,298
Less current portion                            10,301       28,236        2,514
                                              --------     --------     --------
                                              $ 84,535     $100,501     $120,784
                                              ========     ========     ========


                                      F-10

<PAGE>


     Interest paid (net of capitalized interest) in 1997, 1996 and 1995 was
$3,148,000, $2,120,000 and $3,712,000, respectively. Aggregate maturities on
long-term debt outstanding at December 31, 1997 for the next five years, are as
follows: 1998 - $10,301,000; 1999 - $23,548,000; 2000 - $44,532,000; 2001 -
$3,859,000 and 2002 - $4,113,000 .

     The amount of subsidiaries' net assets which are restricted from being
transferred to the Company under these debt agreements totals $105,225,000.

     Keystone - Keystone has a revolving credit agreement with two commercial
banks permitting maximum borrowings of $20,000,000 as of December 31, 1997. The
agreement terminates on December 31, 2000 and requires reductions in the amount
available of $5,000,000 in 1998 and $7,500,000 each in 1999 and 2000. Keystone
has a total of $10,000,000 available under a line of credit which expires March
31, 1999. The weighted-average interest rates on borrowings on the line of
credit were 8.5% in 1997, 8.4% in 1996 and 9.2% in 1995.

     These credit facilities provide for a commitment fee of 1/4 of 1% per annum
and interest at the prime rate (8.25% at December 31, 1997). Keystone, at its
option, can select fixed interest rates for periods up to six months based on
the CD rate plus 1.5% or LIBOR rates plus 1.5%. At December 31, 1997, all of
Keystone's borrowings on the revolver were at the CD rate, which was
approximately 7.5%. Borrowings are secured by the assignment of the Keystone
Agreement and by Keystone's assets including the noncurrent funding for workers'
compensation and mine closing obligations which has been pledged to secure these
borrowings.

     Eighty-Four and Lucerne Land - In March 1997, Eighty-Four and Lucerne Land
(borrowers) amended and restructured their long-term credit agreement with four
banks and an institutional lender which provided financing for the Mine No. 84
project. Investment securities of the Company having a market value of
$25,000,000, which had been pledged to secure the debt, were liquidated and the
proceeds, combined with additional cash amounts, were loaned by a consolidated
affiliate to Eighty-Four and used to repay the Senior Fixed Rate Notes to the
institutional lender. The amendment waived covenant violations in existence at
year-end and revised covenants and restrictions including limitations on the
payment of interest and principal on the amounts loaned from affiliate
companies.

     As of December 31, 1997, the amended facilities with the four banks totaled
$67,484,000 consisting of the following: 1) a senior secured term loan totaling
$24,785,000, 2) a revolving credit note totaling $34,699,000 and 3) a working
capital line of credit totaling $8,000,000. These credit facilities are secured
principally by all of the assets of the borrowers and are to be repaid by June
30, 2000.

     The borrowers and the Company, as guarantor, are subject to various
financial covenants and restrictions regarding acquisitions, earnings, cash
flows, financial position and dividends. At December 31, 1997, the borrowers
were in violation of certain terms of the agreement and forecasted noncompliance
with several covenants in subsequent years. As a result, in January 1998,
amendments to the credit agreement were executed to waive the violations as of
December 31, 1997 and reset several covenants for future periods. The Company,
as guarantor, is also required to retain the proceeds from the disposals of


                                      F-11

<PAGE>


properties since May 15, 1997, net of costs of such sales and related income
taxes, amounting to $6,228,000 as of December 31, 1997.

     The new senior secured term note includes interest at prime rate plus 2%
or, at the option of the borrowers, at LIBOR plus 3.5%. The revolving credit
note is subject to mandatory reductions in the amount available of $7,000,000 in
1998, $20,000,000 in 1999 and $7,699,000 in 2000 and provides for interest based
on the prime rate plus an amount up to 1.5%, or, at the borrowers' option, the
LIBOR rate plus an amount from 2% to 2.5% for fixed periods. Commitment fees of
 .5% per annum are payable on the unused portion of the line of credit and
revolving credit note.

     Eighty-Four has entered into capitalized lease agreements for longwall
mining equipment amounting to $12,894,000 in 1997, $6,616,000 in 1996 and
$16,963,000 in 1995 with payments commencing in August 1995 and continuing
through July 2005 with effective interest rates ranging from 7.0% to 7.66%. The
agreement includes buy out options during and at the end of the lease term.
Future minimum lease payments are $37,730,000 including imputed interest of
$7,679,000. These payments for the next five years are as follows: 1998 -
$7,358,000; 1999 - $5,748,000; 2000 - $5,629,000; 2001 - $4,946,000 and 2002 -
$4,908,000. The gross amount of capitalized lease assets and related accumulated
depreciation included in the Consolidated Balance Sheets was $36,473,000 and
$7,783,000, respectively, at December 31, 1997; $23,578,000 and $3,708,000,
respectively, at December 31, 1996 and $16,963,000 and $837,000, respec tively,
at December 31, 1995.

     In addition to interest expense shown on the Statements of Consolidated
Operations, the Company capitalized interest in the amount of $7,581,000 in
1997, $9,666,000 in 1996 and $5,965,000 in 1995 as part of mine development
costs.

     Eighty-Four has a commitment with a vendor who will provide rebuilt
longwall shearers under an exchange program in order to avoid delays during
longwall moves. The commitment is for ten exchanges at a cost of approximately
$500,000 each beginning in 1998 and is expected to be completed in 2000. The
exchange program is cancelable by Eighty-Four with a payment of approximately
$700,000, which would begin to decrease after the second exchange.

NOTE E - OPERATING LEASES

     The Company's deep mining subsidiaries are parties to operating lease
agreements for mining equipment. Rental expense under these leases was
$5,145,000 in 1997 including $2,177,000 which was capitalized as mine
development, $6,169,000 in 1996 including $2,132,000 which was capitalized as
mine development and $8,177,000 in 1995 including $1,217,000 which was
capitalized as mine development. Aggregate remaining rental payments on these
leases are $16,610,000 with the following minimum rentals over the next five
years: 1998 - $5,170,000; 1999 - $4,073,000; 2000 - $1,668,000; 2001 - $524,000
and 2002 - $30,000.


                                      F-12

<PAGE>


NOTE F - INCOME TAXES

     The provision (credit) for income taxes consists of the following for the
years ended December 31:

<TABLE>
<CAPTION>

                                                                       1997             1996               1995
                                                                    ----------       ----------          --------
                                                                                   (in thousands)
<S>                                                                  <C>               <C>               <C>     
Provision (credit) for income taxes:
   Current:
      Federal                                                        $ 5,423           $  (130)          $(3,146)
      State                                                            1,762             1,298               524
      Canadian                                                           348               347               572
                                                                     -------           -------           -------
                                                                       7,533             1,515            (2,050)
                                                                     -------           -------           -------
   Deferred:
      Federal                                                         (8,334)             (112)           (2,407)
      State                                                            2,303             2,579             4,122
      Canadian                                                            (9)              (13)               (2)
                                                                     -------           -------           -------
                                                                      (6,040)            2,454             1,713
                                                                     -------           -------           -------
                                                                     $ 1,493           $ 3,969           $  (337)
                                                                     =======           =======           =======

</TABLE>

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. A valuation allowance has
been recognized due to the effects of statutory depletion and limited state
operating loss utilization on certain of the Company's operations. Significant
components of the Company's deferred tax assets and liabilities are as follows
at December 31:

<TABLE>
<CAPTION>

                                                                       1997             1996              1995
                                                                    ----------       ----------        ---------
                                                                                   (in thousands)
<S>                                                                 <C>               <C>              <C>      
Deferred tax assets:
   Other postretirement benefits                                    $ 43,685          $ 34,182         $  26,961
   Self-insurance                                                     18,946            17,784            17,721
   Net operating loss
      (begins to expire in 2009)                                      13,069            20,135            16,154
   Alternative minimum tax                                            10,519             5,902             5,696
   Black lung                                                          3,011             3,119             2,604
   Vacation pay                                                        2,029             1,881             1,679
   Other deferred tax assets                                           5,923             2,762             2,693
                                                                    --------          --------         ---------
                                                                      97,182            85,765            73,508
   Valuation allowance                                                (9,835)           (7,375)           (6,585)
                                                                    --------          --------         ---------
   Total deferred tax assets                                          87,347            78,390            66,923

Deferred tax liabilities:
   Depreciation and related charges                                   75,714            73,567            59,840
   Pension                                                             3,793             2,817             1,570
   Intangible drilling costs                                             543               695               817
   Unrealized securities gains                                           192                73               671
   Other deferred tax liabilities                                      1,350             1,385             2,316
                                                                    --------          --------         ---------
   Total deferred tax liabilities                                     81,592            78,537            65,214
                                                                    --------          --------         ---------
      Net deferred tax (liabilities) assets                         $  5,755          $   (147)        $   1,709
                                                                    ========          ========         =========
</TABLE>


                                      F-13

<PAGE>


     Income (loss) before income taxes includes income (losses) attributable to
United States operations of $(2,997,000) in 1997, $14,469,000 in 1996 and
$(5,140,000) in 1995 and income attributable to Canadian operations of $765,000
in 1997, $761,000 in 1996 and $1,268,000 in 1995.

     The reconciliations between income tax expense (credit) and the amount
computed by applying the statutory U.S. income tax rate to income (loss) before
income taxes are as follows for the years ended December 31:

<TABLE>
<CAPTION>
                                                                      1997               1996              1995
                                                                   ----------         ----------        -------
<S>                                                                  <C>                 <C>             <C>    
Tax at U.S. statutory rates                                          (35.0)%             35.0%           (35.0)%
Increase (decrease) resulting from:
   State taxes, net of federal benefits                              118.4               16.6             76.8
   Depletion                                                         (71.8)             (18.1)           (79.0)
   Prior year accruals                                               (65.1)              (9.2)           (19.4)
   Canadian dividend withholding                                        --                 --              2.9
   Rates                                                               3.2               (3.9)           (19.5)
   Valuation allowance                                               110.3                5.2             63.9
   Other items                                                         6.9                 .5               .6
                                                                    ------             ------            -----
                                                                      66.9%              26.1%            (8.7)%
                                                                    ======             ======            =====
</TABLE>


     The Company's effective income tax rates are impacted by credits for
certain prior year accruals and the inability to carry back or carry forward tax
deductions in excess of current year income for state income tax purposes. In
addition, these excess deductions which are created principally by Eighty-Four's
mine development expenditures cannot be offset against state taxable income of
affiliates. For federal income tax purposes, these expenditures are being
utilized to offset current year income and are being carried forward to affect
future taxable income. As of December 31, 1997 the federal net operating loss
approximates $37,000,000. Federal and state deferred tax liabilities are being
provided with respect to these expenditures even though no benefit is being
realized for state income tax purposes.

     Income taxes paid (refunds) in 1997, 1996 and 1995 were $3,251,000,
($1,672,000) and ($4,356,000), respectively.

NOTE G - PENSION AND BENEFIT PLANS

     Pensions - Non-UMWA Employees - The Company has a trusteed pension plan
which provides for monthly pensions and other benefits for substantially all
employees of the Company and its subsidiaries not covered by the retirement
plans of the United Mine Workers of America (UMWA). Benefits are determined
based on years of service and the employees' average earnings near the end of
service. The Company's funding policy is to contribute to the plan amounts which
are actuarially determined to provide assets sufficient to meet benefits to be
paid to plan members in accordance with the requirements of the Employee
Retirement Income Security Act of 1974 (ERISA). Since plan assets are currently
in excess of the Internal Revenue Code full funding limitation, no contributions
were made to the plan in


                                      F-14

<PAGE>


1997, 1996 and 1995 nor are any expected to be made in 1998. The plan's assets
at December 31, 1997 are comprised primarily of government and corporate debt
securities and equities.

     Amounts credited to expense relating to the pension plan include the
following components for the years ended December 31:

<TABLE>
<CAPTION>
                                                                       1997             1996              1995
                                                                    ----------       ----------        ----------
                                                                                   (in thousands)
<S>                                                                 <C>               <C>              <C>      
Net periodic pension (credit) expense:
   Service cost--benefits earned during the period                  $  1,509          $  1,368         $   1,525
   Interest cost on projected benefit obligation                       3,292             3,085             3,056
   Actual (return) loss on plan assets                               (17,720)           (9,470)          (15,902)
   Net amortization and deferral                                      10,871             3,339            10,182
                                                                    --------          --------          --------
                                                                      (2,048)           (1,678)           (1,139)
   Amounts capitalized as mine development                               363               334               160
                                                                    --------          --------          --------
   Net periodic pension credit                                      $ (2,411)         $ (2,012)         $ (1,299)
                                                                    ========          ========          ========
</TABLE>


     A curtailment gain of $1,671,000, and a charge of $640,000 for special
early retirement benefits relating to the closure of certain Keystone mines
discussed in Note C, were recorded in 1995. A substantial portion of these
amounts were included as revenues and cost of sales under terms of the Keystone
Agreement.

     The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets for the Company's defined benefit pension plan
at December 31:


<TABLE>
<CAPTION>


                                                                       1997             1996             1995
                                                                    ----------       ----------        ---------
                                                                                   (in thousands)
<S>                                                                 <C>              <C>               <C>      
Actuarial present value of benefit obligations:
   Vested benefits                                                  $ 41,636         $  38,090         $  37,779
   Nonvested benefits                                                  1,684             1,276             1,303
                                                                    --------         ---------         ---------
   Accumulated benefits                                               43,320            39,366            39,082
   Effect of projected future salary increases                         9,315             8,338             8,069
                                                                    --------         ---------         ---------
Total projected benefit obligation                                    52,635            47,704            47,151
Plan assets at fair value                                            100,406            85,460            78,795
                                                                    --------         ---------         ---------
Plan assets in excess of projected benefit obligation                 47,771            37,756            31,644
Unrecognized net gain                                                (34,922)          (26,267)          (21,112)
Unrecognized prior service cost                                        1,030             1,125             1,187
Unrecognized transition asset                                         (7,370)           (8,153)           (8,936)
                                                                    --------         ---------         ---------
Prepaid pension asset                                               $  6,509         $   4,461         $   2,783
                                                                    ========         =========         =========
</TABLE>


     The weighted-average discount rates used in determining the actuarial
present value of the projected benefit obligation were 6.75% at December 31,
1997, 7.125% at December 31, 1996 and 6.75% at December 31, 1995 and the rates
of increase in future compensation levels were 4.75% for each year. The
weighted-average expected long-term rate of return on plan assets was 8% for
1997 and 1996, and 7.75% for 1995.


                                      F-15

<PAGE>


     In addition, the Company and its subsidiaries have a 401(k) Plan for manage
ment employees. Company contributions and administrative costs approximated
$277,000 for 1997, $262,000 for 1996 and $288,000 for 1995.

     UMWA Health and Retirement Funds - In accordance with the collective
bargaining agreement between the Bituminous Coal Operators' Association and the
UMWA, the Company's mining subsidiaries are required to pay amounts, based
principally on hours worked, to the UMWA Retirement Funds which are defined
benefit pension plans. Health benefits for the Company's UMWA employees who
retired prior to 1976 are provided by the United Mine Workers' of America
Combined Benefit Fund (Combined Fund). The Combined Fund and the 1992 Benefit
Plan (1992 Plan) which were created by the Coal Industry Retiree Health Benefit
Act of 1992 (The 1992 Coal Act) also provide benefits to retirees whose
employers are out of business. The companies' contributions to these health
plans are assessed primarily on the basis of the number of beneficiaries
assigned to each employer.

     Expense is being recognized as contributions are made to these plans.
Amounts charged to expense applicable to benefits administered by these various
multi-employer plans were $4,913,000 in 1997 including $1,846,000 which was
capitalized as mine development, $4,312,000 in 1996 including $1,574,000 which
was capitalized as mine development and $5,459,000 in 1995 including $1,516,000
which was capitalized as mine development. The present value of the expected
future assessments from the Combined Fund and the 1992 Plan is estimated to be
in the range of $35,000,000. The Company's obligations for these funds could
increase if other companies become unable to fund their obligations. Certain of
the Company's subsidiaries would be required under federal law to contribute
additional amounts upon withdrawal from or termination of certain of the plans.

     Other Postretirement Benefits - The Company provides life insurance
benefits and certain self-insured health care benefits for substantially all
UMWA employees who retire after 1975 and all salaried retirees. In addition,
employees terminated due to layoff are eligible for certain benefits for periods
up to twelve months. These layoff benefit costs are charged to expense in the
month in which the layoff occurs.

     Certain of the Company's subsidiaries have guaranteed the benefits of their
UMWA employees who retired prior to October 1, 1994 and are required to provide
approximately $9,000,000 in security to the 1992 Plan for these retirees. The
Company's subsidiaries are discussing appropriate forms of security with
representatives of the 1992 Plan in light of the substantial funding in place
for postretirement benefits.

     The Company and its subsidiaries accrue retiree medical and life insurance
benefits over the employees' years of service to full eligibility in accordance
with Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits other than Pensions" (FASB 106). The Company is
amortizing past service liabilities at the date of adoption over the average
remaining service of the active employees.


