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Exhibit 10.5












                            JAMES RIVER COAL COMPANY
                           2004 EQUITY INCENTIVE PLAN












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                               Table of Contents
                               -----------------
                                                                          Page
                                                                          ----

ARTICLE 1 -  GENERAL PROVISIONS............................................1

    1.1      Establishment and Purposes of Plan............................1
    1.2      Types of Awards...............................................1
    1.3      Effective Date................................................1

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


ARTICLE 3 -  ADMINISTRATION................................................6

    3.1      General.......................................................6
    3.2      Authority of the Committee....................................6
    3.3      Delegation of Authority.......................................7
    3.4      Award Agreements..............................................7
    3.5      Indemnification...............................................7

ARTICLE 4 -  SHARES SUBJECT TO THE PLAN....................................7

    4.1      Number of Shares..............................................7
    4.2      Adjustment of Shares..........................................8

ARTICLE 5 -  STOCK OPTIONS.................................................9

     5.1      Grant of Options.............................................9
     5.2      Agreement....................................................9
     5.3      Option Price.................................................9
     5.4      Duration of Options..........................................9
     5.5      Exercise of Options..........................................9
     5.6      Payment.....................................................10
     5.7      Nontransferability of Options...............................10
     5.8      Purchased Options...........................................10
     5.9      Special Rules for ISOs......................................10

ARTICLE 6 -  STOCK APPRECIATION RIGHTS....................................11

     6.1      Grant of SARs...............................................11
     6.2      Tandem SARs.................................................11
     6.3      Payment.....................................................11

ARTICLE 7 -  RESTRICTED STOCK AND RESTRICTED STOCK UNITS..................11

     7.1      Grant of Restricted Stock...................................11
     7.2      Restricted Stock Agreement..................................12
     7.3      Nontransferability..........................................12
     7.4      Certificates................................................12
     7.5      Dividends and Other Distributions...........................12
     7.6      Restricted Stock Units (or RSUs)............................13


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                               Table of Contents
                                  (continued)

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ARTICLE 8 -  PERFORMANCE SHARES...........................................13

     8.1      Grant of Performance Shares.................................13
     8.2      Value of Performance Shares.................................13
     8.3      Earning of Performance Shares...............................14
     8.4      Form and Timing of Payment of Performance Shares............14
     8.5      Nontransferability..........................................14

ARTICLE 9 -  PERFORMANCE MEASURES.........................................14


ARTICLE 10 -  BENEFICIARY DESIGNATION.....................................15


ARTICLE 11 -  DEFERRALS...................................................15


ARTICLE 12 -  WITHHOLDING.................................................15

    12.1     Tax Withholding..............................................15
    12.2     Share Withholding............................................15

ARTICLE 13 -  FOREIGN EMPLOYEES...........................................16


ARTICLE 14 -  AMENDMENT AND TERMINATION...................................16

    14.1     Amendment of Plan............................................16
    14.2     Amendment of Award Agreement; Repricing......................16
    14.3     Termination of Plan..........................................16
    14.4     Detrimental Activity.........................................16

ARTICLE 15 -  MISCELLANEOUS PROVISIONS....................................17

    15.1     Restrictions on Shares.......................................17
    15.2     No Implied Rights............................................17
    15.3     Compliance with Laws.........................................18
    15.4     Successors...................................................18
    15.5     Tax Elections................................................18
    15.6     Legal Construction...........................................18


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                            JAMES RIVER COAL COMPANY
                           2004 EQUITY INCENTIVE PLAN

                         ARTICLE 1 - GENERAL PROVISIONS

         1.1 ESTABLISHMENT AND PURPOSES OF PLAN. James River Coal Company, a
Virginia corporation (the "Company"), hereby establishes an equity incentive
plan to be known as the "James River Coal Company 2004 Equity Incentive Plan"
(the "Plan"), as set forth in this document. The objectives of the Plan are (i)
to provide incentives to those individuals who contribute significantly to the
long-term performance and growth of the Company and its affiliates; and (ii) to
attract, motivate and retain employees, directors, consultants and other persons
who perform services for the Company by providing compensation opportunities
that are competitive with other companies; and (iii) to align the long-term
financial interests of employees' and other Eligible Participants with those of
the Company's shareholders.

         1.2 TYPES OF AWARDS. Awards under the Plan may be made to Eligible
Participants who are Employees in the form of (i) Incentive Stock Options, (ii)
Nonqualified Stock Options, (iii) Stock Appreciation Rights, (iv) Restricted
Stock, (v) Restricted Stock Units; (vi) Performance Shares, or (vii) any
combination of the foregoing. Awards under the Plan may be made to Eligible
Participants who are not employees in the form of (i) Nonqualified Stock
Options, (ii) Stock Appreciation Rights; (iii) Restricted Stock; and (iv)
Restricted Stock Units, or (v) any combination of the foregoing.

         1.3 EFFECTIVE DATE. The Plan shall be effective upon approval by the
Company's shareholders (the "Effective Date").

                            ARTICLE 2 - DEFINITIONS

         Except where the context otherwise indicates, the following definitions
apply:

         2.1 "Agreement" means the written agreement evidencing an Award granted
to the Participant under the Plan.

         2.2 "Award" means an award granted to a Participant under the Plan that
is an Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit,
Performance Share, or combination of these.

         2.3 "Board" means the Board of Directors of the Company.

         2.4 "Cause" means, unless provided otherwise in the Agreement, the
involuntary termination of a Participant by the Company for any of the following
reasons: (a) as a result of an act or acts by the Participant which have been
found in an applicable court of law to constitute a felony (other than
traffic-related offenses); (b) as a result of one or more acts by a Participant
which in the good faith judgment of the Board are believed to be in violation of
law or of policies of the Company and which result in demonstrably material
injury to the Company; (c) as result of an act or acts of proven dishonesty by
the Participant resulting or intended to result directly or indirectly in
significant gain or personal enrichment to the Participant at the expense



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of the Company or public shareholders of the Company; or (d) upon the willful
and continued failure by the Participant to perform his duties with the Company
(other than any such failure resulting from incapacity due to mental or physical
illness not constituting a Disability), after a demand in writing for
substantial performance is delivered by the Board, which demand specifically
identifies the manner in which the Board believes that the Participant has not
substantially performed his duties. For purposes of this Plan, no act or failure
to act by the Participant shall be deemed to be "willful" unless done or omitted
to be done by the Participant not in good faith and without reasonable belief
that the Participant's action or omission was in the best interests of the
Company. "Cause" shall be determined by the Committee. Notwithstanding the
foregoing, if the Participant has entered into an employment agreement with the
Employer that is binding as of the date of employment termination, and if such
employment agreement defines "Cause," then the definition of "Cause" in such
agreement, in lieu of the definition provided above, shall apply to the
Participant for purposes of the Plan.

         2.5 "Change in Control" means any of the following events:

                  (a) The acquisition (other than from the Company) by any
         "Person" (as the term is used for purposes of sections 13(d) or 14(d)
         of the Exchange Act) of beneficial ownership (within the meaning of
         Rule 13d-3 promulgated under the Exchange Act) of forty percent (40%)
         or more of the combined voting power of the Company's then outstanding
         voting securities; or

                  (b) The individuals who, as of the Effective Date are members
         of the Board (the "Incumbent Board"), cease for any reason to
         constitute at least two-thirds of the Board, provided, however, that if
         the election, or nomination for election by the Company's shareholders,
         of any new director was approved by a vote of at least two-thirds of
         the Incumbent Board, such new director shall, for purposes of this
         Agreement, be considered as a member of the Incumbent Board; or

                  (c) Consummation of a merger or consolidation involving the
         Company, if the shareholders of the Company, immediately before such
         merger or consolidation do not, as a result of such merger or
         consolidation, own, directly or indirectly, more than fifty percent
         (50%) of the combined voting power of the then outstanding voting
         securities of the corporation resulting from such merger or
         consolidation in substantially the same proportion as their ownership
         of the combined voting power of the voting securities of the Company
         outstanding immediately before such merger or consolidation; or

                  (d) A complete liquidation or dissolution of the Company or
         consummation of the sale or other disposition of all or substantially
         all of the assets of the Company.

         Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur pursuant to Section 2.5(a) solely because forty percent (40%) or more
of the combined voting power of the Company's then outstanding securities is
acquired by (i) a trustee or other fiduciary holding securities, under one or
more employee benefit plans maintained by the Company or any of its
subsidiaries, or (ii) any corporation which, immediately prior to such
acquisition, is owned directly or indirectly by the shareholders of the Company
in the same proportion as their ownership of stock in the Company immediately
prior to such acquisition.


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         2.6 "Code" means the Internal Revenue Code of 1986, as now in effect or
as hereafter amended. All citations to sections of the Code are to such sections
as they may from time to time be amended or renumbered.

         2.7 "Committee" means the Compensation Committee of the Board or such
other committee consisting of two or more members of the Board as may be
appointed by the Board to administer this Plan pursuant to Article 3 of the
Plan. To the extent required by applicable law, if any member of the Committee
does not qualify as (i) a "Non-Employee Director" within the meaning of Rule
16b-3 under the Act, and (ii) an "outside director" within the meaning of Code
Section 162(m), a subcommittee of the Committee shall be appointed to grant
Awards to Named Executive Officers and to officers who are subject to Section 16
of the Act, and each member of such subcommittee shall satisfy the requirements
of (i) and (ii) above. References to the Committee in the Plan shall include
and, as appropriate, apply to any such subcommittee.

         2.8 "Company" means James River Coal Company, a Virginia corporation,
and its successors and assigns.

         2.9 "Director" means any individual who is a member of the Board of
Directors of the Company; provided, however, that any Director who is employed
by the Company or any Employer shall not be considered a Director, but instead
shall be considered an employee for purposes of the Plan.

         2.10 "Disability" means, (i) with respect to a Participant who is
eligible to participate in the Employer's program of long-term disability
insurance, if any, a condition with respect to which the Participant is entitled
to commence benefits under such program, and (ii) with respect to any
Participant (including a Participant who is eligible to participate in the
Employer's program of long-term disability insurance, if any), the inability of
the Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in death
or to be of continuous duration of six (6) months or more. For a Director,
Disability shall mean the inability of the Director to perform his or her usual
duties as a Board member by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous duration of
six (6) months or more. The determination of Disability shall be made by the
Committee.

         2.11 "Effective Date" shall have the meaning ascribed to such term in
Section 1.3 hereof.

         2.12 "Eligible Participant" means an employee of the Employer
(including an officer) as well as any other person, including a Director and a
consultant or other person who provides bona fide services to the Employer, as
shall be determined by the Committee.

         2.13 "Employer" means the Company and any entity during any period that
it is a "parent corporation" or a "subsidiary corporation" with respect to the
Company within the meaning of Code Sections 424(e) and 424(f). With respect to
all purposes of the Plan, including but not limited to, the establishment,
amendment, termination, operation and administration of the Plan, the Company
shall be authorized to act on behalf of all other entities included within the
definition of "Employer."


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         2.14 "Exchange Act" means the Securities Exchange Act of 1934, as now
in effect or as hereafter amended. All citations to sections of the Exchange Act
or rules thereunder are to such sections or rules as they may from time to time
be amended or renumbered.

         2.15 "Fair Market Value" means the fair market value of a Share, as
determined in good faith by the Committee as follows:

                  (a) if the Shares are admitted to trading on a national
         securities exchange, Fair Market Value on any date shall be the last
         sale price reported for the Shares on such exchange on such date or, if
         no sale was reported on such date, on the last date preceding such date
         on which a sale was reported;

                  (b) if the Shares are admitted to quotation on the National
         Association of Securities Dealers Automated Quotation System ("NASDAQ")
         or other comparable quotation system and have been designated as a
         National Market System ("NMS") security, Fair Market Value on any date
         shall be the last sale price reported for the Shares on such system on
         such date or on the last day preceding such date on which a sale was
         reported;

                  (c) If the Shares are admitted to Quotation on the NASDAQ and
         have not been designated a NMS Security, Fair Market Value on any date
         shall be the average of the highest bid and lowest asked prices of the
         Shares on such system on such date; or

                  (d) if (a), (b) and (c) do not apply, on the basis of the good
         faith determination of the Committee.

For purposes of subsection (a) above, if Shares are traded on more than one
securities exchange then the following exchange shall be referenced to determine
Fair Market Value: (i) the New York Stock Exchange ("NYSE"), or (ii) if shares
are not traded on the NYSE, the NASDAQ, or (iii) if shares are not traded on the
NYSE or NASDAQ, the largest regional exchange on which Shares are traded.