                                      F-16

<PAGE>


     Postretirement benefit expense under FASB 106 includes the following
components for the years ended December 31:

<TABLE>
<CAPTION>
                                                                       1997              1996              1995
                                                                    ----------        ----------         --------
                                                                                    (in thousands)
<S>                                                                  <C>               <C>               <C>    
Net annual expense:
   Service cost - benefits earned during the period                  $ 2,729           $ 3,636           $ 2,914
   Interest cost on accumulated postretirement
      benefit obligation                                              13,422            12,926            11,315
   Actual return on plans' assets                                    (13,080)           (4,573)           (9,659)
   Amortization of transition obligation                               4,175            19,012            11,723
   Net amortization and deferral                                       5,910                82             3,614
                                                                     -------           -------           -------
                                                                      13,156            31,083            19,907
Amounts capitalized as mine development                               (2,830)           (2,912)           (2,247)
                                                                     -------           -------           -------
      Net annual expense                                             $10,326           $28,171           $17,660
                                                                     =======           =======           =======
</TABLE>


     A curtailment loss of $578,000 relating to the closure of certain Keystone
mines as discussed in Note C was recorded in 1995.

     In 1995, Eighty-Four recorded the past service liability of $12,224,000
associated with the recall of UMWA miners at Mine No. 84 not previously employed
by the Company. This amount was recorded as an adjustment to the original
acquisition cost of Mine No. 84's assets.

     The unrecognized cost of postretirement benefits attributable to service
prior to January 1, 1995 of Helvetia employees is being reimbursed by the Homer
City Station Owners and recognized over a period of not more than three years
beginning in 1995. The amounts recognized in 1997, 1996 and 1995 and included as
a component of net amortization were $1,772,000, $16,720,000 and $8,843,000,
respectively.

     Charges for postretirement benefits at the Company's Keystone subsidiary
are being funded, net of estimated taxes, in custodial accounts and union and
salary VEBA trusts. The funding is comprised primarily of equity securities and
government and government agency securities. Liabilities for the Company and its
other subsidiaries are not currently being funded. The weighted-average expected
long-term rate of return on plans' assets assumption was 7.6% in 1997, 7.2% in
1996 and 7.2% in 1995.

     The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets for the Company's postretirement benefit plans
at December 31:


                                      F-17

<PAGE>


<TABLE>
<CAPTION>
                                                                       1997             1996              1995
                                                                    ----------       ----------         --------
                                                                                  (in thousands)
<S>                                                                <C>               <C>                <C>     
Accumulated postretirement benefit obligation (APBO):
   Retirees                                                        $  67,501         $  65,651          $ 63,261
   Fully eligible active plan participants                            86,227            65,561            62,611
   Other active plan participants                                     58,782            46,811            58,658
                                                                    --------         ---------         ---------
                                                                     212,510           178,023           184,530
Plans' assets at fair value                                          102,385            90,212            85,430
                                                                    --------         ---------         ---------
Accumulated postretirement benefit obligation in
   excess of plans' assets                                          (110,125)          (87,811)          (99,100)
Unrecognized net loss                                                 18,899             1,816            20,264
Unrecognized prior service cost (credit)                              (1,608)           (1,891)           (2,174)
Unrecognized transition obligation                                    11,365            15,540            34,552
                                                                   ---------         ---------         ---------
Accrued postretirement benefit cost                                $ (81,469)        $ (72,346)        $ (46,458)
                                                                   =========         =========         =========

</TABLE>

     The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) is 9.1% for 1997 and is
assumed to decrease gradually to 5.2% for 2006 and remain at that level
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. For example, increasing the assumed health care cost
trend rates by one percentage point would increase the APBO as of December 31,
1997 by $42,896,000 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1997 by $3,420,000.

     The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation (APBO) was 6.88% at December 31, 1997, 7.38%
at December 31, 1996 and 7.12% at December 31, 1995. In 1997, the APBO increased
due to a decrease in the discount rate. In 1996, the APBO decreased due to an
increase in the discount rate.

NOTE H - SELF-INSURANCE AND OTHER LIABILITIES

     Workers' Compensation Benefits - The Company and its mining subsidiaries
have self-insurance programs for workers' compensation liabilities for which
provisions are made based upon actuarial evaluations of claims. In 1997 and
1996, the actuarial valuations of future payouts of prior years' workers'
compensation claims resulted in reductions of the recorded liabilities for those
years in the amount of $1,600,000 and $2,000,000, respectively. Since a portion
of these costs were recoverable under the Prior Homer City Agreement, the effect
on pretax income was $1,400,000 and $1,100,000, respectively. Insurance coverage
is maintained for catastrophic losses. These benefits are funded as accrued for
the Company's Keystone subsidiary. However, a portion of this funding is
utilized to reimburse working capital for the payment of income taxes directly
attributable to the nondeductibility of these liabilities for income tax
reporting purposes until payments on workers' compensation claims are made. In
future years, when income tax deductions for this item exceed book expenses, the
Company intends to restore funds from working capital. These funds are mainly
comprised of U.S. Government and agency securities.


                                      F-18

<PAGE>


     Mine Closing Reserves - The Company's mining subsidiaries provide for
projected costs of closing mine facilities. These costs are based on engineering
estimates, which consider the estimated economic lives of the facilities and the
remaining lives of the long-term sales agreements. The related reserves are
reviewed periodically to reflect operating experience and the provisions of the
long-term coal sales agreements and are funded as accrued for the Company's
Keystone subsidiary. Funding consists principally of U.S. Government notes and
bonds.

     Black Lung Benefits - The Company and its mining subsidiaries have
self-insurance programs for coal workers' pneumoconiosis (black lung)
liabilities and, except for Eighty-Four, have established black lung trusts
under the provisions of the Internal Revenue Code. The principal purpose of the
trusts is to pay federal and state black lung liabilities for miners covered by
Company administered self-insured programs. These liabilities are being accrued
over the estimated average working life of the subject employees based on annual
actuarial calculations. These calculations are based on various assumptions,
among which are future benefit levels, mortality, claim frequencies, and
discount rates. The Company also maintains escrowed insurance arrangements for
certain liabilities not covered by the trusts. At December 31, 1997, the market
value of trust assets, which are comprised of U.S. Government notes and bonds,
totaled $55,549,000, compared to an actuarial liability of $29,000,000, of which
$8,708,000 relating to employees of Eighty-Four is recorded as a liability on
the Consolidated Balance Sheets. Eighty-Four's actuarial liabilities at December
31, 1997 and 1996 reflected reductions of $1,350,000 and $3,230,000,
respectively, due to changes in actuarial assumptions, which were credited to
mine development. Funding of the trusts has ceased until such time that the
actuaries determine additional provisions and funding are required.

     In 1995, Eighty-Four recorded the past service liability of $4,156,000
associated with the recall of miners at Mine No. 84, not previously employed by
the Company. This amount was recorded as an adjustment to the original
acquisition cost of Mine No. 84's assets.


                                      F-19

<PAGE>


NOTE I - INVESTMENTS

     The following is a summary of available-for-sale securities (in thousands):

December 31, 1997

<TABLE>
<CAPTION>
                                                                                                         Estimated
                                                                   Unrealized          Unrealized          Fair
                                                 Cost                 Gains              Losses            Value
                                              --------             ----------          ----------        ----------
<S>                                            <C>                   <C>                <C>   
Available-for-sale securities
U.S. Government and agencies                   $41,369               $  609             $   44            $ 41,934
Other debt securities                              200                   13                 --                 213
                                               -------               ------             ------            --------                
  Total debt securities                         41,569                  622                 44              42,147
Equities                                             9                   45                 --                  54
                                              --------               ------             ------            --------
                                                41,578                  667                 44              42,201
Cash equivalents included
  in noncurrent funding                          3,050                   --                 --               3,050
                                               -------               ------             ------            --------
                                               $44,628               $  667             $   44            $ 45,251
                                               =======               ======             ======            ========           

Schedule of maturities
  One year or less                             $ 6,985                                                    $  7,024
  One year through three years                  22,452                                                      22,709
  After three years                             12,132                                                      12,414
                                               -------                                                    --------
                                                41,569                                                      42,147
Equities                                             9                                                          54
                                               -------                                                    --------
                                               $41,578                                                    $ 42,201
                                               =======                                                    ========           
</TABLE>

December 31, 1996

<TABLE>
<CAPTION>
                                                                                                         Estimated
                                                                   Unrealized          Unrealized          Fair
                                                 Cost                 Gains              Losses            Value
                                              --------             ----------          ----------        ----------
<S>                                            <C>                   <C>                <C>   
Available-for-sale securities
U.S. Government and agencies                   $57,039               $  488             $  299           $ 57,228
Corporate                                       12,015                   58                 54             12,019
Other debt securities                              250                    3                 --                253
                                               -------                -----             ------           --------
  Total debt securities                         69,304                  549                353             69,500
Equities                                             9                   18                 --                 27
                                              --------               ------             ------           --------
                                                69,313                  567                353             69,527
Cash equivalents included
  in noncurrent funding                          9,911                   --                 --              9,911
                                               -------               ------             ------           --------
                                               $79,224               $  567             $  353           $ 79,438
                                               =======               ======             ======           ========
</TABLE>


December 31, 1995 

<TABLE>
<CAPTION>
                                                                                                         Estimated
                                                                   Unrealized          Unrealized          Fair
                                                 Cost                 Gains              Losses            Value
                                              --------             ----------          ----------        ----------
<S>                                            <C>                   <C>                <C>   
Available-for-sale securities
U.S. Government and agencies                   $46,388               $1,470             $   17           $ 47,841
Corporate                                       12,902                  167                 22             13,047
Other debt securities                              250                    3                 --                253
                                              --------              -------             ------           --------
  Total debt securities                         59,540                1,640                 39             61,141
Equities                                         4,623                  425                 53              4,995
                                               -------               ------             ------           --------
                                                64,163                2,065                 92             66,136
Cash equivalents included
  in noncurrent funding                          8,105                   --                 --              8,105
                                               -------               ------             ------           --------
                                               $72,268               $2,065             $   92           $ 74,241
                                               =======               ======             ======           ========
</TABLE>


                                      F-20

<PAGE>


     The following balance sheet captions are comprised of the
available-for-sale securities at December 31, 1997: investments in marketable
securities and noncurrent funding for workers' compensation benefits and mine
closing reserves.

NOTE J - FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following methods and assumptions were used to estimate the fair value
disclosures for financial instruments:

     Cash and Cash Equivalents - The carrying amounts reported approximate fair
value.

     Short term Investments and Marketable Securities - Fair values are based on
quoted market prices.

     Long-term Debt - Fair value of debt is based on the borrowing rates for
loans with similar terms and average maturities.

<TABLE>
<CAPTION>
                                                                  Carrying                      Fair
                                                                    Value                      Value
                                                                  --------                    -------
                                                                              (in thousands)
<S>                                                                <C>                        <C>    
Summary by Balance Sheet caption:
   Cash and cash equivalents                                       $37,026                    $37,026
   Investments in marketable securities -
      available-for-sale                                            20,166                     20,166
   Funding for workers' compensation -
      available-for-sale                                            12,950                     12,950
   Funding for mine closing reserves -
      available-for-sale                                            12,135                     12,135
   Long-term debt (excluding
      capitalized leases)                                           64,785                     64,785
</TABLE>


                                      F-21

<PAGE>


              ROCHESTER & PITTSBURGH COAL COMPANY AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                             (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                               Three Months Ended March 31,
                                                                               1998                    1997
                                                                             --------                --------
ASSETS                                                                                  (unaudited)
<S>                                                                          <C>                     <C>     
Current Assets
   Cash and cash equivalents                                                 $ 38,812                $ 26,176
   Receivables                                                                 28,220                  29,521
   Inventories and other current assets                                        10,219                  13,009
   Deferred income taxes                                                        5,093                   2,903
                                                                             --------                --------
      Total Current Assets                                                     82,344                  71,639

Other Assets
   Investments in marketable securities                                        21,098                  17,052
   Funding for:
      Workers' compensation benefits                                           13,750                  14,281
      Mine closing reserves                                                    12,369                  11,802
   Deferred income taxes                                                       20,282                   9,155
   Miscellaneous                                                               18,365                  18,174
                                                                             --------                --------
                                                                               85,864                  70,464

Property, plant, and equipment                                                590,245                 564,476
Less allowances for depreciation, depletion and amortization                  238,364                 190,956
                                                                             --------                --------
                                                                              351,881                 373,520
                                                                             --------                --------
                                                                             $520,089                $515,593
                                                                             ========                ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
   Accounts payable                                                          $ 15,504                $ 13,212
   Accrued liabilities                                                         25,725                  18,368
   Income taxes payable                                                         5,065                   1,185
   Current maturities of long-term debt                                         8,055                   7,809
                                                                             --------                --------
      Total Current Liabilities                                                54,349                  40,574

Other Liabilities and Long-Term Debt
   Other postretirement benefits                                               82,942                  76,221
   Workers' compensation benefits                                              43,736                  41,064
   Mine closing reserves                                                       24,806                  24,268
   Black lung benefits                                                          8,923                   9,509
   Deferred income taxes                                                       13,941                  12,399
   Miscellaneous                                                                3,518                   2,834
   Long-term debt (less current maturities)                                    83,146                  98,536
                                                                             --------                --------
                                                                              261,012                 264,931

Shareholders' Equity
   Common stock issued, 3,989,121 shares                                       59,837                  59,837
   Capital in excess of stated value                                          133,125                 133,125
   Retained earnings                                                           40,316                  45,031
   Accumulated other comprehensive income (loss)                                 (745)                     --
                                                                             --------                --------
                                                                              232,533                 237,993
   Less treasury stock at cost - 548,137 shares                                27,805                  27,805
                                                                             --------                --------
                                                                              204,728                 210,188
                                                                             --------                --------
      Total Liabilities & Shareholders' Equity                               $520,089                $515,593
                                                                             ========                ========
</TABLE>

     See accompanying notes to consolidated condensed financial statements.


                                      F-22

<PAGE>


              ROCHESTER & PITTSBURGH COAL COMPANY AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
  (Amounts in thousands, except for outstanding shares and per share amounts)

<TABLE>
<CAPTION>

                                                                               Three Months Ended March 31,
                                                                                1998                    1997
                                                                              -------                 -------
                                                                                        (unaudited)
<S>                                                                             <C>                     <C>  
Production Tonnage                                                              2,390                   1,032
                                                                              =======                 =======

Sales Tonnage                                                                   3,032                   1,374
                                                                              =======                 =======

Sales                                                                          83,208                  51,888

Other Income:
   Gain on sale of property                                                       151                   2,059
   Interest and dividends                                                         768                   1,129
   Net investment gains (losses)                                                   13                    (171)
   Miscellaneous                                                                  364                     390
                                                                              -------                 -------
                                                                               84,504                  55,295
Costs and Expenses:
   Cost of sales                                                               75,991                  48,087
   Depreciation, depletion and amortization                                     8,971                   3,469
   Selling, general, and administrative                                         1,515                   1,652
   Interest                                                                     2,395                     468
   Miscellaneous                                                                  271                     869
                                                                              -------                 -------
                                                                               89,143                  54,545
                                                                              -------                 -------
Income (Loss) Before Income Taxes                                              (4,639)                    750

Provision (Credit) for Income Taxes                                            (4,347)                    729
                                                                              -------                 -------

Net Income (Loss)                                                                (292)                $    21
                                                                              =======                 =======

Net Income (Loss) Per Share                                                   $  (.08)                $   .01
                                                                              =======                 =======

Average shares outstanding used in the computation
   of per share amounts                                                     3,440,984               3,440,984

Shares issued and outstanding at March 31                                   3,440,984               3,440,984

Cash dividends declared per share                                                $.15                    $.15
</TABLE>


     See accompanying notes to consolidated condensed financial statements.


                                      F-23
<PAGE>


              ROCHESTER & PITTSBURGH COAL COMPANY AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                              Three Months Ended March 31,
                                                                              1998                     1997
                                                                            --------                 --------
                                                                                       (unaudited)
<S>                                                                         <C>                      <C>     
OPERATING ACTIVITIES
   Net income (loss)                                                        $   (292)                $     21
   Adjustments for non-cash items                                              3,148                    2,436
   Changes in certain assets and liabilities
      (using) or providing cash                                                9,153                   (3,460)
                                                                            --------                 --------
      NET CASH (USED IN) PROVIDED BY
        OPERATING ACTIVITIES                                                  12,009                   (1,003)
                                                                            --------                 --------

INVESTING ACTIVITIES
   Proceeds from available-for-sale investments                                2,700                   38,696
   Acquisition of available-for-sale investments                              (3,484)                  (2,775)
   Acquisition and development of property,
      plant and equipment                                                     (4,954)                  (8,560)
   Proceeds from sale of property, plant
      and equipment                                                              182                    2,227
                                                                            --------                 --------
      NET CASH (USED IN) PROVIDED BY
        INVESTING ACTIVITIES                                                  (5,556)                  29,588
                                                                            --------                 --------

FINANCING ACTIVITIES
   Proceeds from borrowings                                                   23,000                   69,350
   Payments on borrowings                                                    (26,635)                (103,446)
   Cash dividends paid                                                        (1,032)                    (516)
   Debt issuance costs                                                            --                   (2,263)
                                                                            ---------               ---------
      NET CASH (USED IN) FINANCING ACTIVITIES                                  (4,667)                (36,875)
                                                                            ---------               ---------

      INCREASE (DECREASE) IN CASH AND CASH
         EQUIVALENTS                                                            1,786                  (8,290)

   Cash and cash equivalents at beginning of year                              37,026                  34,466
                                                                            ---------               ---------

      CASH AND CASH EQUIVALENTS AT MARCH 31                                 $  38,812               $  26,176
                                                                            =========               =========


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

   Interest paid (net of capitalized interest)                              $   2,234               $     559
                                                                            =========               =========

   Income taxes paid                                                        $   2,375               $     315
                                                                            =========               =========

   Noncash financing and investing activities --
      seller financing of equipment to be leased                            $      --               $  11,704
                                                                            =========               =========
</TABLE>


     See accompanying notes to consolidated condensed financial statements.


                                      F-24

<PAGE>


              ROCHESTER & PITTSBURGH COAL COMPANY AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                 March 31, 1998


Note A - Basis for Presentation

     The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1997.

     The Company's subsidiary, Eighty-Four, completed development of its Mine
No. 84 in October 1997. Consequently, all revenues and expenses, other than its
provision for income taxes, certain real estate tax expenses, and certain
general and administra tion expenses, were not included in the 1997 results in
the accompanying Consolidated Condensed Operating Statements.

Note B - Comprehensive Income

     As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which
establishes new rules for the reporting and display of comprehensive income and
its components. The adoption of this Statement had no impact on the Company's
net income or sharehold ers' equity. Statement 130 requires unrealized gains or
losses on the Company's available-for-sale securities and foreign currency
translation adjustments, which prior to adoption were reported separately in
shareholders' equity to be included in other comprehensive income. Prior year
financial statements have been reclassified to conform to the requirements of
Statement 130.

     The components of comprehensive income (loss), net of related tax, for the
three-month periods ended March 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                                         1998                 1997
                                                                        ------               ------
                                                                               (in thousands)

<S>                                                                     <C>                  <C>   
Net income (loss)                                                       $(292)               $   21
Unrealized (losses) on securities                                          (7)                 (463)
Foreign currency translation adjustments                                   28                   (38)
                                                                        -----                ------
Comprehensive income (loss)                                             $(271)                $(480)
                                                                        =====                 =====
</TABLE>


                                      F-25

<PAGE>


     The components of accumulated other comprehensive income (loss), net of
related tax, at March 31, 1998 and March 31, 1997 are as follows:

<TABLE>
<CAPTION>
                                                                        1998                  1997
                                                                       ------                ------
                                                                               (in thousands)
<S>                                                                    <C>                   <C>   
Unrealized gains on securities                                         $  403                $  410

Foreign currency translation adjustments                               (1,148)               (1,176)
                                                                       ------                ------

Accumulated other comprehensive income (loss)                          $ (745)               $ (766)
                                                                       ======                ======
</TABLE>


                                      F-26

<PAGE>


                       ROCHESTER & PITTSBURGH COAL COMPANY

PROXY

           SPECIAL MEETING OF SHAREHOLDERS TO BE HELD AUGUST __, 1998

           THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS


     The undersigned hereby constitutes and appoints Thomas M. Hyndman, Jr.,
Thomas W. Garges, Jr. and Columbus O'D. Iselin, and each of them, proxies of the
undersigned, with full power of substitution, to vote all of the shares of
Common Stock of Rochester & Pittsburgh Coal Company (the "Company") which the
undersigned may be entitled to vote at a Special Meeting of Shareholders of the
Company to be held at the offices of Duane, Morris & Heckscher LLP, 4200 One
Liberty Place, Philadelphia, Pennsylvania 19103 at 10:00 a.m., local time, and
at any adjournment, postponement or continuation thereof, as follows:

     1.   Proposal to approve and adopt the Agreement and Plan of Merger dated
          as of May 28, 1998 (the "Merger Agreement") among Rochester &
          Pittsburgh Coal Company, CONSOL Inc. and CONSOL Commonwealth Inc. The
          Board of Directors recommends a vote FOR this proposal.


                    / / FOR      / / AGAINST      / / ABSTAIN


     2.   In their discretion, the proxies are authorized to vote upon such
          other business as may properly come before the Special Meeting and any
          adjournment, postponement or continuation thereof.


                                   (continued, and to be signed on reverse side)


<PAGE>


This proxy will be voted as specified. If a choice is not specified, the proxy
will be voted FOR the approval and adoption of the Merger Agreement.

                                             This proxy should be dated, signed
                                             by the shareholder exactly as his
                                             or her name appears below and
                                             returned promptly to Rochester &
                                             Pittsburgh Coal Company in the
                                             enclosed enve lope. Persons signing
                                             in a fiduciary capacity should so
                                             indicated.

                                             Date:                  , 1998
                                                   ----------------


                                             -----------------------------------
                                             Signature of Shareholder


                                             -----------------------------------
                                             Signature of Shareholder


<PAGE>


                                                                      APPENDIX A


                          AGREEMENT AND PLAN OF MERGER



<PAGE>


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

                          AGREEMENT AND PLAN OF MERGER

                                      Among

                                  CONSOL INC.,

                            CONSOL COMMONWEALTH INC.

                                       and

                       ROCHESTER & PITTSBURGH COAL COMPANY



                            Dated as of May 28, 1998

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

<PAGE>


                                TABLE OF CONTENTS

                                    ARTICLE I
                                   THE MERGER
                                                                            Page
                                                                            ----
1.01     The Merger............................................................1
1.02     Closing...............................................................2
1.03     Effective Time........................................................2
1.04     Articles of Incorporation and By-laws of the Surviving Corporation....2
1.05     Directors.............................................................2
1.06     Officers..............................................................2

                                   ARTICLE II
                EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
               CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES

2.01     Capital Stock of Merger Sub...........................................3
2.02     Cancellation of Treasury Stock and Parent Owned Stock.................3
2.03     Conversion of Company Common Stock....................................3
2.04     Shares of Dissenting Shareholders.....................................3
2.05     Exchange of Certificates..............................................4
2.06     Stock Transfer Books..................................................6

                                   ARTICLE III
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

3.01     Organization..........................................................6
3.02     Capitalization........................................................7
3.03     Authority.............................................................7
3.04     Noncontravention; Filings and Consents................................8
3.05     Company SEC Documents; Financial Statements...........................9
3.06     Information Supplied..................................................9
3.07     Absence of Certain Changes or Events..................................9
3.08     Litigation...........................................................10
3.09     Tax Matters..........................................................10
3.10     Compliance with Applicable Laws......................................11
3.11     Voting Requirements..................................................11
3.12     Opinion of Financial Advisor.........................................12
3.13     Brokers..............................................................12
3.14     Disclosure...........................................................12
3.15     CERCLA Notice........................................................12
3.16     Environmental Matters................................................12


                                        i

<PAGE>


                                   ARTICLE IV
             REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

                                                                            Page
                                                                            ----
4.01     Organization.........................................................12
4.02     Capitalization of Merger Sub.........................................13
4.03     Authority............................................................13
4.04     Noncontravention; Filings and Consents...............................13
4.05     Information Supplied.................................................14
4.06     Brokers..............................................................14
4.07     Disclosure...........................................................14

                                    ARTICLE V
                    COVENANTS RELATING TO CONDUCT OF BUSINESS

5.01     Conduct of Business of the Company...................................15
5.02     Conduct of Business of Parent........................................17
5.03     Other Actions........................................................18

                                   ARTICLE VI
                              ADDITIONAL AGREEMENTS

6.01     Company Shareholders' Meeting........................................18
6.02     Proxy Statement......................................................18
6.03     Information; Confidentiality.........................................19
6.04     Approvals and Consents; HSR Filings..................................19
6.05     Company Benefit Plans................................................20
6.06     Fees and Expenses....................................................21
6.07     Notification.........................................................22
6.08     Obligations of Merger Sub............................................22
6.09     Public Announcements.................................................22

                                   ARTICLE VII
                            CONDITIONS TO THE MERGER

7.01     Conditions to the Obligations of Each Party..........................22
7.02     Conditions to the Obligations of Parent and Merger Sub...............23
7.03     Conditions to the Obligations of the Company.........................23

                                  ARTICLE VIII
                        TERMINATION, AMENDMENT AND WAIVER

8.01     Termination..........................................................24
8.02     Effect of Termination................................................25

                                       ii

<PAGE>


                                                                            Page
                                                                            ----
8.03     Amendment............................................................25
8.04     Extension; Waiver....................................................25

                                   ARTICLE IX
                               GENERAL PROVISIONS

9.01     Nonsurvival of Representations.......................................26
9.02     Exclusive Remedy.....................................................26
9.03     Notices..............................................................26
9.04     Definitions..........................................................27
9.05     Interpretation.......................................................28
9.06     Counterparts.........................................................28
9.07     Entire Agreement; Third-Party Beneficiaries..........................29
9.08     Assignment...........................................................29
9.09     Governing Law........................................................29
9.10     Enforcement..........................................................29




                                    SCHEDULES

3.01       Subsidiaries
3.02       Pledged Shares
3.04       Consents
3.07       Certain Changes or Events
3.08       Litigation
3.09       Tax Matters
5.01(f)    Properties for Sale
5.01(i)    Discharge of Liabilities
5.01(l)    Capital Expenditures

                                       iii

<PAGE>



           AGREEMENT AND PLAN OF MERGER, dated as of May 28, 1998 among CONSOL
Inc., a Delaware corporation ("Parent"), CONSOL Commonwealth Inc., a
Pennsylvania corporation, a direct or indirect wholly owned subsidiary of Parent
("Merger Sub"), both of 1800 Washington Road, Pittsburgh, Pennsylvania 15241 and
Rochester & Pittsburgh Coal Company, a Pennsylvania corporation (the "Company")
of 655 Church Street, Indiana, Pennsylvania 15701.


                                   WITNESSETH:

           WHEREAS, the respective Boards of Directors of Parent, Merger Sub and
the Company have approved the acquisition of the Company by Parent upon the
terms and subject to the conditions set forth in this Agreement and Plan of
Merger (this "Agreement");

           WHEREAS, the respective Boards of Directors of Parent, Merger Sub and
the Company have approved the merger of Merger Sub with and into the Company
(the "Merger") upon the terms and subject to the conditions set forth in this
Agreement, whereby each issued and outstanding share of common stock, no par
value, of the Company ("Company Common Stock"), other than shares owned directly
or indirectly by Parent or by the Company, will be converted into the right to
receive cash; and

           WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe certain conditions to the Merger;

           NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Merger Sub and the Company hereby agree as follows:


                                    ARTICLE I

                                   THE MERGER

           1.01 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Pennsylvania Business
Corporation Law of 1988, as amended (the "PBCL"), Merger Sub shall be merged
with and into the Company at the Effective Time (as defined in Section 1.03) of
this Agreement. Following the Merger, the separate corporate existence of Merger
Sub shall cease, and the Company shall continue as the surviving corporation
(the "Surviving Corporation") and shall succeed to and assume all the rights,
assets, liabilities and obligations of Merger Sub in accordance with the PBCL.


                                        1

<PAGE>



           1.02 Closing. The closing of the Merger (the "Closing") shall take
place at 10:00 a.m. on a date to be specified by the parties which shall be no
later than the second business day after the satisfaction or waiver of the
conditions set forth in Article VII (the "Closing Date") at the offices of
Duane, Morris & Heckscher LLP, 4200 One Liberty Place, Philadelphia,
Pennsylvania 19103, unless another date or place is agreed to in writing by the
parties hereto.

           1.03 Effective Time. On the Closing Date, or as soon as practicable
thereafter, the parties shall execute and file in the offices of the Corporation
Bureau of the Commonwealth of Pennsylvania appropriate articles of merger or
other appropriate documents (in any such case, the "Articles of Merger")
executed in accordance with the relevant provisions of the PBCL and shall make
all other filings or recordings required under the PBCL. The "Effective Time" or
"Effective Date" shall be the date of filing the Articles of Merger, or the
effective date specified therein, whichever is later.

           1.04 Articles of Incorporation and By-laws of the Surviving
Corporation.

                  (a) The Articles of Incorporation of Merger Sub as in effect
immediately prior to the Effective Time shall become the Articles of
Incorporation of the Surviving Corporation after the Effective Time, and
thereafter may be amended as provided therein and as permitted by law and this
Agreement.

                  (b) The By-laws of Merger Sub as in effect immediately prior
to the Effective Time shall become the By-laws of the Surviving Corporation
after the Effective Time, and thereafter may be amended as provided therein and
as permitted by law and this Agreement.

           1.05 Directors. The directors of Merger Sub immediately prior to the
Effective Time shall become the directors of the Surviving Corporation on the
Effective Time, until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.

           1.06 Officers. The officers of Merger Sub immediately prior to the
Effective Time shall become the officers of the Surviving Corporation on the
Effective Time, until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.


                                   ARTICLE II

                EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
               CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES

           2.01 Capital Stock of Merger Sub. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
Company

                                        2

<PAGE>



Common Stock or any shares of capital stock of Merger Sub, each share of common
stock, par value $.01 per share, of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into and become one
fully paid and nonassessable share of common stock, par value $.01 per share, of
the Surviving Corporation.

           2.02 Cancellation of Treasury Stock and Parent Owned Stock. As of the
Effective Time, by virtue of the Merger and without any action on the part of
the holder of any shares of Company Common Stock or any shares of capital stock
of Merger Sub, each share of Company Common Stock issued and held immediately
prior to the Effective Time in the Company's treasury or by any of the Company's
direct or indirect wholly owned subsidiaries and each share of Company Common
Stock that is owned by Parent, Merger Sub or any other subsidiary of Parent
shall automatically be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor.

           2.03 Conversion of Company Common Stock.

                  (a) As of the Effective Time, by virtue of the Merger and
without any action on the part of the holder of any shares of Company Common
Stock or any shares of capital stock of Merger Sub, subject to the provisions of
Section 2.04 with respect to dissenters' rights, if any, each share of Company
Common Stock issued and outstanding immediately prior to the Effective Time
other than (x) Dissenting Shares (as defined in Section 2.04) and (y) shares to
be canceled in accordance with Section 2.02 ("Canceled Shares") shall be
converted into the right to receive in cash from Parent, without interest, an
amount equal to $43.50 (the "Merger Consideration").

                  (b) As of the Effective Time, all such shares of Company
Common Stock shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Common Stock shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration.

           2.04 Shares of Dissenting Shareholders. Notwithstanding anything in
this Agreement to the contrary, any shares of Company Common Stock that are
issued and outstanding as of the Effective Time and that are held by a
shareholder who has exercised and has not failed to perfect or effectively
withdrawn or lost his right (to the extent such right is available by law) to
demand and to receive the "fair value" of such shares (the "Dissenting Shares")
under the PBCL shall not be converted into the right to receive the Merger
Consideration unless and until the holder shall have failed to perfect, or shall
have effectively withdrawn or lost, his right to dissent from the Merger under
the PBCL and to receive such consideration as may be determined to be due with
respect to such Dissenting Shares pursuant to and subject to the requirements of
the PBCL. If any such holder shall have so failed to perfect or have effectively
withdrawn or lost such right, each share of such holder's Company Common Stock
shall thereupon be deemed to have been converted into and to have become, as of
the Effective Time, the right to receive, without any interest thereon, the
Merger Consideration. The Company shall give Parent

                                        3

<PAGE>



(i) prompt notice of any notice or demand for appraisal or payment for shares of
Company Common Stock received by the Company and (ii) the opportunity to
participate in and direct all negotiations and proceedings with respect to any
such demands or notices. The Company shall not, without the prior written
consent of Parent, make any payment with respect to, or settle, offer to settle
or otherwise negotiate, any such demands.

           2.05 Exchange of Certificates.

                  (a) Exchange Agent. From and after the Effective Time, Parent
shall make available to a bank or trust company designated by Parent and
satisfactory to the Company (the "Exchange Agent") cash for the benefit of the
holders of shares of Company Common Stock (other than Dissenting Shares and
Canceled Shares) in the amount required to be exchanged for shares of Company
Common Stock in the Merger pursuant to Section 2.03 (such cash hereinafter
referred to as the "Exchange Fund"). The Exchange Agent shall, pursuant to
irrevocable instructions, deliver the cash pursuant to Section 2.03 out of the
Exchange Fund. Except as contemplated by Section 2.05(g), the Exchange Fund
shall not be used for any other purpose.

                  (b) Exchange Procedures. As promptly as practicable after the
Effective Time, Parent shall cause the Exchange Agent to mail to each holder of
a certificate or certificates (to the extent such certificates have not already
been submitted to the Exchange Agent) which immediately prior to the Effective
Time represented outstanding shares of Company Common Stock other than
Dissenting Shares and Canceled Shares (the "Certificates") (i) a letter of
transmittal which shall be in customary form and shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Exchange Agent and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for cash.