         2.16 "Incentive Stock Option" or "ISO" means an Option granted to an
Eligible Participant under Article 5 of the Plan which is intended to meet the
requirements of Section 422 of the Code.

         2.17 "Insider" shall mean, to the extent such provisions are
applicable, an individual who is, on the relevant date, subject to the reporting
requirements of Section 16(a) of the Act.

         2.18 "Named Executive Officer" means, to the extent such provisions are
applicable, a Participant who is one of the group of "covered employees" as
defined in the regulations promulgated or other guidance issued under Code
Section 162(m), as determined by the Committee.

         2.19 "Nonqualified Stock Option" or "NQSO" means an Option granted to
an Eligible Participant under Article 5 of the Plan which is not intended to
meet the requirements of Section 422 of the Code.


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         2.20 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option. An Option shall be designated as either an Incentive Stock Option or a
Nonqualified Stock Option, and in the absence of such designation, shall be
treated as a Nonqualified Stock Option.

         2.21 "Option Price" means the price at which a Share may be purchased
by a Participant pursuant to an Option.

         2.22 "Participant" means an Eligible Participant to whom an Award has
been granted.

         2.23 "Performance Measures" means the performance measures set forth in
Article 9 which are used for performance based Awards to Named Executive
Officers.

         2.24 "Performance Share" means an Award under Article 8 of the Plan
that is valued by reference to a Share, which value may be paid to the
Participant by delivery of such property as the Committee shall determine,
including without limitation, cash or Shares, or any combination thereof, upon
achievement of such performance objectives during the relevant performance
period as the Committee shall establish at the time of such Award or thereafter,
but, if applicable, not later than the time permitted by Code section 162(m) in
the case of a Named Executive Officer, unless the Committee determines not to
comply with Code section 162(m) or that such compliance is not required.

         2.25 "Permitted Transferee" means any members of the immediate family
of the Participant (I.E., spouse, children, and grandchildren), any trusts for
the benefit of such family members or any partnerships whose only partners are
such family members. Appropriate evidence of any transfer to the Permitted
Transferees shall be delivered to the Company at its principal executive office.
If all or part of an Option is transferred to a Permitted Transferee, the
Permitted Transferee's rights thereunder shall be subject to the same
restrictions and limitations with respect to the Option as the Participant.

         2.26 "Plan" means the James River Coal Company 2004 Equity Incentive
Plan, as set forth herein and as it may be amended from time to time.

         2.27 "Restricted Stock" means an Award of Shares under Article 7 of the
Plan, which Shares are issued with such restrictions and conditions, including
performance conditions, as the Committee, in its sole discretion, may impose,
including without limitation, any restriction on the right to retain such
Shares, to sell, transfer, pledge or assign such Shares, to vote such Shares,
and/or to receive any dividends or distributions with respect to such Shares,
which restrictions may lapse separately or in combination at such time or times,
in installments or otherwise, as the Committee may deem appropriate.

         2.28 "Restricted Stock Units" or "RSUs" means a right granted under
Section 7 of the Plan, subject to such restrictions and conditions as determined
by the Committee, to receive a number of Shares or a cash payment for each such
Share equal to the Fair Market Value of a Share on a specified date.


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         2.29 "Restriction Period" means the period commencing on the date an
Award of Restricted Stock or Restricted Stock Units is granted and ending on
such date as the Committee shall determine.

         2.30 "Retirement" means termination of employment other than for Cause
after a Participant has (i) attained age 65; or (ii) reached the age of 55 years
and has completed at least 10 years of service.

         2.31 "Share" means one share of common stock, par value $0.01 per
share, of the Company, and as such Share may be adjusted pursuant to the
provisions of Section 4.3 of the Plan.

         2.32 "Stock Appreciation Right" or "SAR" means an Award granted under
Article 6 of the Plan which provides for an amount payable in Shares and/or
cash, as determined by the Committee, equal to the excess of the Fair Market
Value of a Share on the day the Stock Appreciation Right is exercised over the
specified purchase price.

                           ARTICLE 3 - ADMINISTRATION

         3.1 GENERAL. This Plan shall be administered by the Committee. The
Committee, in its discretion, may delegate to one or more of its members, or to
officers of the Company, such of its powers as it deems appropriate.

         3.2 AUTHORITY OF THE COMMITTEE.

                  (a) The Committee shall have the exclusive right to interpret,
         construe and administer the Plan, to select the Eligible Participants
         who are eligible to receive an Award, and to act in all matters
         pertaining to the granting of an Award and the contents of the
         Agreement evidencing the Award, including, without limitation, the
         determination of the number of Options, Stock Appreciation Rights,
         Restricted Stock, Restricted Stock Units, or Performance Shares subject
         to an Award and the form, terms, conditions and duration of each Award,
         and any amendment thereof consistent with the provisions of the Plan.
         The Committee may adopt such rules, regulations and procedures of
         general application for the administration of this Plan, as it deems
         appropriate.

                  (b) The Committee may correct any defect, supply any omission
         or reconcile any inconsistency in the Plan or any Agreement in the
         manner and to the extent it shall deem desirable to carry it into
         effect.

                  (c) In the event the Company shall assume outstanding employee
         benefit awards or the right or obligation to make future such awards in
         connection with the acquisition of another corporation or business
         entity, the Committee may, in its discretion, make such adjustments in
         the terms of Awards under the Plan as it shall deem appropriate.

                  (d) All acts, determinations and decisions of the Committee
         made or taken pursuant to grants of authority under the Plan or with
         respect to any questions arising in connection with the administration
         and interpretation of the Plan, including the



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         severability of any and all of the provisions thereof, shall be
         conclusive, final and binding upon all parties, including the Company,
         its shareholders, Participants, Eligible Participants and their
         estates, beneficiaries and successors.

         3.3 DELEGATION OF AUTHORITY. Except with respect to Named Executive
Officers and Insiders (to the extent such rules are applicable), the Committee
may, at any time and from time to time, delegate to one or more persons any or
all of its authority under Section 3.2, to the full extent permitted by law.