                  (c) Exchange of Certificates. Upon surrender to the Exchange
Agent of a Certificate for cancellation, together with such letter of
transmittal, duly executed and completed in accordance with the instructions
thereto, and such other documents as may be reasonably required pursuant to such
instructions, the holder of such Certificate shall be entitled to receive in
exchange therefor a check in the amount equal to the cash which such holder has
the right to receive pursuant to the provisions of this Article II and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of shares of Company Common Stock which is not registered
in the transfer records of the Company, the Merger Consideration may be issued
to a transferee if the Certificate representing such shares of Company Common
Stock is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
2.05, each Certificate shall be deemed at all times after the Effective Time to
represent only the right to receive upon such surrender the Merger Consideration
with respect to the shares of Company Common Stock formerly represented thereby.

                                        4

<PAGE>



                  (d) No Further Rights in Company Common Stock. All cash paid
upon conversion of the shares of Company Common Stock in accordance with the
terms hereof shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Common Stock.

                  (e) Termination of Exchange Fund. To the extent permitted by
applicable law, any portion of the Exchange Fund which remains undistributed to
the holders of Company Common Stock on the second anniversary of the Effective
Time shall be delivered to Parent, upon demand, and any holders of Company
Common Stock who have not theretofore complied with this Article II shall
thereafter look only to Parent for the Merger Consideration. Any portion of the
Exchange Fund remaining unclaimed by holders of shares of Company Common Stock
as of a date which is immediately prior to such time as such amounts would
otherwise escheat to or become property of any government entity shall, to the
extent permitted by applicable law, become the property of Parent free and clear
of any claims or interest of any person previously entitled thereto.

                  (f) No Liability. None of the Exchange Agent, Parent nor the
Surviving Corporation shall be liable to any holder of shares of Company Common
Stock for any cash delivered to a public official pursuant to any abandoned
property, escheat or similar law.

                  (g) Withholding Rights. The Exchange Agent shall be entitled
to deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of Company Common Stock such amounts as it is
required to deduct and withhold with respect to the making of such payment under
the Internal Revenue Code of 1986, as amended (the "Code") or any provision of
state or local tax law. To the extent that amounts are so withheld by the
Surviving Corporation or Parent, as the case may be, such withheld amounts shall
be treated for all purposes of this Agreement as having been paid to the holder
of the shares of Company Common Stock in respect of which such deduction and
withholding was made by the Surviving Corporation or Parent, as the case may be.

                  (h) Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such person of a bond, in
such reasonable amount as the Surviving Corporation may direct, as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration.

                  (i) Further Assurances. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of either of the Merger Sub or the

                                        5

<PAGE>



Company acquired or to be acquired by the Surviving Corporation as a result of,
or in connection with, the Merger or otherwise to carry out this Agreement, the
officers of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of each of the Merger Sub and the Company or
otherwise, all such deeds, bills of sale, assignments and assurances and to take
and do, in such names and on such behalves or otherwise, all such other actions
and things as may be necessary or desirable to vest, perfect or confirm any and
all right, title and interest in, to and under such rights, properties or assets
in the Surviving Corporation or otherwise to carry out the purposes of this
Agreement.

           2.06 Stock Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed and there shall be no further registration
of transfers of shares of Company Common Stock thereafter on the records of the
Company. From and after the Effective Time, the holders of Certificates
representing shares of Company Common Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such shares of
Company Common Stock, except as otherwise provided herein or by law. On or after
the Effective Time, any Certificates presented to the Exchange Agent or Parent
for any reason shall be converted into cash as provided herein.


                                   ARTICLE III

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

           The Company hereby represents and warrants to Parent and Merger Sub
as follows:

           3.01 Organization. Each of the Company and its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate power
and authority and all necessary government approvals to own, lease and operate
its properties and to carry on its business as now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power, authority and governmental approvals would not have a material adverse
effect. The Company and each of its subsidiaries is duly qualified or licensed
to do business and in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing would not have a material
adverse effect. The Company has made available to Parent complete and correct
copies of its Restated Articles of Incorporation, as amended, and By-laws and
the articles of incorporation and by-laws or other comparable charter or
organizational documents of its subsidiaries, in each case as amended to the
date of this Agreement. All the outstanding shares of capital stock of each
material subsidiary of the Company are owned by the Company or by another wholly
owned subsidiary of the Company, and, except as set forth in the Company SEC
Documents (as hereafter defined), free and clear of all liens and are duly

                                        6

<PAGE>



authorized, validly issued, fully paid and nonassessable. A list of all
subsidiaries of the Company is attached hereto as Schedule 3.01.

           3.02 Capitalization. The authorized capital stock of the Company
consists of 5,000,000 shares of Company Common Stock. As of the date of this
Agreement, (i) 3,440,984 shares of Company Common Stock were issued and
outstanding and (ii) 548,137 shares of Company Common Stock were held in the
treasury of the Company. All the outstanding shares of Company Common Stock are
duly authorized, validly issued, fully paid and nonassessable and free of any
pre-emptive rights in respect thereof. As of the date hereof, no bonds,
debentures, notes or other indebtedness of the Company convertible into voting
securities of the Company are issued or outstanding and, except as set forth
above, (i) no shares of capital stock or other voting securities of the Company
are outstanding, (ii) no equity equivalents, interests in the ownership or
earnings of the Company or other similar rights are outstanding and (iii) there
are no existing options, warrants, calls, subscriptions or other rights or
agreements or commitments relating to the capital stock of the Company or any of
its subsidiaries or obligating the Company or any of its subsidiaries to issue,
transfer or sell any shares of capital stock or other equity interest in the
Company or any of its subsidiaries or obligating the Company or any of its
subsidiaries to grant, extend or enter into any such option, warrant, call,
subscription or other right, agreement or commitment. As of the date of this
Agreement, there are no outstanding contractual obligations of the Company or
any of its subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of the Company or any of its subsidiaries, except for the pledge
of shares of capital stock of certain of the Company's subsidiaries listed on
Schedule 3.02 hereto.

           3.03 Authority. The Company has the requisite corporate power and
authority to execute and deliver this Agreement and, subject to the requisite
approval of this Agreement by the holders of the outstanding shares of Company
Common Stock, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of the Company, subject to the requisite
approval of this Agreement by the holders of the outstanding shares of Company
Common Stock. This Agreement has been duly executed and delivered by the Company
and, assuming this Agreement constitutes the valid and binding obligation of
Parent and Merger Sub, constitutes the valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium
and similar laws, now or hereafter in effect, affecting creditors' rights and
remedies and to general principles of equity.

           3.04 Noncontravention; Filings and Consents.

                  (a) Except as set forth in Schedule 3.04 hereto, the execution
and delivery of this Agreement by the Company do not, and the consummation of
the transactions contemplated by this Agreement and compliance with the
provisions of this Agreement

                                        7

<PAGE>



will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation, or acceleration of any obligation or to loss of a
material benefit under, or result in the creation of any lien upon any of the
properties or assets of the Company or any of its subsidiaries under (i) the
Restated Articles of Incorporation, as amended, or By-laws of the Company or the
comparable charter or organizational documents of any of its subsidiaries, (ii)
any loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
the Company or any of its subsidiaries or their respective properties or assets
or (iii) subject to the governmental filings and other matters referred to in
paragraph (b) below, any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to the Company or any of its subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii) and
(iii), any such conflicts, violations, defaults, rights or liens that
individually or in the aggregate would not (x) impair in any material respect
the ability of the Company to perform its obligations under this Agreement or
(y) prevent or impede, in any material respect, the consummation of the
transactions contemplated by this Agreement.

                  (b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any federal, state or local government
or any court, administrative or regulatory agency or commission or other
governmental authority or agency (a "Governmental Entity") is required by the
Company or any of its subsidiaries in connection with the execution and
delivery of this Agreement by the Company or the consummation by the Company of
the transactions contemplated by this Agreement, except for (i) the filing of a
premerger notification and report form by the Company under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
(ii) the filing with the Securities and Exchange Commission (the "SEC") of (x)
the Proxy Statement (as defined in Section 6.02) and (y) such reports under
Section 13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as may be required in connection with this Agreement and the transactions
contemplated by this Agreement, (iii) the filing of the Articles of Merger with
the Corporation Bureau of the Commonwealth of Pennsylvania and the Certificate
of Merger with the Secretary of State of the State of Delaware and appropriate
documents with the relevant authorities of other states in which the Company is
qualified to do business, (iv) such as may be required by any applicable state
securities or "blue sky" laws, (v) notice of consummation of the Merger to the
Pennsylvania Department of Environmental Protection (the "DEP") and (vi) such
other consents, approvals, orders, authorizations, registrations, declarations
and filings the failure of which to be obtained or made would not, individually
or in the aggregate, (x) impair in any material respect the ability of the
Company to perform its obligations under this Agreement or (y) prevent or
impede, in any material respect, the consummation of the transactions
contemplated by this Agreement.

           3.05 Company SEC Documents; Financial Statements. The Company has
filed all required reports, proxy statements, forms, and other documents,
including any amendments thereto, with the SEC since December 31, 1994 and prior
to the date of this

                                        8

<PAGE>



Agreement (the "Company SEC Documents"). As of their respective dates, (i) the
Company SEC Documents complied, and all similar documents filed prior to the
Closing Date will comply, in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act,
as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Company SEC Documents and (ii) none of the Company
SEC Documents contained, nor will any similar document filed after the date of
this Agreement contain, any untrue statement of a material fact or omitted, or
will omit, to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of the Company
included in the Company SEC Documents (including any similar documents filed
after the date of this Agreement): (i) comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, (ii) have been prepared in
accordance with generally accepted accounting principles (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved except as may be indicated in the
notes thereto and (iii) fairly present the consolidated financial position of
the Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended. Neither the Company nor any of its subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
required by generally accepted accounting principles to be set forth on a
consolidated balance sheet or financial statement of the Company and its
subsidiaries or in the notes thereto which have not been so noted or disclosed
to Parent.

           3.06 Information Supplied. None of the information to be supplied by
the Company expressly for inclusion or incorporation by reference in the Proxy
Statement will, (i) on the date the Proxy Statement (as hereafter defined) is
first mailed to the shareholders of the Company and (ii) at the time of the
Company Shareholders' Meeting (as hereafter defined), contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Proxy Statement
will comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder.

           3.07 Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Documents or in Schedule 3.07 hereto or as contemplated by this
Agreement, since February 28, 1998, the Company and its subsidiaries have
conducted their respective businesses only in the ordinary course, and there has
not been (i) any material adverse change in the Company, (ii) any declaration,
setting aside or payment of any dividend or other distribution with respect to,
or repurchase or redemption of, the Company's capital stock other than the
dividends on the shares of Company Common Stock not in excess of the amount of
dividends declared, paid or set aside in the comparable year-earlier period,
(iii) any split, combination or reclassification of any of the Company's capital
stock or any issuance or the authorization of any issuance of any other
securities

                                        9

<PAGE>



in respect of, in lieu of or in substitution for shares of its capital stock,
(iv) (A) any granting by the Company or any of its subsidiaries to any officer
of the Company or any of its subsidiaries of any increase in compensation,
except in the ordinary course of business consistent with past practice, (B) any
granting by the Company or any of its subsidiaries to any such officer any
increase in severance or termination pay, except as part of a standard
employment package to any person promoted or hired, (C) except termination
arrangements in the ordinary course of business consistent with past practice
with employees other than any executive officer of the Company, any entry by the
Company or any of its subsidiaries into any employment, severance or termination
agreement with any such officer or (D) any material modification to any existing
Company Benefit Plans (as hereafter defined) other than such modifications
required by law, except as listed on Schedule 3.07 hereto, (v) any damage,
destruction or loss, whether or not covered by insurance, that has or reasonably
would be expected to have a material adverse effect on the Company or (vi) any
change in accounting methods, principles or practices by the Company materially
affecting its assets, liabilities or business, except insofar as may have been
required by a change in generally accepted accounting principles. Since
September 30, 1996, the Company's dividends to shareholders have not been in
excess of $.15 per share of Company Common Stock per quarter.

           3.08 Litigation. Except as set forth on Schedule 3.08 hereto, there
are no suits, actions or proceedings pending or, to the knowledge of the
Company, threatened against the Company or any of its subsidiaries that would
reasonably be expected to have, individually or in the aggregate, a material
adverse effect. Except as set forth on Schedule 3.08 hereto, neither the
Company nor any of its subsidiaries is subject to any outstanding order, writ,
injunction or decree that would reasonably be expected to have a material
adverse effect.

           3.09 Tax Matters.

                  (a) Except as set forth on Schedule 3.09 hereto, each of the
Company and each of its subsidiaries has (i) filed, or caused to be filed, with
the appropriate taxing authorities all Tax Returns required to be filed on or
before the date hereof, and such Tax Returns are true, correct and complete in
all material respects and (ii) paid, or caused to be paid, all Taxes shown to be
due and payable on such Tax Returns or established adequate reserves in
accordance with generally accepted accounting principles for the payment of all
such Taxes.

                  (b) Except as set forth on Schedule 3.09 hereto, neither the
Company nor any of its subsidiaries has (i) received any notice of deficiency or
assessment from any taxing authorities with respect to liability for Taxes that
have not been fully paid or finally settled or (ii) granted any requests,
agreements, consents or waivers to extend the statutory period of limitations
applicable to the assessment of any Taxes.


                                       10

<PAGE>



                  (c) Except as set forth on Schedule 3.09 hereto, no taxing
authority is now asserting, or to the knowledge of the Company is threatening to
assert, any deficiency or assessment for additional Taxes of the Company or any
of its subsidiaries.

                  (d) No payment which will, or may, be made to any employee,
director, officer or agent of the Company or any of its subsidiaries will
constitute an "excess parachute payment" within the meaning of Section 280G of
the Code.

           For purposes of this Agreement, "Taxes" means all federal, state,
foreign and local taxes, levies and other assessments, including, without
limitation, all income, sales, use, transfer, profits, capital gains,
withholding, payroll, severance and reclamation, black lung, real property and
personal property and any other taxes, assessments and similar charges in the
nature of a tax (including interest and penalties attributable thereto) imposed
by any governmental authority; "Tax Returns" means any return, report,
information return or other document (including relating or supporting
information) relating to Taxes.

           3.10 Compliance with Applicable Laws. Except as disclosed in the
Company SEC Documents, to the knowledge of the Company, since January 1, 1996
neither the Company nor any of its subsidiaries has violated or failed to comply
with any statute, law, permit, regulation, rule, judgment, decree or order of
any Governmental Entity applicable to its business or operations, except for
violations and failures to comply that would not, individually or in the
aggregate, reasonably be expected to result in a material adverse effect. The
conduct of the business of the Company and its subsidiaries is in conformity
with all federal, state and local governmental and regulatory requirements
applicable to its business and operations, except where such nonconformities
would not, in the aggregate, reasonably be expected to result in a material
adverse effect. The Company and its subsidiaries have all permits, licenses and
franchises from governmental agencies required to conduct their businesses as
now being conducted, except for such permits, licenses and franchises the
absence of which would not, in the aggregate, reasonably be expected to result
in a material adverse effect.

           3.11 Voting Requirements. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock entitled to vote
approving this Agreement is the only vote of the holders of any class of the
Company's capital stock necessary to approve this Agreement and the transactions
contemplated by this Agreement.

           3.12 Opinion of Financial Advisor. The Company has received an
opinion from J.P. Morgan Securities Inc. to the effect that, as of the date of
this Agreement, the consideration to be received in the Merger by the holders of
Company Common Stock is fair to the holders of Company Common Stock from a
financial point of view.

           3.13 Brokers. No broker, investment banker, financial advisor or
other person, other than J.P. Morgan Securities Inc., the fees and expenses of
which will be paid by the

                                       11

<PAGE>



Company, is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Company.

           3.14 Disclosure. No representation or warranty hereunder or
information contained in the financial statements referred to in Section 3.05,
the Schedules or any certificate, statement, or other document delivered by the
Company hereunder contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained
therein or herein, in light of the circumstances in which they were made, not
misleading.

           3.15 CERCLA Notice. Neither the Company nor any of its subsidiaries
has received any request for information with respect to or been notified that
it is a potentially responsible party for any contaminated site under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"), or any similar state statute.

           3.16 Environmental Matters. To the knowledge of the Company, neither
the Company nor any of its subsidiaries has stored, disposed of or released any
hazardous or toxic substance in violation of CERCLA, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act or any other federal or
state law, rule or regulation which protects the environment.


                                   ARTICLE IV

             REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

           Parent and Merger Sub hereby jointly and severally represent and
warrant to the Company as follows:

           4.01 Organization. Each of Parent and Merger Sub and Parent's
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority and all necessary government approvals
to own, lease and operate its properties and to carry on its business as now
being conducted, except where the failure to be so organized, existing and in
good standing or to have such power, authority and governmental approvals would
not have a material adverse effect. Each of Parent and Merger Sub and each of
Parent's subsidiaries is duly qualified or licensed to do business and in good
standing in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing would not have a material adverse effect. All
outstanding shares of capital stock of each subsidiary of Parent are owned by
Parent or by another direct or indirect wholly owned

                                       12

<PAGE>



subsidiary of Parent, free and clear of all liens and are duly authorized,
validly issued, fully paid and nonassessable.

           4.02 Capitalization of Merger Sub. The authorized capital stock of
Merger Sub consists of 1,000 shares of common stock, par value $.01 per share,
all of which are duly authorized, validly issued, fully paid and nonassessable
and free of any pre-emptive rights in respect thereof and all of which are owned
directly or indirectly by Parent.

           4.03 Authority. Each of Parent and Merger Sub has the requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement by Parent and Merger Sub and the consummation by
Parent and Merger Sub of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Merger
Sub and does not require the approval of the shareholders of Parent. This
Agreement has been duly executed and delivered by Parent and Merger Sub and,
assuming this Agreement constitutes the valid and binding obligation of the
Company, constitutes the valid and binding obligation of Parent and Merger Sub,
enforceable against Parent and Merger Sub in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and
similar laws, now or hereafter in effect, affecting creditors' rights and
remedies and to general principles of equity.

           4.04 Noncontravention; Filings and Consents.

                  (a) The execution and delivery of this Agreement by either
Parent or Merger Sub do not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation, or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any lien upon any of
the properties or assets of Parent or Merger Sub or any of Parent's other
subsidiaries under (i) the Certificate or Articles of Incorporation or By-laws
of either Parent or Merger Sub or the comparable charter or organizational
documents of any of Parent's other subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Parent or
Merger Sub or any of Parent's other subsidiaries or their respective properties
or assets or (iii) subject to the governmental filings and other matters
referred to in paragraph (b) below, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Parent or Merger Sub or any of
Parent's other subsidiaries or their respective properties or assets, other
than, in the case of clauses (ii) and (iii), any such conflicts, violations,
defaults, rights or liens that individually or in the aggregate would not (x)
impair in any material respect the ability of Parent or Merger Sub to perform
their respective obligations under this Agreement or (y) prevent or impede, in
any material respect, the consummation of the transactions contemplated by this
Agreement.


                                       13

<PAGE>



                  (b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by Parent or Merger Sub or any of Parent's other subsidiaries in connection with
the execution and delivery of this Agreement by Parent or Merger Sub or the
consummation by Parent or Merger Sub of the transactions contemplated by this
Agreement, except for (i) the filing of a premerger notification and report form
by Parent and Merger Sub under the HSR Act, (ii) the filing of the Articles of
Merger with the Corporation Bureau of the Commonwealth of Pennsylvania and
appropriate documents with the relevant authorities of other states in which
Parent is qualified to do business, (iii) such as may be required by any
applicable state securities or "blue sky" laws, (iv) notice of consummation of
the Merger to the DEP and (v) such other consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of which to
be obtained or made would not, individually or in the aggregate, (x) impair in
any material respect the ability of Parent or Merger Sub to perform their
respective obligations under this Agreement or (y) prevent or impede, in any
material respect, the consummation of the transactions contemplated by this
Agreement.

           4.05 Information Supplied. None of the information supplied or to be
supplied by Parent or Merger Sub expressly for inclusion or incorporation by
reference in the Proxy Statement will, (i) on the date the Proxy Statement is
first mailed to the shareholders of the Company and (ii) at the time of the
Company Shareholders' Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.

           4.06 Brokers. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Parent or Merger
Sub.

           4.07 Disclosure. No representation or warranty hereunder or
information contained in any certificate, statement, or other document delivered
by Parent hereunder contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained
therein or herein, in light of the circumstances in which they were made, not
misleading.


                                    ARTICLE V

                    COVENANTS RELATING TO CONDUCT OF BUSINESS

           5.01 Conduct of Business of the Company. Prior to the Effective Time,
the Company agrees (except as expressly contemplated or permitted by this
Agreement, as set forth herein or to the extent that Parent shall otherwise
consent in writing) as follows:


                                       14

<PAGE>



                  (a) Ordinary Course. The Company and its subsidiaries shall
carry on their respective businesses in the usual, regular and ordinary course
in substantially the same manner as heretofore conducted, shall preserve intact
their present business organizations and shall use commercially reasonable
efforts to keep available the services of their present officers and employees
and preserve their relationships with customers, suppliers and others having
business dealings with the Company and its subsidiaries.

                  (b) Dividends; Changes in Stock. Except for the payment on
June 1, 1998 of a cash dividend of $.15 per share declared on May 4, 1998, the
Company shall not (i) declare or pay any quarterly dividends on or make other
distributions in respect of any of its capital stock, (ii) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or (iii) repurchase, redeem or otherwise
acquire, or permit any subsidiary to repurchase, redeem or otherwise acquire,
any shares of capital stock.

                  (c) Issuance of Securities. The Company shall not, and it
shall not permit any of its subsidiaries to, issue, deliver or sell or authorize
or propose the issuance, delivery or sale of, any shares of its capital stock of
any class or any securities convertible into, or any rights, warrants, calls,
subscriptions or options to acquire, any such shares or convertible securities,
or any other ownership interest other than issuances by a wholly owned
subsidiary of the Company of its capital stock to the Company.

                  (d) Governing Documents. The Company shall not amend or
propose to amend its Restated Articles of Incorporation, as amended, or By-laws.

                  (e) No Acquisitions. The Company shall not, and it shall not
permit any of its subsidiaries to, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in or
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof.

                  (f) No Dispositions. The Company shall not, and it shall not
permit any of its subsidiaries to, sell, lease, encumber or otherwise dispose
of, or agree to sell, lease, encumber or otherwise dispose of, any of its
assets, other than (i) sales of equipment between the Company and its
subsidiaries that do not result in the generation of taxable income on a
consolidated basis in the ordinary course of business, (ii) assets having an
aggregate book value of not more than $100,000 it being understood that this
clause (ii) shall not permit the sale or other disposition of Helvetia Coal
Company and (iii) those properties listed on Schedule 5.01(f) hereto.

                  (g) Indebtedness. With the exception of indebtedness between
the Company and its subsidiaries, the Company shall not, and it shall not permit
any of its subsidiaries to, incur (which shall include entering into credit
agreements, lines of credit or similar arrangements) any indebtedness for
borrowed money or guarantee any such

                                       15

<PAGE>



indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of the Company or any of its subsidiaries or
guarantee any debt securities of others, other than (i) indebtedness outstanding
on February 28, 1998 and (ii) take downs under the Company's and its
subsidiaries' existing credit facilities, provided, however, that at the Closing
Date the sum of the Company's indebtedness and current liabilities (excluding
the current portion of the Company's long-term indebtedness) less the Company's
current assets determined in accordance with generally accepted accounting
principles shall not be greater than the amount thereof at February 28, 1998
plus $12,000,000. For the purpose of this Section 5.01(g), the Company's current
liabilities shall exclude deferred compensation and severance pay payable to
employees of the Company and its subsidiaries in connection with the Merger.

                  (h) Tax Matters. The Company shall not make, and will not
permit any of its subsidiaries to make, any tax election or settle or compromise
any income tax liability of the Company or of any of its subsidiaries for an
amount in excess of $25,000. The Company shall, before filing or causing to be
filed any material Tax Return of the Company or any of its subsidiaries, consult
with Parent and its advisors as to the positions and elections that may be taken
or made with respect to such return.

                  (i) Discharge of Liabilities. The Company shall not, and it
shall not permit any of its subsidiaries to, pay, discharge, settle or satisfy
any claim, liabilities or obligations (absolute, asserted or unasserted,
contingent or otherwise) for an amount in excess of $100,000 in the aggregate
(other than settlement of the litigation matters set forth on Schedule 5.01(i)
hereto, payments of accounts payable and accrued liabilities and reductions of
indebtedness in the ordinary course of business of the Company and its
subsidiaries and payments for goods and services under the written agreements in
effect on the date hereof and listed on Schedule 5.01(i) hereto),0. or waive the
benefit of, or agree to modify in any manner, any confidentiality, standstill or
similar agreement to which the Company or any of its subsidiaries is a party.

                  (j) Contracts. Without the consent of Parent, the Company
shall not, and shall not permit any of its subsidiaries to, enter into, modify,
amend or terminate any contract to which the Company or such subsidiary is a
party or waive, release or assign any material rights or claims thereunder other
than spot purchases of supplies necessary for the operation of the business of
the Company and its subsidiaries in the ordinary course which do not result in
the Company's acquisition of supplies in excess of those that would be consumed
in 30 days of operations in the ordinary course of business. Parent agrees to
respond in not more than two full business days to any request from the Company
to enter into, modify, amend or terminate any contract or to waive, release or
assign any material rights or claims thereunder.

                  (k) Employee Benefits. The Company shall not, and shall not
permit any of its subsidiaries to, (i) grant any increase in the compensation of
any of its directors, officers or key employees, (ii) pay or agree to pay any
pension, retirement allowance or other employee benefit not required or
contemplated by any of the existing Company

                                       16

<PAGE>



Benefit Plans as in effect on the date hereof to any director, officer or key
employee, (iii) enter into any new employment, severance or termination
agreement with any such director, officer or key employee or (iv) except as may
be required to comply with applicable law, become obligated under any Company
Benefit Plan which was not in existence on the date hereof or amend any such
plan in existence on the date hereof to enhance the benefits thereunder. As used
herein, "Company Benefit Plans" shall mean all "employee pension benefit plans"
(as defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and sometimes referred to herein as "Company Pension
Plans"), "employee welfare benefit plans" (as defined in Section 3(1) of ERISA
and sometimes referred to herein as "Welfare Plans"), and each other plan,
arrangement or policy (written or oral) relating to stock options, stock
purchases, compensation, deferred compensation, severance, fringe benefits or
other employee benefits, in each case maintained, or contributed to, by the
Company or any of its subsidiaries or any other person or entity that, together
with the Company is treated as a single employer under Section 414(b), (c), (m)
or (o) of the Code (each, together with the Company, a "Commonly Controlled
Entity"), for the benefit of any current or former employees, officers, agents
or directors of the Company or any of its subsidiaries.

                  (l) Capital Expenditures. Except as listed in Schedule 5.01(l)
hereto for the month of June 1998 or as otherwise approved in advance by Parent,
the Company shall not, and shall not permit any of its subsidiaries to,
authorize or make any capital expenditures (excluding capital expenditures for
which commitments exist as of the date of this Agreement) which in the aggregate
exceed $250,000, except for repairs and rebuilding expenditures of less than
$250,000 each necessary to keep existing mining equipment in operation. Parent
agrees to respond in not more than two full business days to any request
received from the Company to make or authorize any capital expenditures which in
the aggregate exceed $250,000 and, in emergency situations, Parent shall reply
to any such request within two hours of Parent's receipt of notification
thereof.

           5.02 Conduct of Business of Parent. Prior to the Effective Time,
Parent agrees (except as expressly contemplated or permitted by this Agreement,
or to the extent that the Company shall otherwise consent in writing) as
follows:

                  (a) Material Acquisitions. CONSOL Energy, Inc. ("CEI") shall
not, and shall not permit any of its subsidiaries other than in conjunction with
the sale of capital stock of CEI held directly or indirectly by DuPont to,
acquire or agree to acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of or equity in, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets if the entering into of a definitive agreement relating to or the
consummation of such acquisition, merger or consolidation would (A) impose any
material delay in the obtaining of, or increase the risk of not obtaining, any
authorizations, consents, orders, declarations or approvals of any Governmental
Entity necessary to consummate the Merger or the expiration or termination of
any applicable waiting period, (B) increase the risk of any Governmental Entity
entering an order prohibiting the consummation of

                                       17

<PAGE>



the Merger or (C) increase the risk of not being able to remove any such order
on appeal or otherwise.

                  (b) Other Actions. CEI shall not, and shall not permit any of
its subsidiaries to take other than in conjunction with the sale of capital
stock of CEI held directly or indirectly by DuPont, or fail to take, any other
action which would, or would reasonably be expected to, impede, interfere with,
prevent or materially delay the Merger.

           5.03 Other Actions. Each of Parent, Merger Sub and the Company shall
not and shall not permit any of its subsidiaries to, take any action that would,
or that would reasonably be expected to, result in (i) any of its
representations and warranties set forth in this Agreement that are qualified as
to materiality becoming untrue, (ii) any of such representations and warranties
that are not so qualified becoming untrue in any material respect or (iii) any
of the conditions to the Merger set forth in Article VII not being satisfied.


                                   ARTICLE VI

                              ADDITIONAL AGREEMENTS

           6.01 Company Shareholders' Meeting. As soon as practicable after the
date hereof, the Company shall call a meeting of its shareholders (the "Company
Shareholders' Meeting") to consider and vote upon the approval of this Agreement
and the Company shall take all reasonable lawful action to solicit such
approval, including, without limitation, timely mailing the Proxy Statement.

           6.02 Proxy Statement. As promptly as practicable after the execution
of this Agreement, the Company shall mail a proxy statement to its shareholders
relating to the Company Shareholders' Meeting (the "Proxy Statement"). The
Company will cause the Proxy Statement to comply as to form in all material
respects with the applicable provisions of the Securities Act, the Exchange Act
and the rules and regulations thereunder.

           6.03 Information; Confidentiality.

                  (a) From the date of this Agreement until the mailing of the
Proxy Statement to the Company's shareholders to the extent permitted by law,
the Company shall afford to Parent, and to Parent's officers, employees,
accountants, counsel, financial advisors and other representatives, full and
complete access to all the officers, employees, properties, books, contracts,
commitments and records of the Company and its subsidiaries as Parent may
request in its sole discretion; provided, however, that Parent and its
representatives shall not interfere materially with the operation of the
business of the Company and such investigation and examination shall be
conducted at all times during normal business hours and under reasonable
circumstances. From the date of this

                                       18

<PAGE>



Agreement until the Effective Date, the Company shall furnish promptly to Parent
(i) a copy of each report, schedule, registration statement and other document
filed by it or its subsidiaries during such period pursuant to the requirements
of applicable federal or state securities laws and (ii) all other material
information concerning its business, properties and current and former personnel
as Parent may reasonably request. Parent will keep such information provided to
it by the Company confidential, except to the extent such information (i) is or
becomes generally available to the public other than as a result of a disclosure
by Parent, (ii) was available to Parent on a nonconfidential basis prior to
disclosure by the Company to Parent or (iii) becomes available to Parent on a
nonconfidential basis from a source other than the Company which is entitled to
disclose it, and except as required by law or as otherwise agreed to by the
Company.

                  (b) Only to the extent required by law, Parent shall provide
to the Company, and to the Company's officers, employees, accountants, counsel,
financial advisors and other representatives, all information which is necessary
in connection with preparing the Proxy Statement, and during the period prior to
the Effective Time, Parent shall furnish promptly to the Company a copy of each
report, schedule, registration statement and other document filed by it or its
subsidiaries during such period pursuant to the requirements of federal or state
securities laws. The Company will keep such information provided to it by Parent
confidential, except to the extent such information (i) is provided to the
Company for its use in connection with the preparation of the Proxy Statement,
(ii) is or becomes generally available to the public other than as a result of a
disclosure by the Company, (iii) was available to the Company on a
nonconfidential basis prior to disclosure by Parent to the Company or (iv)
becomes available to the Company on a nonconfidential basis from a source other
than Parent which is entitled to disclose it, and except as required by law or
as otherwise agreed to by Parent.

           6.04 Approvals and Consents; HSR Filings.

                  (a) Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties agrees to use all commercially reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective the Merger and
the other transactions contemplated by this Agreement, including (i) the
obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Entities and the making of all necessary
registrations and filings (including filings with Governmental Entities) and the
taking of all reasonable steps as may be necessary to obtain an approval or
waiver from, or to avoid an action or proceeding by, any Governmental Entity,
(ii) the obtaining of all necessary consents, approvals or waivers from third
parties, including consents under all of the sales contracts of the Company and
its subsidiaries, (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, investigating or challenging
this Agreement or the consummation of any of the transactions contemplated by
this Agreement, including seeking to have any stay or temporary restraining
order entered by any court or other Governmental Entity vacated or reversed and
(iv) the execution and

                                       19

<PAGE>



delivery of any additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement.

                  (b) Parent and the Company shall file as soon as practicable
after the date of this Agreement notifications under the HSR Act and shall
respond as promptly as practicable to all inquiries or requests received from
the Federal Trade Commission or the Antitrust Division of the Department of
Justice for additional information or documentation and shall respond as
promptly as practicable to all inquiries and requests received from any State
Attorney General or other Governmental Entity in connection with antitrust
matters. The parties shall cooperate with each other in connection with the
making of all such filings or responses, including providing copies of all such
documents to the other party and its advisors prior to filing or responding.
Parent and Merger Sub agree to use their respective reasonable efforts to avoid
the entry of (or, if entered, to lift, vacate or reverse) any order, decree,
judgment or ruling of any court or Governmental Entity restraining or preventing
the consummation of the Merger on the basis of any federal, state or local
antitrust laws or regulations.