         3.4 AWARD AGREEMENTS. Each Award granted under the Plan shall be
evidenced by a written Agreement. Each Agreement shall be subject to and
incorporate, by reference or otherwise, the applicable terms and conditions of
the Plan, and any other terms and conditions, not inconsistent with the Plan, as
may be imposed by the Committee, including without limitation, provisions
related to the consequences of termination of employment. A copy of such
document shall be provided to the Participant, and the Committee may, but need
not, require that the Participant sign a copy of the Agreement.

         3.5 INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as directors, officers or as members of the
Committee, directors and officers of the Company and the members of the
Committee shall be indemnified by the Company against reasonable expenses,
including attorney's fees, actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any Award
granted thereunder, and against all amounts paid by them in settlement thereof,
provided such settlement is approved by independent legal counsel selected by
the Company, or paid by them in satisfaction of a judgment or settlement in any
such action, suit or proceeding, except as to matters as to which the director,
officer or Committee member has been grossly negligent or engaged in willful
misconduct in the performance of his duties; provided, that within 60 days after
institution of any such action, suit or proceeding, a director, officer or
Committee member shall in writing offer the Company the opportunity, at its own
expense, to handle and defend the same.

                     ARTICLE 4 - SHARES SUBJECT TO THE PLAN

         4.1 NUMBER OF SHARES. (a) Subject to adjustment as provided in (b)
below and in Section 4.2, the aggregate number of Shares which are available for
issuance pursuant to Awards under the Plan is 825,000. The number of Incentive
Stock Options that may be issued under the Plan is 500,000, which is included
within the 825,000 total shares. Such Shares shall be made available from Shares
currently authorized but unissued or Shares currently held (or subsequently
acquired) by the Company as treasury shares, including Shares purchased in the
open market or in private transactions. If Options, Restricted Stock or
Restricted Stock Units are issued in respect of options, restricted stock, or
restricted stock units of an entity acquired, by merger or otherwise, by the
Company (or any subsidiary of the Company or any Employer), to the extent such
issuance shall not be inconsistent with the terms, limitations and conditions of
Code section 422 or Exchange Act Rule 16b-3, the aggregate number of Shares for
which Awards may be made hereunder shall automatically be increased by the
number of Shares subject to Awards so issued; provided, however, the aggregate
number of shares for which



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Awards may be granted hereunder shall automatically be decreased by the number
of Shares covered by any unexercised portion of an Award so issued that has
terminated for any reason, and the Shares subject to any such unexercised
portion may not be the subject of an Award to any other person.

                  (b) The following rules shall apply for purposes of the
         determination of the number of Shares available for grant under the
         Plan:

                           (i) If, for any reason, any Shares awarded or subject
                  to purchase under the Plan are not delivered or purchased, or
                  are reacquired by the Company, for reasons, including, but not
                  limited to, a forfeiture of Restricted Stock or termination,
                  expiration or cancellation of an Option, Stock Appreciation
                  Right, Restricted Stock Units, Performance Shares ("Returned
                  Shares"), shall not be charged against the aggregate number of
                  Shares available for issuance pursuant to Awards under the
                  Plan and shall again be available for issuance pursuant to an
                  Award under the Plan. If the exercise price and/or withholding
                  obligation under an Award is satisfied by tendering Shares to
                  the Company (either by actual delivery or attestation), only
                  the number of Shares issued net of the Shares so tendered
                  shall be deemed delivered for purposes of determining the
                  maximum number of Shares available for issuance under the
                  Plan.

                           (ii) Each Performance Share awarded that may be
                  settled in Shares shall be counted as one Share subject to an
                  Award. Performance Shares that may not be settled in Shares
                  (or that may be settled in Shares but are not) shall not
                  result in a charge against the aggregate number of Shares
                  available for issuance pursuant to Awards under this Plan.

                           (iii) Each Stock Appreciation Right or Restricted
                  Stock Unit that may be settled in Shares shall be counted as
                  one Share subject to an award. Stock Appreciation Rights or
                  Restricted Stock Units that may not be settled in Shares (or
                  that may be settled in Shares but are not) shall not result in
                  a charge against the aggregate number of Shares available for
                  issuance pursuant to Awards under this Plan. In addition, if a
                  Stock Appreciation Right is granted in connection with an
                  Option and the exercise of the Stock Appreciation Right
                  results in the loss of the Option right, the Shares that
                  otherwise would have been issued upon the exercise of such
                  related Option shall not result in a charge against the
                  aggregate number of Shares available for issuance pursuant to
                  Awards under this Plan.

         4.2 ADJUSTMENT OF SHARES. If any change in corporate capitalization,
such as a stock split, reverse stock split, stock dividend, or any corporate
transaction such as a reorganization, reclassification, merger or consolidation
or separation, including a spin-off, of the Company or sale or other disposition
by the Company of all or a portion of its assets, any other change in the
Company's corporate structure, or any distribution to shareholders (other than a
cash dividend) results in the outstanding Shares, or any securities exchanged
therefor or received in their place, being exchanged for a different number or
class of shares or other securities of the Company, or for shares of stock or
other securities of any other entity; or new, different or additional shares or

                                       8
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other securities of the Company or of any other entity being received by the
holders of outstanding Shares; then equitable adjustments shall be made by the
Committee in:

                  (a) the limitations on the aggregate number of Shares that may
         be awarded as set forth in Section 4.1, including, without limitation,
         with respect to Incentive Stock Options;

                  (b) the number and class of Shares that may be subject to an
         Award, and which have not been issued or transferred under an
         outstanding Award;

                  (c) the Option Price under outstanding Options and the number
         of Shares to be transferred in settlement of outstanding Stock
         Appreciation Rights; and

                  (d) the terms, conditions or restrictions of any Award and
         Agreement, including the price payable for the acquisition of Shares;
         provided, however, that all such adjustments made in respect of each
         ISO shall be accomplished so that such Option shall continue to be an
         incentive stock option within the meaning of Code Section 422.

                           ARTICLE 5 - STOCK OPTIONS

         5.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Eligible Participants at any time and from time to
time as shall be determined by the Committee. The Committee shall have sole
discretion in determining the number of Shares subject to Options granted to
each Participant. The Committee may grant a Participant ISOs, NQSOs or a
combination thereof, and may vary such Awards among Participants; provided that
only an Employee may be granted ISOs.