           6.05 Company Benefit Plans.

                  (a) Parent shall cause the Surviving Corporation to maintain
the Company's existing compensation, severance, welfare and pension benefit
plans, programs and arrangements for the benefit of current and former employees
of the Company and its subsidiaries (subject to such modification as may be
required by applicable law or to maintain the tax exempt status of any such plan
which is intended to be qualified under Section 401(a) of the Code); provided,
however, that nothing herein shall prohibit Parent from (i) replacing any such
existing plans, programs or arrangements with plans, programs or arrangements
("Replacement Plans") which provide current active or inactive employees or
former employees with benefits which, in the reasonable opinion of Parent, are
not less favorable in the aggregate than the benefits that would have been
provided under such existing plans, programs or arrangements to the extent such
replacement is permitted under the terms of the applicable plans, programs or
arrangements; provided, that Parent may not subsequently replace such
Replacement Plans with other plans, programs or arrangements, unless such plans,
programs or arrangements provide such employees with benefits which, in the
reasonable opinion of Parent, are not less favorable in the aggregate than the
benefits provided under Parent's plans, programs or arrangements or (ii)
including current active or inactive employees or former employees of the
Company in the plans, programs and arrangements generally available to employees
of Parent and its subsidiaries other than the Surviving Corporation in lieu of
participation in any Company plan, program or arrangement; provided, that such
Parent plans, programs and arrangements (A) provide such employees with benefits
which, in the reasonable opinion of Parent, are not less favorable in the
aggregate than the benefits that would have been provided under the Company
plans, programs or arrangements and (B) do not discriminate against such
employees compared to other employees of Parent and its subsidiaries.


                                       20

<PAGE>



                  (b) All service credited to each employee by the Company or
its subsidiaries through the Effective Time shall be recognized by Parent for
all purposes, including for purposes of eligibility, vesting and benefit
accruals under any employee benefit plan provided by Parent for the benefit of
the employees; provided, however, that, to the extent necessary to avoid
duplication of benefits, amounts payable under employee benefit plans provided
by Parent may be reduced by amounts payable under similar Company plans with
respect to the same periods of service. Any benefits accrued by employees of the
Company and its subsidiaries prior to the Effective Time under any of the
Company's defined benefit pension plans that employ a final average pay formula
shall be calculated based on such employees' final average pay with the
Surviving Corporation or any successor to the Surviving Corporation or other
affiliate of Parent employing such employees. In addition, with respect to any
welfare benefit plan established or maintained by Parent or its subsidiaries for
the benefit of employees of the Company, Parent shall, or shall cause the
relevant subsidiary to, waive any pre-existing condition exclusions other than
any pre-existing condition that was not waived by a Company plan and provide
that any covered expenses incurred on or before the Effective Time in respect of
the current plan year by any employee of the Company (or any covered dependent
of such an employee) shall be taken into account for purposes of satisfying
applicable deductible, coinsurance and maximum out-of-pocket provisions after
the Effective Time in respect of such current plan year.

                  (c) Parent hereby agrees to cause the Surviving Corporation to
honor (without modification) and assume the severance policies, employment
agreements, executive termination agreements and individual benefit arrangements
previously disclosed to Parent.

                  (d) The provisions of this Section 6.05 shall not apply to any
employee subject to the terms of a collective bargaining plan.

           6.06 Fees and Expenses. All fees and expenses incurred in connection
with this Agreement and the Merger and any other transaction contemplated by
this Agreement shall be paid by the party incurring such fees or expenses,
whether or not the Merger is consummated.

           6.07 Notification. Each of the Company and Parent shall give prompt
notice to the other of (i) any representation or warranty made by it contained
in this Agreement that is qualified as to materiality becoming untrue or
inaccurate in any respect or any such representation or warranty that is not so
qualified becoming untrue or inaccurate in any material respect or (ii) the
failure by it to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.


                                       21

<PAGE>



           6.08 Obligations of Merger Sub. Parent shall take all action
necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and subject to the conditions set
forth in this Agreement.

           6.09 Public Announcements. Unless otherwise required by applicable
law or the requirements of any listing agreement with any applicable stock
exchange, Parent and the Company shall each use their reasonable efforts to
consult with each other before issuing any press release or otherwise making any
public statements with respect to this Agreement or any transaction contemplated
by this Agreement and shall not issue any such press release or make any such
public statement prior to such consultation.



                                   ARTICLE VII

                            CONDITIONS TO THE MERGER

           7.01 Conditions to the Obligations of Each Party. The obligations of
the Company, Parent and Merger Sub to consummate the Merger are subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:

                  (a) Company Shareholder Approval. This Agreement shall have
been approved by the requisite affirmative vote of the shareholders of the
Company in accordance with the Company's Restated Articles of Incorporation, as
amended, By-laws and the PBCL.

                  (b) No Injunction or Restraint. No Governmental Entity shall
have enacted, issued, promulgated, enforced or entered any law, rule, regulation
or order which is then in effect and has the effect of making the Merger illegal
or otherwise prohibiting consummation of the Merger.

                  (c) HSR Act. Any waiting period and any extension thereof
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated.

                  (d) Consents and Approvals. All consents, approvals and
authorizations legally required to be obtained to consummate the Merger shall
have been obtained from all Governmental Entities, except for such consents,
approvals and authorizations the failure of which to obtain would not have a
material adverse effect on Parent, Merger Sub or the Company assuming for
purposes of this paragraph (d) that the Merger shall have been effected.

           7.02 Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate the Merger are subject to the
satisfaction or waiver by Parent on or prior to the Closing Date of the
following further conditions:

                                       22

<PAGE>



                  (a) Company Representations and Warranties. Each of the
representations and warranties of the Company contained in this Agreement that
is qualified by materiality shall be true and correct on and as of the Closing
Date as if made on and as of such date (other than representations and
warranties which address matters only as of a certain date which shall be true
and correct as of such certain date) and each of the representations and
warranties that is not so qualified shall be true and correct in all material
respects on and as of the Closing Date, as if made on and as of such date (other
than representations and warranties which address matters only as of a certain
date which shall be true and correct in all material respects as of such certain
date), in each case except as contemplated or permitted by this Agreement, and
Parent shall have received a certificate of the President or Chief Financial
Officer of the Company to such effect.

                  (b) Company Agreements and Covenants. The Company shall have
performed or complied in all material respects with all material agreements and
covenants required by this Agreement to be performed or complied with by it on
or prior to the Closing Date, and Parent shall have received a certificate of
the President or Chief Financial Officer of the Company to that effect.

                  (c) Permits; Authorizations. All permits, authorizations,
licenses, approvals and notifications of Governmental Entities that are
necessary for the Company and its subsidiaries to conduct their businesses after
the Effective Date in the same manner as such businesses are conducted as of the
Effective Date, including, but not limited to, Environmental Permits, shall have
been provided, issued, obtained, transferred or reissued, to the extent
necessary under applicable law, except for such permits, authorizations,
licenses, approvals and notifications the failure of which to provide, issue,
obtain, transfer or reissue would not have a material adverse effect on the
Company and its subsidiaries taken as a whole.

           7.03 Conditions to the Obligations of the Company. The obligations of
the Company to consummate the Merger are subject to the satisfaction or waiver
by the Company on or prior to the Closing Date of the following further
conditions:

                  (a) Parent Representations and Warranties. Each of the
representations and warranties of each of Parent and Merger Sub contained in
this Agreement that is qualified by materiality shall be true and correct on and
as of the Closing Date as if made on and as of such date (other than
representations and warranties which address matters only as of a certain date
which shall be true and correct as of such certain date) and each of the
representations and warranties that is not so qualified shall be true and
correct in all material respects on and as of the Closing Date as if made on and
as of such date (other than representations and warranties which address matters
only as of a certain date which shall be true and correct in all material
respects as of such certain date), in each case except as contemplated or
permitted by this Agreement, and the Company shall have received a certificate
of the President or Chief Financial Officer of each of Parent and Merger Sub to
such effect.

                                       23

<PAGE>



                  (b) Parent Agreements and Covenants. Each of Parent and Merger
Sub shall have performed or complied in all material respects with all material
agreements and covenants required by this Agreement to be performed or complied
with by it on or prior to the Closing Date, and the Company shall have received
a certificate of the President or Chief Financial Officer of each of Parent and
Merger Sub to that effect.

                  (c) Fairness Opinion. The Company shall have received the
written opinion of its financial advisor, J.P. Morgan Securities Inc., dated as
of the date of this Agreement, that the consideration to be received in the
Merger by the holders of Company Common Stock is fair to the holders of Company
Common Stock from a financial point of view.


                                  ARTICLE VIII

                        TERMINATION, AMENDMENT AND WAIVER

           8.01 Termination. This Agreement may be terminated and the Merger and
the other transactions contemplated by this Agreement may be abandoned at any
time prior to the Effective Time, whether before or after approval thereof by
shareholders of the Company, as follows:

                  (a) by mutual written consent of Parent and the Company;

                  (b) by either Parent or the Company if the Effective Time
shall not have occurred on or before September 30, 1998; provided, however, that
the right to terminate this Agreement under this Section 8.01(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before September 30, 1998;

                  (c) by either Parent or the Company if any Governmental Entity
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Merger and such
order, decree or ruling or other action shall have become final and
nonappealable; provided, however, that the party seeking to terminate this
Agreement under this Section 8.01(c) shall have used its commercially reasonable
efforts to remove such injunction, order or decree;

                  (d) by Parent in the event of a breach by the Company of any
representation, warranty, covenant or other agreement contained in this
Agreement which (A) would give rise to the failure of a condition set forth in
Section 7.02 and (B) cannot be or has not been cured within 20 days after the
giving by Parent of written notice to the Company;

                  (e) by the Company in the event of a breach by Parent or
Merger Sub of any representation, warranty, covenant or other agreement
contained in this Agreement

                                       24

<PAGE>



which (A) would give rise to the failure of a condition set forth in Section
7.03 or (B) cannot be or has not been cured within 20 days after the giving by
the Company of written notice to Parent or Merger Sub, as applicable; or

                  (f) by Parent or the Company if the shareholders of the
Company do not approve this Agreement at the Company Shareholders' Meeting or
any adjournment or postponement thereof.

           8.02 Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 8.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Merger Sub or the Company, other than the
provisions of Section 3.14, Section 4.06, this Section 8.02 and Article IX, and
except to the extent that such termination results from the willful and material
breach by a party of any of its representations, warranties, covenants or
agreements set forth in this Agreement.

           8.03 Amendment. This Agreement may be amended by the parties at any
time before or after any required approval of this Agreement by the shareholders
of the Company; provided, however, that after any such approval, there shall not
be made any amendment that by law requires further approval by such shareholders
without the further approval of such shareholders. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties.

           8.04 Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the provision of Section
8.03, waive compliance with any of the agreements or conditions contained in
this Agreement. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver of
those rights.


                                   ARTICLE IX

                               GENERAL PROVISIONS

           9.01 Nonsurvival of Representations. None of the representations and
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Effective Time. This Section 9.01 shall not limit
any covenant or agreement of the parties which by its terms contemplates
performance after the Effective Time. In the event of a breach of any of such
covenants or agreements, the party to whom such covenants or agreements have
been made shall have all rights and remedies for such

                                       25

<PAGE>



breach available to it under applicable law and the provisions of this
Agreement, regardless of any disclosure to, or investigation made by or on
behalf of, such party.

           9.02 Exclusive Remedy.

                  (a) Parent acknowledges and agrees that (i) other than the
representations and warranties of the Company specifically contained in this
Agreement, there are no representations or warranties of the Company or any of
its subsidiaries or any other person either expressed or implied with respect to
the Company or any of its subsidiaries or their respective assets, liabilities
and businesses and (ii) neither Parent nor the Surviving Corporation shall have
any claim or right to damages or indemnification from the Company or any of its
subsidiaries or any current or former officer, director or shareholder of the
Company or any of its subsidiaries acting in their capacities as such based upon
a breach of such representations and warranties with respect to any information
(whether written or oral), documents or material furnished by the Company or any
of its subsidiaries or any of their respective officers, directors, employees,
agents, counsel, accountants or advisors to Parent with respect to the
transactions contemplated by this Agreement, including any information,
documents or material made available to Parent in certain "data rooms,"
management presentations or in any other form in expectation of the transactions
contemplated by this Agreement.

                  (b) The Company acknowledges and agrees that (i) other than
the representations and warranties of Parent and Merger Sub specifically
contained in this Agreement, there are no representations or warranties of
Parent or Merger Sub or any other person either expressed or implied with
respect to Parent or Merger Sub and (ii) it shall not have any claim or right to
damages or indemnification from Parent or Merger Sub or any current or former
officer, director or shareholder of Parent or Merger Sub based upon a breach of
such representations or warranties with respect to any information (whether
written or oral), documents or material furnished by Parent or Merger Sub or any
of their respective officers, directors, employees, agents, counsel, accountants
or advisors to the Company.

           9.03 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such address for a
party as shall be specified by like notice):

                  (a)      if to Parent or Merger Sub, to:

                           CONSOL Inc.
                           1800 Washington Road
                           Pittsburgh, PA  15241
                           Attention:  Vice President and General Counsel
                           Facsimile No.:  (412) 831-4635


                                       26

<PAGE>



                           with a copy to:

                           CONSOL Inc.
                           1800 Washington Road
                           Pittsburgh, PA  15241
                           Attention:  Senior Vice President - Administration
                           Facsimile No.:  (412) 831-4994

                  (b)      if to the Company, to:

                           Rochester & Pittsburgh Coal Company
                           655 Church Street
                           Indiana, Pennsylvania 15701
                           Attention:  Thomas W. Garges, Jr.
                                       President and Chief Executive Officer
                           Facsimile No.: (724) 349-5460

                           with a copy to:

                           Duane, Morris & Heckscher LLP
                           4200 One Liberty Place
                           Philadelphia, Pennsylvania 19103-7396
                           Attention: Frederick W. Dreher, Esq.
                           Facsimile No.: (215) 979-1213

           9.04 Definitions. For purposes of this Agreement:

                  (a) an "affiliate" of any person means another person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such first person;

                  (b) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly, 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;

                  (c) "knowledge" or "known" means, with respect to the matter
in question, if any of the officers of the Company or any of its subsidiaries or
Parent, as the case may be, has actual knowledge of such matter;

                  (d) "lien" means any encumbrance, hypothecation, infringement,
lien, mortgage, pledge, restriction, security interest, title retention or other
security arrangement, or any adverse right or interest, charge or claim of any
nature whatsoever of, on, or with respect to any asset, property or property
interest; provided, however, that the term "lien" shall not include (i) liens
for water and sewer charges and current taxes not

                                       27

<PAGE>



yet due and payable or being contested in good faith, (ii) mechanics',
carriers', workers', repairers', materialmen's, warehousemen's and other similar
liens arising or incurred in the ordinary course of business or (iii) all liens
approved in writing by the other party hereto;

                  (e) "material adverse change" or "material adverse effect"
means, when used in connection with the Company or Parent, any change or effect
or any development that is likely to result in any change or effect that would
impair the business, financial condition or results of operations of such party
and its subsidiaries in an amount of $5,000,000 or more;

                  (f) "person" means an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or other entity;
and

                  (g) a "subsidiary" of any person means another person, an
amount of the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board of
Directors or other governing body or, if there are no such voting interests, 50%
or more of the equity interests of which is owned directly or indirectly by such
first person.

           9.05 Interpretation. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."

           9.06 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.

           9.07 Entire Agreement; Third-Party Beneficiaries. This Agreement
constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement provided, however, that the provisions of the
Confidentiality Agreement between the Company and Parent dated December 18, 1997
shall remain valid and in effect and, except for the provisions of Article II of
which the shareholders of the Company shall be third-party beneficiaries, is not
intended to confer upon any person other than the parties any rights or remedies
hereunder.

           9.08 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of

                                       28

<PAGE>



law or otherwise by any of the parties without the prior written consent of the
other parties, except that Merger Sub may assign, in its sole discretion, any or
all rights, interests and obligations under this Agreement to Parent or to
Parent's parent entity or to any direct or indirect wholly owned subsidiary of
Parent but no such assignment shall be permitted if it would materially impede
or delay the Merger.

           9.09 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Pennsylvania,
without regard to any applicable conflicts of law, except to the extent that the
PBCL and the DGCL shall be held to govern the terms of the Merger.

           9.10 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the Commonwealth of Pennsylvania or in Pennsylvania state court,
this being in addition to any other remedy to which they are entitled at law or
in equity. In addition, each of the parties hereto (a) consents to submit itself
to the personal jurisdiction of any federal court located in the Commonwealth of
Pennsylvania or any Pennsylvania state court in the event any dispute arises
out of this Agreement or any of the transactions contemplated by this Agreement,
(b) agrees that it will not attempt to deny or defeat such personal jurisdiction
by motion or other request for leave from any such court and (c) agrees that it
will not bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a federal or state court
sitting in the Commonwealth of Pennsylvania.


                                       29

<PAGE>


           IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.

                                   CONSOL INC.


                                 By:/s/ Michael F. Nemser
                                    -----------------------------------------
                                    Michael F. Nemser, Senior Vice President


                                 CONSOL COMMONWEALTH INC.


                                 By:/s/ Michael F. Nemser
                                    -----------------------------------------
                                    Michael F. Nemser, Vice President


                                 ROCHESTER & PITTSBURGH COAL COMPANY


                                 By:/s/ Thomas W. Garges, Jr.
                                    -----------------------------------------
                                    Thomas W. Garges, Jr., President and
                                      Chief Executive Officer

                                       30
                                                          


<PAGE>


                                                                      APPENDIX B


                             STOCKHOLDERS AGREEMENT



<PAGE>


                                  May 28, 1998


         The parties to this Stockholders Agreement (this "Agreement") are
CONSOL Inc., a Delaware corporation ("Parent"), CONSOL Commonwealth Inc., a
Pennsylvania corporation and a direct or indirect subsidiary of Parent ("Merger
Sub"), and the other parties to this Agreement (each, a "Stockholder," and
collectively, the "Stockholders").

         Parent, Merger Sub and Rochester & Pittsburgh Coal Company, a
Pennsylvania corporation (the "Company") are simultaneously with the execution
and delivery of this Agreement entering into an agreement and plan of merger,
which may be amended from time to time (the "Merger Agreement"), pursuant to
which Merger Sub would merge with and into the Company (the "Merger").

         The parties agree as follows:

         1. No Solicitation. Until the termination of the Merger Agreement in
accordance with its terms, no Stockholder shall, in that Stockholder's capacity
as such, directly or indirectly, initiate, solicit or knowingly encourage,
including by way of furnishing non-public information or assistance, or take any
other action knowingly to facilitate, any inquiries or the making of any
proposal that constitutes, or reasonably may be expected to lead to a
"competitive proposal", or enter into or maintain or continue discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain, or agree to or endorse a competitive proposal, or authorize or permit
any person or entity acting on behalf of that Stockholder to do any of the
foregoing. If any Stockholder receives any inquiry or proposal regarding any
competitive proposal, that Stockholder shall provide reasonable notice to Parent
of that inquiry or proposal. For purposes of this Agreement, "competitive
proposal" shall mean any tender or exchange offer involving the Company, any
proposal for a merger, consolidation, business combination or similar
transaction involving the Company or its subsidiaries, any proposal or offer to
acquire in any manner more than 10% of the Common Stock of the Company or a
substantial portion of the business or assets of the Company or its
subsidiaries, other than immaterial or insubstantial assets or inventory in the
ordinary course of business or assets held for sale, any proposal or offer with
respect to any recapitalization or restructuring with respect to the Company or
its subsidiaries or any proposal or offer with respect to any other transaction
similar to any of the foregoing with the Company other than pursuant to the
transactions to be effected pursuant to the Merger Agreement.

         2. Representations and Warranties of the Stockholders. Each Stockholder
represents and warrants to Parent as follows:

                  (a) Ownership of Shares. That Stockholder is the beneficial
owner of the number of shares of Common Stock, no par value, of the Company (the
"Shares") set forth opposite that Stockholder's name on Schedule 1. The Shares
set forth opposite that


<PAGE>


Stockholder's name on Schedule 1 constitute all the Shares beneficially owned by
the Stockholder and such Stockholder does not have any option to purchase or
right to subscribe for or otherwise acquire any securities of the Company and
has no other interest in or voting rights with respect to any other securities
of the Company. That Stockholder's Shares are held by that Stockholder or by a
nominee or custodian for the benefit of that Stockholder, free and clear of all
liens, claims, security interests and other encumbrances, except for
encumbrances arising under this Agreement.

                  (b) Power; Binding Agreement. That Stockholder has the legal
capacity to enter into and perform all of that Stockholder's obligations under
this Agreement. The execution, delivery and performance of this Agreement by
that Stockholder will not violate any other agreement to which that Stockholder
is a party, including, without limitation, any voting agreement, stockholders
agreement or voting trust. This Agreement has been duly and validly executed and
delivered by that Stockholder and constitutes a valid and binding obligation of
that Stockholder, enforceable against that Stockholder in accordance with its
terms. There is no other person or entity not a party to this Agreement whose
consent is required for the execution and delivery of this Agreement by that
Stockholder or the consummation by that Stockholder of the transactions
contemplated by this Agreement. If that Stockholder is married and that
Stockholder's Shares constitute community property, this Agreement has been duly
authorized, executed and delivered by, and constitutes a valid and binding
obligation of, that Stockholder's spouse, enforceable against that spouse in
accordance with its terms.

                  (c) Consents and Approvals; No Violation. Neither the
execution and delivery of this Agreement by that Stockholder nor the
consummation by that Stockholder of the transactions contemplated by this
Agreement will: (i) require any consent, approval, authorization or permit of,
or filing with or notification to, any governmental or regulatory authority
("Governmental Entity"), except in connection with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, (the "HSR Act") or pursuant to
the Securities Exchange Act of 1934, as amended, (the "1934 Act"); (ii) result
in a default, or give rise to a right of termination, cancellation or
acceleration, under any of the terms, conditions or provisions of any note,
license, agreement or other instrument or obligation to which that Stockholder
is a party or by which that Stockholder or any of that Stockholder's assets may
be bound or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to that Stockholder or by which any of that Stockholder's
assets are bound.

                  (d) Brokers. No broker, finder or other investment bank is
entitled to any broker's, finder's or other similar fee or commission in
connection with this Agreement or the transactions contemplated by this
Agreement based upon agreements made by or on behalf of that Stockholder.

         3. Representations and Warranties of Parent.

                  (a) The representations and warranties of Parent contained in
Article 4 of the Merger Agreement are hereby incorporated herein by reference in
their entirety as if made on the date hereof;


                                       -2-

<PAGE>

                  (b) Each of the representations and warranties of Parent
incorporated herein by reference that is qualified by materiality shall be true
and correct on and as of the Closing Date (as defined in the Merger Agreement)
as if made on and as of such date, other than representations and warranties
which address matters only as of a certain date which shall be true and correct
as of such date, and each of the representations and warranties that is not so
qualified shall be true and correct in all material respects on and as of the
Closing Date as if made on and as of such date, other than representations and
warranties which address matters only as of a certain date which shall be true
and correct in all material respects as of such certain date, in each case
except as contemplated or permitted by the Merger Agreement.

         4. Grant of Proxy. Each Stockholder hereby revokes any and all proxies
previously granted by such Stockholder with respect to the Shares and each
Stockholder hereby appoints each of Michael F. Nemser and Samuel P. Skeen as
such Stockholder's attorney and proxy, with full power of substitution, to
attend any and all meetings of the stockholders of the Company and to vote the
Shares and any voting securities hereafter issued in exchange therefor or in
respect thereof, and to represent and otherwise to act for such Stockholder in
the same manner and with the same effect as if such Stockholder were personally
present, when any matter, including, but not limited to any proposed merger or
other transaction, is submitted to the stockholders of the Company for a vote.
The foregoing appointment shall (a) be irrevocable, (b) remain in effect until
September 30, 1998 and (c) be deemed to be coupled with an interest in that
Parent has the right to purchase the Shares hereunder and is also a party to the
Merger Agreement.

         5. Option to Purchase the Shares.

                  (a) Each Stockholder hereby grants to Parent an irrevocable
option, exercisable as provided herein (the "Option"), to purchase all Shares
owned by such Stockholder (the "Option Shares") at a price per share payable in
cash of $43.50 (the "Exercise Price").

                  (b) Each Option may be exercised by Parent at any time, in
whole but not in part, from the date of this Agreement, until September 30,
1998. If Parent exercises any Option hereunder, it must exercise all Options
granted hereunder. If Parent wishes to exercise the Option, Parent shall give
written notice to the Stockholders of its intention to exercise the Options,
specifying a place, time and date not earlier than one day and not later than 20
days from the date such notice is given for the closing of such purchase, which
shall be the same for all Options being exercised simultaneously as required by
the provisory clause in the preceding sentence (the "Closing"). The Closing
shall be held on the date specified in such notice unless, on such date, there
shall be any preliminary or permanent injunction or other order by any court of
competent jurisdiction or any other legal restraint or prohibition preventing
the consummation of such purchase, in which event such Closing shall be held as
soon as practicable following the lifting, termination or suspension of such
injunction, order, restraint or prohibition preventing the consummation of such
purchase, but in any event within two days thereof. The obligation of the
Stockholders to sell, transfer and deliver the Option Shares upon exercise of
any Option is subject to the conditions that (i) any waiting period under the
HSR Act applicable to the

                                       -3-

<PAGE>


purchase of the Option Shares shall have expired or been terminated and (ii)
there shall be no preliminary or permanent injunction or other order preventing
or restricting the purchase of the Option Shares.

                  (c) At the Closing hereunder (i) Parent shall deliver or cause
to be delivered a certified or bank cashier's check payable to the order of each
Stockholder in such amount as equals the Exercise Price times the number of
Option Shares being purchased hereunder from such Stockholder and (ii) the
Stockholders shall deliver to or cause to be delivered to Parent a certificate
or certificates, representing the number of Option Shares so purchased
accompanied by duly executed blank stock transfer powers.

                  (d) Parent shall, with respect to each of the Option Shares so
purchased, vote in favor of the Merger Agreement.

         6. Restrictions on Transfer, Etc. Except as provided in this Agreement
and prior to the termination of the Merger Agreement in accordance with its
terms, (i) no Stockholder shall, directly or indirectly, offer for sale, sell,
transfer, tender, pledge, encumber, assign or otherwise dispose of or enter into
any agreement, arrangement or understanding with respect to, or consent to the
offer for sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of that Stockholder's Shares or any interest in those
Shares; (ii) grant any proxies or powers of attorney with respect to any Shares,
deposit any Shares into a voting trust or enter into a voting agreement with
respect to any Shares or (iii) take any action that would make any
representation or warranty of that Stockholder in this Agreement untrue or have
the effect of preventing or disabling that Stockholder from performing that
Stockholder's obligations under this Agreement.

         7. Waiver of Appraisal Rights. Each Stockholder waives any rights of
appraisal or rights to dissent from the Merger that such Stockholder may have.

         8. Stockholder Capacity. No person executing this Agreement who is or
becomes during the term of this Agreement a director of the Company makes any
agreement in his or her capacity as a director. Each Stockholder is executing
and delivering this Agreement solely in that Stockholder's capacity as the
record and beneficial owner of that Stockholder's Shares. Notwithstanding
anything to the contrary in this Agreement, no action or inaction by a
Stockholder in his capacity as a director of the Company shall be deemed to
contravene this Agreement.

         9. Further Assurances. Each Stockholder shall use its reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with Parent in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by the
Merger Agreement and this Agreement, including (i) obtaining all necessary
actions and nonactions, waivers, consents and approvals from Governmental
Entities and the making of all necessary registrations and filings and the
taking of all reasonable steps as may be necessary to obtain an approval or
waiver from, or to avoid any action or proceeding by, any Governmental Entity,
(ii) the obtaining of all

                                       -4-

<PAGE>


necessary consents, approvals or waivers from third parties, (iii) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
challenging the Merger Agreement or this Agreement, including seeking to have
any stay or temporary restraining order entered by any court or Governmental
Entity vacated or reversed and (iv) the execution and delivery of any additional
instruments necessary or advisable to consummate the transactions contemplated
by, and to fully carry out the purpose of, the Merger Agreement and this
Agreement.

         10. Miscellaneous.

                  (a) Definition. The terms "beneficially own" and "beneficial
ownership" with respect to any securities shall have the same meaning as in, and
shall be determined in accordance with, Rule 13d-3 under the 1934 Act.

                  (b) Liability After Transaction. Each Stockholder agrees that,
notwithstanding any transfer of the Shares in accordance with Section 5, that
Stockholder shall remain liable for its performance of all obligations under
this Agreement.

                  (c) Amendments, Waivers, Etc. This Agreement may not be
amended, changed, supplemented, waived or otherwise modified or terminated with
respect to any one or more Stockholders, except upon the execution and delivery
of a written agreement executed by the party to be charged, it being understood,
however, that Schedule 1 may be supplemented unilaterally by Parent adding the
name and other relevant information concerning any stockholder of the Company
who agrees to be bound by this Agreement, and thereafter the added stockholder
shall be treated as a "Stockholder" for all purposes of this Agreement.

                  (d) Notices. All notices, requests, claims, demands and other
communications in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered in person, by facsimile transmission with
confirmation of receipt or by registered or certified mail, postage prepaid,
return receipt requested, to the respective parties as follows:

                  If to a Stockholder:

                           Duane, Morris & Heckscher LLP
                           4200 One Liberty Place
                           Philadelphia, PA  19103
                           Attention:  Frederick W. Dreher, Esq.

                  If to Parent or Merger Sub:

                           CONSOL Inc.
                           Consol Plaza
                           1800 Washington Road
                           Pittsburgh, PA  15241-1421
                           Attention:  Michael F. Nemser, Senior Vice President


                                       -5-

<PAGE>


or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above,
provided that notice of any change of address shall be effective only upon
receipt of notice of the change.

                  (e) Severability. If any provision of this Agreement is
invalid, illegal or unenforceable, the invalidity, illegality or
unenforceability shall not affect any other provision.

                  (f) Special Performance. Each party agrees that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement, this being in addition
to any other remedy to which they are entitled at law or in equity.

                  (g) No Waiver. The failure of any party to exercise any right,
power or remedy under this Agreement or otherwise available in respect of this
Agreement at law or in equity, or to insist upon compliance by any other party
with that party's obligations under this Agreement, shall not constitute a
waiver of any right to exercise any such or other rights, power or remedy or to
demand such compliance.

                  (h) Governing Law. This Agreement shall be governed and
construed in accordance with the law of the Commonwealth of Pennsylvania,
regardless of the law that might otherwise govern under principles of conflicts
of laws applicable thereto.

                  (i) Headings. The headings in this Agreement are for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.

                  (j) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement.

                  (k) Entire Agreement. This Agreement constitutes the enter
agreement among the parties with respect to its subject matter and supersedes
all other prior agreements and understandings, both written and oral, among the
parties with respect to that subject matter.


                                       -6-

<PAGE>


                  (l) Successors and Assigns. The provisions of this Agreement
shall be binding and inure to the benefit of the parties hereto and their
respective legal successors and permitted assigns; provided, however, that no
party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the consent of the other party.

                                        CONSOL INC.


                                        By: /s/ Michael F. Nemser
                                           -------------------------------------
                                        Title: Senior Vice President


                                        STOCKHOLDERS:

                                        On behalf of the Trusts
                                        listed on Schedule A
                                        hereto:


                                        By: /s/ Emilie I. Wiggin
                                            ------------------------------------
                                            Emilie I. Wiggin, Co-Trustee

                                        /s/ Urling I. Searle
                                        ----------------------------------------
                                        Urling I. Searle, Co-Trustee


                                        /s/ Peter Iselin
                                        ----------------------------------------
                                        Peter Iselin


                                        /s/ Emilie I. Wiggin
                                        ----------------------------------------
                                        Emilie I. Wiggin


                                        /s/ O'Donnell Iselin II
                                        ----------------------------------------
                                        O'Donnell Iselin II


                                        /s/ Columbus O'D. Iselin
                                        ----------------------------------------
                                        Columbus O'D. Iselin


                                        /s/ Gordon B. Whelpley, Jr.
                                        ----------------------------------------
                                        Gordon B. Whelpley, Jr.