         5.2 AGREEMENT. Each Option grant shall be evidenced by an Agreement
that shall specify the Option Price, the duration of the Option, the number of
Shares to which the Option pertains and such other provisions as the Committee
shall determine. The Option Agreement shall further specify whether the Award is
intended to be an ISO or an NQSO. Any portion of an Option that is not
designated as an ISO or otherwise fails or is not qualified as an ISO (even if
designated as an ISO) shall be an NQSO.

         5.3 OPTION PRICE. The Option Price for each grant of an ISO or NQSO
shall not be less than one hundred percent (100%) of the Fair Market Value of a
Share on the date the Option is granted.

         5.4 DURATION OF OPTIONS. Each Option shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that no
Option shall be exercisable later than the tenth (10th) anniversary of its grant
date.

         5.5 EXERCISE OF OPTIONS. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, including conditions related to
the employment of or provision of services by the Participant with the Company
or any Employer, which need not be the same for each grant or for each
Participant. The Committee may provide in the Agreement for automatic
accelerated vesting and other rights upon the



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occurrence of a Change in Control of the Company or upon the occurrence of other
events as specified in the Agreement. In addition, the Committee may provide in
the Agreement for the right of a Participant to defer option gains related to an
exercise.

         5.6 PAYMENT. Options shall be exercised by the delivery of a written
notice of exercise to the Company, setting forth the number of Shares with
respect to which the Option is to be exercised, accompanied by full payment for
the Shares. The Option Price upon exercise of any Option shall be payable to the
Company in full, either: (a) in cash, (b) cash equivalent approved by the
Committee, (c) if approved by the Committee, by tendering previously acquired
Shares (or delivering a certification or attestation of ownership of such
Shares) having an aggregate Fair Market Value at the time of exercise equal to
the total Option Price (provided that the tendered Shares must have been held by
the Participant for any period required by the Committee), or (d) by a
combination of (a), (b) and (c). The Committee also may allow cashless exercises
as permitted under Federal Reserve Board's Regulation T, subject to applicable
securities law restrictions, or by any other means which the Committee
determines to be consistent with the Plan's purpose and applicable law.

         5.7 NONTRANSFERABILITY OF OPTIONS.

                  (a) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may
         be sold, transferred, pledged, assigned, or otherwise alienated or
         hypothecated, other than by will or by the laws of descent and
         distribution. Further, all ISOs granted to a Participant under the Plan
         shall be exercisable during his or her lifetime only by such
         Participant.

                  (b) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided
         in a Participant's Award Agreement with respect to transfers to
         Permitted Transferees (any such transfers being subject to applicable
         laws, rules and regulations), no NQSO granted under this Plan may be
         sold, transferred, pledged, assigned, or otherwise alienated or
         hypothecated, other than by will or by the laws of descent and
         distribution. Further, except as otherwise provided in a Participant's
         Award Agreement, all NQSOs granted to a Participant under this Article
         5 shall be exercisable during his or her lifetime only by such
         Participant.

         5.8 PURCHASED OPTIONS. The Committee shall also have the authority to
grant Options to Participants in exchange for a stated purchase price for such
Option (which may be payable by the Participant directly or, at the election of
the Participant, may be offset from bonus or other amounts owed to the
Participant by the Company).

         5.9 SPECIAL RULES FOR ISOS. In no event shall any Participant who owns
(within the meaning of Section 424(d) of the Code) stock of the Company
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company be eligible to receive an ISO at an Option Price
less than one hundred ten percent (110%) of the Fair Market Value of a share on
the date the ISO is granted or be eligible to receive an ISO that is exercisable
later than the fifth (5th) anniversary date of its grant. No Participant may be
granted ISOs (under the Plan and all other incentive stock option plans of the
Employer) which are first exercisable in any calendar year for Shares having an
aggregate Fair Market Value (determined as of the date an Option is granted)
that exceeds One Hundred Thousand Dollars ($100,000).


                                       10
<PAGE>

                     ARTICLE 6 - STOCK APPRECIATION RIGHTS

         6.1 GRANT OF SARS. A Stock Appreciation Right may be granted to an
Eligible Participant in connection with an Option granted under Article 5 of
this Plan or may be granted independently of any Option. A Stock Appreciation
Right shall entitle the holder, within the specified period (which may not
exceed 10 years), to exercise the SAR and receive in exchange therefor a payment
having an aggregate value equal to the amount by which the Fair Market Value of
a Share exceeds the exercise price, times the number of Shares with respect to
which the SAR is exercised. The Committee may provide in the Agreement for
automatic accelerated vesting and other rights upon the occurrence of a Change
in Control or upon the occurrence of other events specified in the Agreement. A
SAR granted in connection with an Option (a "Tandem SAR") shall entitle the
holder of the related Option, within the period specified for the exercise of
the Option, to surrender the unexercised Option, or a portion thereof, and to
receive in exchange therefore a payment having an aggregate value equal to the
amount by which the Fair Market Value of a Share exceeds the Option price per
Share, times the number of Shares under the Option, or portion thereof, which is
surrendered. SARs shall be subject to the same transferability restrictions as
Nonqualified Stock Options.

         6.2 TANDEM SARS. Each Tandem SAR shall be subject to the same terms and
conditions as the related Option, including limitations on transferability, and
shall be exercisable only to the extent such Option is exercisable and shall
terminate or lapse and cease to be exercisable when the related Option
terminates or lapses. The grant of Stock Appreciation Rights related to ISOs
must be concurrent with the grant of the ISOs. With respect to NQSOs, the grant
either may be concurrent with the grant of the NQSOs, or in connection with
NQSOs previously granted under Article 5, which are unexercised and have not
terminated or lapsed. Upon exercise of a Tandem SAR, the number of Shares
subject to exercise under any related Option shall automatically be reduced by
the number of Shares represented by the Option or portion thereof which is
surrendered.

         6.3 PAYMENT. The Committee shall have sole discretion to determine in
each Agreement whether the payment with respect to the exercise of an SAR will
be in the form of all cash, all Shares, or any combination thereof. If payment
is to be made in Shares, the number of Shares shall be determined based on the
Fair Market Value of a Share on the date of exercise. If the Committee elects to
make full payment in Shares, no fractional Shares shall be issued and cash
payments shall be made in lieu of fractional shares. The Committee shall have
sole discretion as to the timing of any payment made in cash or Shares, or a
combination thereof, upon exercise of SARs. Payment may be made in a lump sum,
in annual installments or may be otherwise deferred (at the election of the
Participant); and the Committee shall have sole discretion to determine whether
any deferred payments may bear amounts equivalent to interest or cash dividends.