                                       -7-

<PAGE>

                                   SCHEDULE A

                              LIST OF STOCKHOLDERS

<TABLE>
<CAPTION>
                                                               Number of Shares of
                                                              Rochester & Pittsburgh                Currently Acting
      Name of Trust or Individual                                  Coal Company                         Trustees
      ---------------------------                             ----------------------                 ----------------
<S>                                                        <C>                                   <C>
Trust Under Article EIGHTH A of the Last                   243,982 shares as of 8/31/97          Emilie I. Wiggin and
Will and Testament of O'Donnell Iselin                                                           Urling I. Searle
dated July 27, 1970 f/b/o Peter Iselin
- - - ---------------------------------------------------------------------------------------------------------------------
Trust Under Article EIGHTH A of the Last                    55,551 shares as of 8/31/97          Emilie I. Wiggin and
Will and Testament of O'Donnell Iselin                                                           Urling I. Searle
dated July 27, 1970 f/b/o O'Donnell Iselin II
- - - ---------------------------------------------------------------------------------------------------------------------
Trust Under Article EIGHTH A of the Last                    55,551 shares as of 8/31/97          Emilie I. Wiggin and
Will and Testament of O'Donnell Iselin                                                           Urling I. Searle
dated July 27, 1970 f/b/o Maud Iselin Welles
- - - ---------------------------------------------------------------------------------------------------------------------
Trust Under Article EIGHTH A of the Last                    55,551 shares as of 8/31/97          Emilie I. Wiggin and
Will and Testament of O'Donnell Iselin                                                           Urling I. Searle
dated July 27, 1970 f/b/o Urling Iselin Searle
- - - ---------------------------------------------------------------------------------------------------------------------
Trust Under Article EIGHTH B of the Last                   218,780 shares as of 8/31/97          Emilie I. Wiggin and
Will and Testament of O'Donnell Iselin                                                           Urling I. Searle
dated July 27, 1970 f/b/o Emilie I. Wiggin
- - - ---------------------------------------------------------------------------------------------------------------------
Trust Under Article EIGHTH B of the Last                    47,753 shares as of 8/31/97          Emilie I. Wiggin and
Will and Testament of O'Donnell Iselin                                                           Urling I. Searle
dated July 27, 1970 f/b/o Anne Whelpley
Shaw
- - - ---------------------------------------------------------------------------------------------------------------------
Trust Under Article EIGHTH B of the Last                    47,753 shares as of 8/31/97          Emilie I. Wiggin and
Will and Testament of O'Donnell Iselin                                                           Urling I. Searle
dated July 27, 1970 f/b/o Patricia Whelpley
Barton
- - - ---------------------------------------------------------------------------------------------------------------------
Trust Under Article EIGHTH B of the Last                    47,753 shares as of 8/31/97          Emilie I. Wiggin and
Will and Testament of O'Donnell Iselin                                                           Urling I. Searle
dated July 27, 1970 f/b/o Gordon B.
Whelpley, Jr.
- - - ---------------------------------------------------------------------------------------------------------------------
Trust Under Article EIGHTH B of the Last                    47,753 shares as of 8/31/97          Emilie I. Wiggin and
Will and Testament of O'Donnell Iselin                                                           Urling I. Searle
dated July 27, 1970 f/b/o Katharine W.
Draper
- - - ---------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       -8-

<PAGE>
<TABLE>
<CAPTION>
                                                              Number of Shares of
                                                             Rochester & Pittsburgh                Currently Acting
       Name of Trust or Individual                                Coal Company                         Trustees
       ---------------------------                            ---------------------                 ----------------
<S>                                                          <C>                                <C>
Trust Under Article SIXTH of the Last Will                    118,141 shares as of 8/31/97       Emilie I. Wiggin and
and Testament of Urling S. Iselin dated                                                          Urling I. Searle
March 5, 1948 f/b/o Peter Iselin and Emilie
I. Whelpley (n/k/a Emilie I. Wiggin)
- - - ----------------------------------------------------------------------------------------------------------------------
Trust Under Agreement dated July 6, 1964                      667,178 shares as of 7/31/97       Emilie I. Wiggin and
by and between O'Donnell Iselin, as Settlor,                  --------                           Urling I. Searle
                                                                                                 
and Emilie I. Whelpley and Peter Iselin, as
Trustees
- - - ----------------------------------------------------------------------------------------------------------------------
              Subtotal                                      1,605,746 shares
                                                            =========
- - - ----------------------------------------------------------------------------------------------------------------------
Peter Iselin                                                   62,751 shares
- - - ----------------------------------------------------------------------------------------------------------------------
Emilie I. Wiggin                                               15,942 shares
- - - ----------------------------------------------------------------------------------------------------------------------
O'Donnell Iselin II                                            20,552 shares
- - - ----------------------------------------------------------------------------------------------------------------------
Columbus O'D. Iselin                                           14,908 shares
- - - ----------------------------------------------------------------------------------------------------------------------
Gordon B. Whelpley, Jr.                                        21,796 shares
                                                            ---------
- - - ----------------------------------------------------------------------------------------------------------------------
              Subtotal                                        135,949 shares
                                                            =========
- - - ----------------------------------------------------------------------------------------------------------------------
                              Total                         1,741,695 shares
                                                            =========
- - - ----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       -9-



<PAGE>


                                                                      APPENDIX C


                     OPINION OF J.P. MORGAN SECURITIES INC.



<PAGE>


                                                                      APPENDIX C
                                                                      ----------

May 28, 1998


The Board of Directors
Rochester & Pittsburgh Coal Company
655 Church Street
Indiana, PA  15701

Gentlemen:

You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Rochester & Pittsburgh Coal Company (the "Company")
of the consideration proposed to be paid to them in connection with the proposed
merger (the "Merger") of the Company with CONSOL Commonwealth Inc. ("Merger
Sub"), a wholly owned subsidiary of CONSOL Inc. (the "Buyer"). Pursuant to the
Agreement and Plan of Merger, dated as of May 28, 1998 (the "Agreement"), among
the Company, the Buyer and Merger Sub, Merger Sub will be merged with and into
the Company, the Company will become a wholly-owed subsidiary of the Buyer, and
each share of common stock, no par value, of the Company (other than shares held
by dissenting shareholders and shares cancelled in accordance with the
Agreement) shall be converted into the right to receive $43.50 in cash, without
interest.

In arriving at our opinion, we have reviewed (i) the Agreement; (ii) certain
publicly available information concerning the business of the Company and of
certain other companies engaged in businesses comparable to those of the
Company, and the reported market prices for certain other companies' securities
deemed comparable; (iii) publicly available terms of certain transactions
involving companies comparable to the Company and the consideration received for
such companies; (iv) current and historical market prices of the common stock of
the Company; (v) the audited financial statements of the Company for the fiscal
year ended December 31, 1997, and the unaudited financial statements of the
Company for the period ended March 31, 1998; (vi) certain agreements with
respect to outstanding indebtedness or obligations of the Company; (vii) certain
internal financial analyses and forecasts prepared by the Company and its
management; and (viii) the terms of other business combinations that we deemed
relevant.

In addition, we have held discussions with certain members of the management of
the Company with respect to certain aspects of the Merger, and the past and
current business operations of the Company, the financial condition and future
prospects and operations of the Company, the effects of the Merger on the
financial condition and future prospects of the Company, and certain other
matters we believed necessary or appropriate to our inquiry. We have visited
certain representative facilities of the Company, and reviewed such other
financial studies and analyses and considered such other information as we
deemed appropriate for the purposes of this opinion.


                                       C-1

<PAGE>


In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company or otherwise reviewed by us, and
we have not assumed any responsibility or liability therefor. We have not
conducted any valuation or appraisal of any assets or liabilities, nor have any
such valuations or appraisals been provided to us. In relying on financial
analyses and forecasts provided to us, we have assumed that they have been
reasonably prepared based on assumptions reflecting the best currently available
estimates and judgments by management as to the expected future results of
operations and financial condition of the Company to which such analyses or
forecasts relate. We have also assumed that the Merger will have the tax
consequences described in discussions with, and materials furnished to us by,
representatives of the Company, and that the other transactions contemplated by
the Agreement will be consummated as described in the Agreement. We have relied
as to all legal matters relevant to rendering our opinion upon the advice of
counsel.

Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.

We have acted as financial advisor to the Company with respect to the proposed
Merger and will receive a fee from the Company for our services. We will also
receive an additional fee if the proposed Merger is consummated. Please be
advised that we are currently engaged by the parent of the Buyer in an advisory
assignment. In the ordinary course of their businesses, our affiliates may
actively trade the debt and equity securities of the Company or the Buyer for
their own account or for the accounts of customers and, accordingly, they may at
any time hold long or short positions in such securities.

On the basis of and subject to the foregoing, it is our opinion as of the date
hereof that the consideration to be paid to the Company's shareholders in the
proposed Merger is fair, from a financial point of view, to such shareholders.

This letter is provided to the Board of Directors of the Company in connection
with and for the purposes of its evaluation of the Merger. This opinion does not
constitute a recommendation to any shareholder of the Company as to how such
shareholder should vote with respect to the Merger. This opinion may be
reproduced in full in any proxy or information statement mailed to shareholders
of the Company.

Very truly yours,

J.P. MORGAN SECURITIES INC.

By: /s/ D. Leslie Morrison
    ----------------------
    Name: D. Leslie Morrison
    Title: Managing Director


                                       C-2



<PAGE>


                                                                      APPENDIX D


                       DISSENTERS RIGHTS PROVISIONS OF THE
                      PENNSYLVANIA BUSINESS CORPORATION LAW



<PAGE>


                                                                      APPENDIX D
                                                                      ----------

                       DISSENTERS RIGHTS PROVISIONS OF THE
                      PENNSYLVANIA BUSINESS CORPORATION LAW


SUBCHAPTER D - DISSENTERS RIGHTS

ss.1571. Application and effect of subchapter.

         (a) General rule. Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any corporate
action, or to otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:

             Section 1906(c)    (relating to dissenters rights upon special
                                treatment).
             Section 1930       (relating to dissenters rights).
             Section 1931(d)    (relating to dissenters rights in share
                                exchanges).
             Section 1932(c)    (relating to dissenters rights in asset
                                transfers).
             Section 1952(d)    (relating to dissenters rights in division).
             Section 1962(c)    (relating to dissenters rights in conversion).
             Section 2104(b)    (relating to procedure).
             Section 2324       (relating to corporation option where a
                                restriction on transfer of a security is held
                                invalid).
             Section 2325(b)    (relating to minimum vote requirement).
             Section 2704(c)    (relating to dissenters rights upon election).
             Section 2705(d)    (relating to dissenters rights upon renewal of
                                election). 
             Section 2907(a)    (relating to proceedings to terminate breach
                                of qualifying conditions). 
             Section 7104(b)(3) (relating to procedure).

         (b) Exceptions.

             (1) Except as otherwise provided in paragraph (2), the holders of 
the shares of any class or series of shares that, at the record date fixed to
determine the shareholders entitled to notice of and to vote at the meeting at
which a plan specified in any of section 1930, 1931(d), 1932(c) or 1952(d) is to
be voted on, are either:

                 (i)  listed on a national securities exchange; or

                 (ii) held of record by more than 2,000 shareholders;

shall not have the right to obtain payment of the fair value of any such shares
under this subchapter.


                                       D-1


<PAGE>


             (2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the case
of:

                 (i) Shares converted by a plan if the shares are not converted
solely into shares of the acquiring, surviving, new or other corporation or
solely into such shares and money in lieu of fractional shares.

                 (ii) Shares of any preferred or special class unless the
articles, the plan or the terms of the transaction entitle all shareholders of
the class to vote thereon and require for the adoption of the plan or the
effectuation of the transaction the affirmative vote of a majority of the votes
cast by all shareholders of the class.

                 (iii) Shares entitled to dissenters rights under section
1906(c) (relating to dissenters rights upon special treatment).

             (3) The shareholders of a corporation that acquires by purchase,
lease, exchange or other disposition all or substantially all of the shares,
property or assets of another corporation by the issuance of shares, obligations
or otherwise, with or without assuming the liabilities of the other corporation
and with or without the intervention of another corporation or other person,
shall not be entitled to the rights and remedies of dissenting shareholders
provided in this subchapter regardless of the fact, if it be the case, that the
acquisition was accomplished by the issuance of voting shares of the corporation
to be outstanding immediately after the acquisition sufficient to elect a
majority or more of the directors of the corporation.

         (c) Grant of optional dissenters rights. The bylaws or a resolution of
the board of directors may direct that all or a part of the shareholders shall
have dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such shareholders to dissenters
rights.

         (d) Notice of dissenters rights. Unless otherwise provided by statute,
if a proposed corporate action that would give rise to dissenters rights under
this subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:

             (1) A statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value of
their shares by complying with the terms of this subchapter; and

             (2) A copy of this subchapter.

         (e) Other statutes. The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part that
makes reference to this subchapter for the purpose of granting dissenters
rights.

         (f) Certain provisions of articles ineffective. This subchapter may not
be relaxed by any provision of the articles.


                                       D-2

<PAGE>


         (g) Cross references. See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).


ss.1572. Definitions.

         The following words and phrases when used in this subchapter shall have
the meanings given to them in this section unless the context clearly indicates
otherwise:

         "Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall have the sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.

         "Dissenter." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has performed every
act required up to the time involved for the assertion of those rights.

         "Fair value." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects, taking into
account all relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.

         "Interest." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.


ss.1573. Record and beneficial holders and owners.

         (a) Record holders of shares. A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of the
same class or series beneficially owned by any one person and discloses the name
and address of the person or persons on whose behalf he dissents. In that event,
his rights shall be determined as if the shares as to which he has dissented and
his other shares were registered in the names of different shareholders.

         (b) Beneficial owners of shares. A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.


                                       D-3

<PAGE>


ss.1574. Notice of intention to dissent.

         If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed corporate
action shall constitute the written notice required by this section.


ss.1575. Notice to demand payment.

         (a) General rule. If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice of
intention to demand payment of the fair value of their shares and who refrained
from voting in favor of the proposed action. If the proposed corporate action is
to be taken without a vote of shareholders, the corporation shall send to all
shareholders who are entitled to dissent and demand payment of the fair value of
their shares a notice of the adoption of the plan or other corporate action. In
either case, the notice shall:

             (1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.

             (2) Inform holders of uncertificated shares to what extent transfer
of shares will be restricted from the time that demand for payment is received.

             (3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the shares.

             (4) Be accompanied by a copy of this subchapter.

         (b) Time for receipt of demand for payment. The time set for receipt of
the demand and deposit of certificated shares shall be not less than 30 days
from the mailing of the notice.


ss.1576. Failure to comply with notice to demand payment, etc.

         (a) Effect of failure of shareholder to act. A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required


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<PAGE>


by a notice pursuant to section 1575 (relating to notice to demand payment)
shall not have any right under this subchapter to receive payment of the fair
value of his shares.

         (b) Restriction on uncertificated shares. If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms of
section 1577(a) (relating to failure to effectuate corporate action).

         (c) Rights retained by shareholder. The dissenter shall retain all
other rights of a shareholder until those rights are modified by effectuation of
the proposed corporate action.


ss.1577. Release of restrictions or payment for shares.

         (a) Failure to effectuate corporate action. Within 60 days after the
date set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for payment.

         (b) Renewal of notice to demand payment. When uncertificated shares
have been released from transfer restrictions and deposited certificates have
been returned, the corporation may at any later time send a new notice
conforming to the requirements of section 1575 (relating to notice to demand
payment), with like effect.

         (c) Payment of fair value of shares. Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:

             (1) The closing balance sheet and statement of income of the issuer
of the shares held or owned by the dissenter for a fiscal year ending not more
than 16 months before the date of remittance or notice together with the latest
available interim financial statements.

             (2) A statement of the corporation's estimate of the fair value of
the shares.

             (3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.

         (d) Failure to make payment. If the corporation does not remit the
amount of its estimate of the fair value of the shares as provided by subsection
(c), it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such


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<PAGE>


uncertificated shares that such demand has been made. If shares with respect to
which notation has been so made shall be transferred, each new certificate
issued therefor or the records relating to any transferred uncertificated shares
shall bear a similar notation, together with the name of the original dissenting
holder or owner of such shares. A transferee of such shares shall not acquire by
such transfer any rights in the corporation other than those that the original
dissenters had after making demand for payment of their fair value.


ss.1578. Estimate by dissenter of fair value of shares.

         (a) General rule. If the business corporation gives notice of its
estimate of the fair value of the shares, without remitting such amount, or
remits payment of its estimate of the fair value of a dissenter's shares as
permitted by section 1577(c) (relating to payment of fair value of shares) and
the dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the fair
value of the shares, which shall be deemed a demand for payment of the amount or
the deficiency.

         (b) Effect of failure to file estimate. Where the dissenter does not
file his own estimate under subsection (a) within 30 days after the mailing by
the corporation of its remittance or notice, the dissenter shall be entitled to
no more than the amount stated in the notice or remitted to him by the
corporation.


ss.1579. Valuation proceedings generally.

         (a) General rule. Within 60 days after the latest of:

             (1) Effectuation of the proposed corporate action;

             (2) Timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or

             (3) Timely receipt of any estimates pursuant to section 1578
(relating to estimate by dissenter of fair value of shares);

If any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the court.

         (b) Mandatory joinder of dissenters. All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).

         (c) Jurisdiction of the court. The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision


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<PAGE>


on the issue of fair value. The appraiser shall have such power and authority as
may be specified in the order of appointment or in any amendment thereof.

         (d) Measure of recovery. Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.

         (e) Effect of corporation's failure to file application. If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not previously
remitted.


ss.1580. Costs and expenses of valuation proceedings.

         (a) General rule. The costs and expenses of any proceeding under
section 1579 (relating to valuation proceedings generally), including the
reasonable compensation and expenses of the appraiser appointed by the court,
shall be determined by the court and assessed against the business corporation
except that any part of the costs and expenses may be apportioned and assessed
as the court deems appropriate against all or some of the dissenters who are
parties and whose action in demanding supplemental payment under section 1578
(relating to estimate by dissenter of fair value of shares) the court finds to
be dilatory, obdurate, arbitrary, vexatious or in bad faith.

         (b) Assessment of counsel fees and expert fees where lack of good faith
appears. Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights
provided by this subchapter.

         (c) Award of fees for benefits to other dissenters. If the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefited.


ss.1930. Dissenters rights.

         (a) General rule. If any shareholder of a domestic business corporation
that is to be a party to a merger or consolidation pursuant to a plan of merger
or consolidation objects to the plan of merger or consolidation and complies
with the provisions of Subchapter D of


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<PAGE>


Chapter 15 (relating to dissenters rights), the shareholder shall be entitled to
the rights and remedies of dissenting shareholders therein provided, if any. See
also section 1906(c) (relating to dissenters rights upon special treatment).

         (b) Plans adopted by directors only. Except as otherwise provided
pursuant to section 1571(c) (relating to grant of optional dissenters rights),
Subchapter D of Chapter 15 shall not apply to any of the shares of a corporation
that is a party to a merger or consolidation pursuant to section 1924(1)(i)
(relating to adoption by board of directors).

         (c) Cross references. See sections 1571(b) (relating to exceptions) and
1904 (relating to de facto transaction doctrine abolished).


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