            ARTICLE 7 - RESTRICTED STOCK AND RESTRICTED STOCK UNITS

         7.1 GRANT OF RESTRICTED STOCK. Restricted Stock Awards may be made to
Eligible Participants as a reward for past service or as an incentive for the
performance of future services that will contribute materially to the successful
operation of the Employer. Awards of Restricted



                                       11
<PAGE>

Stock may be made either alone or in addition to or in tandem with other Awards
granted under the Plan and may be current grants of Restricted Stock or deferred
grants of Restricted Stock.

         7.2 RESTRICTED STOCK AGREEMENT. The Restricted Stock Agreement shall
set forth the terms of the Award, as determined by the Committee, including,
without limitation, the purchase price, if any, to be paid for such Restricted
Stock, which may be more than, equal to, or less than Fair Market Value and may
be zero, subject to such minimum consideration as may be required by applicable
law; any restrictions applicable to the Restricted Stock such as continued
service or achievement of Performance Measures, the length of the Restriction
Period and whether any circumstances, such as death, Disability, or a Change in
Control, will shorten or terminate the Restriction Period; and rights of the
Participant to vote or receive dividends or distributions with respect to the
Shares during the Restriction Period.

         Notwithstanding Section 3.4 of the Plan, a Restricted Stock Award must
be accepted within a period of sixty (60) days, or such other period as the
Committee may specify, by executing a Restricted Stock Agreement and paying
whatever price, if any, is required. The prospective recipient of a Restricted
Stock Award shall not have any rights with respect to such Award, unless and
until such recipient has executed a Restricted Stock Agreement and has delivered
a fully executed copy thereof to the Committee, and has otherwise complied with
the applicable terms and conditions of such Award.

         7.3 NONTRANSFERABILITY. Except as otherwise provided in this Article 7,
no shares of Restricted Stock nor any Restricted Stock Units received by a
Participant shall be sold, exchanged, transferred, pledged, hypothecated or
otherwise disposed of during the Restriction Period.

         7.4 CERTIFICATES. Upon an Award of Restricted Stock to a Participant,
Shares of Restricted Stock shall be registered in the Participant's name (or an
appropriate book entry shall be made). Certificates, if issued, may either be
held in custody by the Company until the Restriction Period expires or until
restrictions thereon otherwise lapse and/or be issued to the Participant and
registered in the name of the Participant, bearing an appropriate restrictive
legend and remaining subject to appropriate stop-transfer orders. If required by
the Committee, the Participant shall deliver to the Company one or more stock
powers endorsed in blank relating to the Restricted Stock. If and when the
Restriction Period expires without a prior forfeiture of the Restricted Stock
subject to such Restriction Period, unrestricted certificates for such shares
shall be delivered to the Participant; provided, however, that the Committee may
cause such legend or legends to be placed on any such certificates as it may
deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission and any applicable federal or state law.

         7.5 DIVIDENDS AND OTHER DISTRIBUTIONS. Except as provided in this
Article 7 or in the Award Agreement, a Participant receiving a Restricted Stock
Award shall have, with respect to such Restricted Stock Award, all of the rights
of a shareholder of the Company, including the right to vote the Shares to the
extent, if any, such Shares possess voting rights and the right to receive any
dividends and distributions; provided, however, the Committee may require that
any dividends on such Shares of Restricted Stock shall be automatically deferred
and reinvested in additional Restricted Stock subject to the same restrictions
as the underlying Award, or may


                                       12
<PAGE>

require that dividends and other distributions on Restricted Stock shall be paid
to the Company for the account of the Participant. The Committee shall determine
whether interest shall be paid on such amounts, the rate of any such interest,
and the other terms applicable to such amounts. In addition, with respect to
Named Executive Officers, the Committee may, to the extent applicable, apply any
restrictions it deems appropriate to the payment of dividends declared with
respect to Restricted Stock such that the dividends and/or Restricted Stock
maintain eligibility for the performance-based compensation exception under Code
Section 162(m).

         7.6 RESTRICTED STOCK UNITS (OR RSUS). Awards of Restricted Stock Units
may be made to Eligible Participants in accordance with the following terms and
conditions:

                  (a) The Committee, in its discretion, shall determine the
         number of RSUs to grant to a Participant, the Restriction Period and
         other terms and conditions of the Award, including whether the Award
         will be paid in cash, Shares or a combination of the two and the time
         when the Award will be payable (I.E., at vesting, termination of
         employment or another date).

                  (b) Unless the Agreement provides otherwise, RSUs shall not be
         sold, transferred or otherwise disposed of and shall not be pledged or
         otherwise hypothecated.

                  (c) Awards of RSUs shall be subject to the same terms as
         applicable to Awards of Restricted Stock under Section 7.2 of the Plan;
         provided, however, a Participant to whom RSUs are awarded has no rights
         as a shareholder with respect to the Shares represented by the RSUs
         unless and until the Shares are actually delivered to the Participant;
         provided further, however, RSUs may have dividend equivalent rights if
         provided for by the Committee which may be subject to the same terms
         and conditions governing dividends and distributions applicable to
         Restricted Stock Awards under Section 7.5 of this Plan with the
         exception that in no event shall RSUs possess voting rights.

                  (d) The Agreement shall set forth the terms and conditions
         that shall apply upon the termination of the Participant's employment
         with the Employer (including a forfeiture of RSUs for which the
         restrictions have not lapsed upon Participant's ceasing to be employed)
         as the Committee may, in its discretion, determine at the time the
         Award is granted.

                         ARTICLE 8 - PERFORMANCE SHARES

         8.1 GRANT OF PERFORMANCE SHARES. Performance Shares may be granted to
Participants in such amounts and upon such terms, and at any time and from time
to time, as shall be determined by the Committee.

         8.2 VALUE OF PERFORMANCE SHARES. Each Performance Share shall have an
initial value equal to the Fair Market Value of a Share on the date of grant.
The Committee shall set the Performance Measures in its discretion which,
depending on the extent to which they are met, will determine the number of
Performance Shares that will be paid out to the Participant. For



                                       13
<PAGE>

purposes of this Article 8, the time period during which the Performance
Measures must be met shall be called a "Performance Period."

         8.3 EARNING OF PERFORMANCE SHARES. Subject to the terms of this Plan,
after the applicable Performance Period has ended, the holder of Performance
Shares shall be entitled to receive a payout of the number of Performance Shares
earned by the Participant over the Performance Period, to be determined as a
function of the extent to which the corresponding Performance Measures have been
achieved. The Committee may provide in the Agreement for automatic accelerated
vesting and other rights upon the Change in Control or upon the occurrence of
other events specified in the Agreement.

         8.4 FORM AND TIMING OF PAYMENT OF PERFORMANCE SHARES. Subject to the
terms of this Plan, the Committee, in its sole discretion, may pay earned
Performance Shares in the form of cash or in Shares (or in a combination
thereof) which has an aggregate Fair Market Value equal to the value of the
earned Performance Shares at the close of the applicable Performance Period.
Such Shares may be granted subject to any restrictions deemed appropriate by the
Committee. The determination of the Committee with respect to the form and
timing of payout of such Awards shall be set forth in the Award Agreement
pertaining to the grant of the Award.

         Except as otherwise provided in the Participant's Award Agreement, a
Participant shall be entitled to receive any dividends and distributions
declared with respect to Shares that have been earned in connection with grants
of Performance Shares but that have not yet been distributed to the Participant
(such dividends and distributions shall be subject to the same accrual,
forfeiture, and payout restrictions as apply to dividends and distributions
earned with respect to Restricted Stock, as set forth in Section 7.5 herein). In
addition, unless otherwise provided in the Participant's Award Agreement, a
Participant shall be entitled to exercise full voting rights with respect to
such Shares that have been earned in connection with grants of Performance
Shares but that have not yet been distributed to the Participant.

         8.5 NONTRANSFERABILITY. Except as otherwise provided in a Participant's
Award Agreement, Performance Shares may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution. Further, except as otherwise provided in a
Participant's Award Agreement, a Participant's rights under the Plan shall be
exercisable during the Participant's lifetime only by the Participant or the
Participant's legal representative.

                        ARTICLE 9 - PERFORMANCE MEASURES

         The Performance Measure(s) to be used for purposes of Awards under the
Plan shall be chosen from among the following (which may relate to the Company
or a business unit, division or subsidiary): earnings, earnings per share,
consolidated pre-tax earnings, net earnings, operating income, EBIT (earnings
before interest and taxes), EBITDA (earnings before interest, taxes,
depreciation and amortization), gross margin, revenues, revenue growth, market
value added, economic value added, return on equity, return on investment,
return on assets, return on net assets, return on capital employed, return on
incremental equity, total shareholder return, profit, economic profit,
capitalized economic profit, after-tax profit, pre-tax profit, cash flow
measures, cash flow return, sales, sales volume, revenues per employee, stock
price, cost goals,



                                       14
<PAGE>

budget goals, growth expansion goals, or goals related to acquisitions or
divestitures. The Committee can establish other Performance Measures for
performance Awards granted to Eligible Participants. To the extent required to
comply with the requirements of Code Section 162(m), the Company may submit the
Performance Measures for shareholder approval.

         The Committee shall be authorized to make adjustments in performance
based criteria or in the terms and conditions of other Awards in recognition of
unusual or nonrecurring events affecting the Company or its financial statements
or changes in applicable laws, regulations or accounting principles. The
Committee shall also have the discretion to adjust the determinations of the
degree of attainment of the pre-established Performance Measures. The Committee
shall retain the discretion to adjust Awards upward or downward.

                      ARTICLE 10 - BENEFICIARY DESIGNATION

         Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Committee, and will be effective only when filed by the
Participant in writing with the Committee during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.

                             ARTICLE 11 - DEFERRALS

         The Committee may permit or require a Participant to defer under this
Plan or to a separate deferred compensation arrangement of the Company such
Participant's receipt of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant by virtue of the exercise of an
Option or SAR, the lapse or waiver of restrictions with respect to Restricted
Stock or Restricted Stock Units, or the satisfaction of any requirements or
goals with respect to Performance Shares. If any such deferral election is
required or permitted, the Committee shall, in its sole discretion, establish
rules and procedures for such payment deferrals.

                            ARTICLE 12 - WITHHOLDING

         12.1 TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of this Plan.

         12.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock,
or upon any other taxable event arising as a result of Awards granted hereunder,
unless other arrangements are made with the consent of the Committee,
Participants shall satisfy the withholding requirement by having the Company
withhold Shares having a Fair Market Value on the date the tax is to be
determined equal to not more than the minimum amount of tax required to be
withheld with respect to the



                                       15
<PAGE>

transaction. All such elections shall be subject to any restrictions or
limitations that the Committee, in its sole discretion, deems appropriate.

                         ARTICLE 13 - FOREIGN EMPLOYEES

         In order to facilitate the making of any grant of Awards under this
Plan, the Committee may provide for such special terms for Awards to
Participants who are foreign nationals or who are employed by the Company or any
Employer outside of the United States of America as the Committee may consider
necessary or appropriate to accommodate differences in local law, tax policy or
custom, which special terms may be contained in an Appendix attached hereto.
Moreover, the Committee may approve such supplements to or amendments,
restatements or alternative versions of this Plan as it may consider necessary
or appropriate for such purposes, without thereby affecting the terms of this
Plan as in effect for any other purpose, and the Secretary or other appropriate
officer of the Company may certify any such document as having been approved and
adopted in the same manner as this Plan. No such special terms, supplements,
amendments or restatements, however, shall include any provisions that are
inconsistent with the terms of this Plan as then in effect unless this Plan
could have been amended to eliminate such inconsistency without further approval
by the shareholders of the Company.

                     ARTICLE 14 - AMENDMENT AND TERMINATION

         14.1 AMENDMENT OF PLAN. The Committee may at any time terminate or from
time to time amend the Plan in its discretion in whole or in part, but no such
action shall adversely affect any rights or obligations with respect to any
Awards previously granted under the Plan, unless the affected Participants
consent in writing. To the extent required by Code Section 162(m) or 422 and/or
the rules of NASDAQ or any exchange upon which the Company lists the shares for
trading or other applicable law, rule or regulation, no amendment shall be
effective unless approved by the shareholders of the Company at an annual or
special meeting.

         14.2 AMENDMENT OF AWARD AGREEMENT; REPRICING. The Committee may, at any
time, in its discretion amend outstanding Agreements in a manner not
inconsistent with the terms of the Plan; provided, however, except as provided
in Section 14.4, if such amendment is adverse to the Participant, as determined
by the Committee, the amendment shall not be effective unless and until the
Participant consents, in writing, to such amendment. To the extent not
inconsistent with the terms of the Plan, the Committee may, at any time, in its
discretion amend an outstanding Agreement in a manner that is not unfavorable to
the Participant without the consent of such Participant. Notwithstanding the
above provision, the Committee shall not have the authority to decrease the
Option Price of any outstanding Option, except in accordance with Section 4.2 or
unless such an amendment is approved by the shareholders of the Company.

         14.3 TERMINATION OF PLAN. No Awards shall be granted under the Plan
after the tenth (10th) anniversary of the date the Board adopts the Plan.

         14.4 DETRIMENTAL ACTIVITY. The Committee may provide in the Award
Agreement that if a Participant engages in any "Detrimental Activity" (as
defined below), the Committee may, notwithstanding any other provision in this
Plan to the contrary, cancel, rescind, suspend,



                                       16
<PAGE>

withhold or otherwise restrict or limit any unexpired, unexercised, or unpaid
Awards as of the first date the Participant engages in the Detrimental Activity,
unless sooner terminated by operation of another term of this Plan or any other
agreement. Without limiting the generality of the foregoing, the Agreement may
also provide that if the Participant exercises an Option or SAR, receives a
Performance Share or Restricted Stock Unit payout, or receives Shares under an
Award at any time during the period beginning six months prior to the date the
Participant first engages in Detrimental Activity and ending six months after
the date the Participant ceases to engage in any Detrimental Activity, the
Participant shall be required to pay to the Company the excess of the then Fair
Market Value of the Shares subject to the Award over the total price paid by the
Participant for such Shares.

         For purposes of this Section, "Detrimental Activity" means any of the
following activities as further defined by the Committee in the Award Agreement
and as determined by the Committee in good faith: (i) the violation of any
agreement between the Company and the Participant relating to the disclosure of
confidential information or trade secrets, the solicitation of employees,
customers, suppliers, licensees, licensors or contractors, or the performance of
competitive services (ii) conduct that constitutes Cause (as defined in Section
2.4 above), whether or not the Participant's employment is terminated for Cause.

                     ARTICLE 15 - MISCELLANEOUS PROVISIONS

         15.1 RESTRICTIONS ON SHARES. All certificates for Shares delivered
under the Plan shall be subject to such stop-transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations,
and other requirements of the Securities and Exchange Commission, any stock
exchange upon which the Stock is then listed and any applicable federal or state
laws, and the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions. In making such
determination, the Committee may rely upon an opinion of counsel for the Company
or Committee.

         Notwithstanding any other provision of the Plan, the Company shall have
no liability to deliver any Shares under the Plan or make any other distribution
of the benefits under the Plan unless such delivery or distribution would comply
with all applicable laws (including, without limitation, the requirements of the
Securities Act of 1933), and the applicable requirements of any securities
exchange or similar entity.

         15.2 NO IMPLIED RIGHTS. Nothing in the Plan or any Award granted under
the Plan shall confer upon any Participant any right to continue in the service
of the Employer, or to serve as a Director thereof, or interfere in any way with
the right of the Employer to terminate the Participant's employment or other
service relationship for any reason at any time. Unless agreed by the Board, no
Award granted under the Plan shall be deemed salary or compensation for the
purpose of computing benefits under any employee benefit plan, severance
program, or other arrangement of the Employer for the benefit of its employees.
No Participant shall have any claim to an Award until it is actually granted
under the Plan. To the extent that any person acquires a right to receive
payments from the Company under the Plan, such right shall, except as otherwise
provided by the Committee, be no greater than the right of an unsecured general
creditor of the Company.


                                       17
<PAGE>

         15.3 COMPLIANCE WITH LAWS.

                  (a) At all times when the Committee determines that compliance
         with Code Section 162(m) is required or desirable, all Awards granted
         under this Plan to Named Executive Officers shall comply with the
         requirements of Code Section 162(m). In addition, in the event that
         changes are made to Code Section 162(m) to permit greater flexibility
         with respect to any Awards under the Plan, the Committee may, subject
         to the requirements of Article 14, make any adjustments it deems
         appropriate.

                  (b) The Plan and the grant of Awards shall be subject to all
         applicable federal and state laws, rules, and regulations and to such
         approvals by any United States government or regulatory agency as may
         be required. Any provision herein relating to compliance with Rule
         16b-3 under the Exchange Act shall not be applicable with respect to
         participation in the Plan by Participants who are not Insiders.

         15.4 SUCCESSORS. The terms of the Plan shall be binding upon the
Company, and its successors and assigns (whether by purchase, merger,
consolidation or otherwise).

         15.5 TAX ELECTIONS. Each Participant agrees to give the Committee
prompt written notice of any election made by such Participant under Code
Section 83(b) or any similar provision thereof.

         15.6 LEGAL CONSTRUCTION.

                  (a) SEVERABILITY. If any provision of this Plan or an
         Agreement is or becomes or is deemed invalid, illegal or unenforceable
         in any jurisdiction, or would disqualify the Plan or any Agreement
         under any law deemed applicable by the Committee, such provision shall
         be construed or deemed amended to conform to applicable laws or if it
         cannot be construed or deemed amended without, in the determination of
         the Committee, materially altering the intent of the Plan or the
         Agreement, it shall be stricken and the remainder of the Plan or the
         Agreement shall remain in full force and effect.

                  (b) GENDER AND NUMBER. Where the context admits, words in any
         gender shall include the other gender, words in the singular shall
         include the plural and words in the plural shall include the singular.

                  (c) GOVERNING LAW. To the extent not preempted by federal law,
         the Plan and all Agreements hereunder, shall be construed in accordance
         with and governed by the laws of the Commonwealth of Virginia.




                                       18
<PAGE>



         IN WITNESS WHEREOF, this Plan is executed as of this the 25th day of
May, 2004.

                                                JAMES RIVER COAL COMPANY



                                                By:  /s/ Peter T. Socha
                                                     -----------------------
                                                         Authorized Officer

ATTEST:

/S/ Michelle Staton
---------------------
Secretary





                                       19