**Exhibit
      10.12**


**JAMES
      RIVER COAL COMPANY**


**SEVERANCE
      AND RETENTION PLAN**




**ARTICLE
      ONE**


**INTRODUCTION**




1.1  Purpose .
      The
      Board of Directors of James River Coal Company (the “ **Company** ”)
      has
      determined that it is in the best interests of the Company and its shareholders
      to assure that the Company will have the continued dedication of its employees,
      notwithstanding the possibility or occurrence of a significant restructuring
      or
      change in control of the Company. The Board of Directors (the “ **Board** ”)
      believes it is imperative to diminish the inevitable distraction of such
      employees by virtue of the personal uncertainties and risks created by such
      possibilities and to encourage the employees’ full attention and dedication to
      the Company and its affiliates. Therefore, in order to accomplish these
      objectives, the Board has approved and adopted this James River Coal Company
      Severance and Retention Plan (the “ **Plan** ”)
      to
      induce certain employees of the Company and its affiliates to remain in their
      current employment and to devote their time and energies to the successful
      performance of their employment duties by providing such persons a measure
      of
      security.




1.2  Effective
      Date .
      The
      Plan was approved by the Board at meetings held on March 3 and 13, 2006 and
      shall be effective as of March 13, 2006 (the “ **Effective
      Date** ”).






**ARTICLE
      TWO**


**DEFINITIONS**




2.1  Definitions .
      The
      following capitalized terms used in the Plan shall have the meanings assigned
      to
      them below:




“ **Board** ”
means
      the Board of Directors of the Company.




“ **Cause** ”
means
      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 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
      Company or one of its affiliates that is binding as of the Date of 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.










“ **CEO** ”
means
      the Chief Executive Officer of the Company.




A
      “ **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 Plan,
      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;




provided
      that, in the case of (c) or (d) above, only if such event arises from the
      investigation of strategic alternatives by the Company announced on March 1,
      2006.




Notwithstanding
      the foregoing, a Change in Control shall not be deemed to occur pursuant to
      subsection (a) above 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.




**“Code”** means
      the Internal Revenue Code of 1986, as amended.




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“ **Committee** ”
means
      the committee responsible for the administration of the Plan, which shall be
      the
      Compensation Committee of the Board, or such other committee as may be
      designated by the Board.




“ **Company** ”
means
      James River Coal Company, a Virginia corporation.




“ **Date
      of Termination** ”
shall
      mean, for any Participant, the date specified in the notice of termination
      as
      the date upon which Participant’s employment with the Company is to cease. In
      the case of termination by Participant for Good Reason, the Date of Termination
      shall not be less than 30 days nor more than 60 days from the date the notice
      of
      termination is given.




“ **Disability** ”
shall
      have the meaning ascribed to the term “Disabled” in Code Section 409A and the
      regulations promulgated thereunder. The existence of a Disability shall be
      determined by the Board in good faith.




“ **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.




“ **Good
      Reason** ”
shall
      mean the occurrence (without Participant’s express written consent) of any one
      of the following acts by the Company, or failures by the Company to act, unless,
      in the case of any Company act or failure to act described below, such act
      or
      failure to act is corrected by the Company prior to the Date of Termination
      specified in the notice of termination given in respect thereof:




(a)  a
      material reduction in Participant’s duties or responsibilities; provided,
      however, that the fact that Participant’s employment after a Change in Control
      shall be with a non-publicly traded subsidiary of an entity resulting from
      or
      surviving the Change in Control, if that is the case, shall not of itself be
      deemed a material diminution in Participant’s duties or responsibilities for
      purposes of this paragraph;




(b)  a
      reduction in Participant’s base salary or target bonus;




(c)  the
      failure by the Company to maintain a benefit program (or to provide a substitute
      benefit program) that is materially comparable to Participant’s overall
      compensation prior to the Change in Control;




(d)  the
      relocation of Participant’s office or the Company’s headquarters from its
      location on the Effective Date to a location more than 35 miles away;
      or




(e)  the
      Company’s material breach of any other provision of this Plan.




Participant’s
      right to terminate Participant’s employment for Good Reason shall not be
      affected by Participant’s incapacity due to physical or mental illness, except
      for a Disability. Participant’s continued employment shall not constitute
      consent to, or a waiver of rights with respect to, any circumstance constituting
      Good Reason hereunder.




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Any
      claim
      of Good Reason shall be communicated by Participant to the Company in writing
      and shall specifically identify the factual details concerning the event(s)
      giving rise to Participant’s claim of Good Reason. The Company shall have an
      opportunity to cure any claimed event of Good Reason prior to the specified
      Date
      of Termination.




“ **Participant** ”
means
      any Retention Participant or Severance Participant. A Participant may be a
      Retention Participant or Severance Participant, or both.




“ **Plan** ”
means
      this James River Coal Company Severance and Retention Plan, as it may be
      amended.




“ **Restrictive
      Covenants** ”
means
      the restrictive covenants contained in Article Six of the Plan, including
      without limitation, the covenant not to disclose confidential
      information.




“ **Retention
      Participant** ”
means
      an employee of the Company or its affiliates who has been designated by the
      Committee to participate in the retention portion of the Plan.




“ **Severance
      Participant** ”
means
      an employee of the Company or its affiliates who has been selected by the
      Committee to participate in the severance portion of the Plan and is so
      designated in a writing, in the form of the “Acknowledgment Form” attached
      hereto as Exhibit A and identifying the Severance Period, executed by a duly
      authorized member of the Committee or the CEO, on behalf of the Company, and
      by
      such Participant for the purpose of affirming his agreement to be bound by
      the
      terms of the Plan.




**ARTICLE
      THREE**


**EQUITY
      AWARDS**




3.1  Equity
      Awards Upon a Change in Control .
      Upon
      the occurrence of a Change in Control, all unvested equity awards (including,
      without limitation, all restricted shares of common stock of the Company and
      all
      options to acquire common stock of the Company) held by employees of the Company
      shall immediately vest and become exercisable, as applicable.




**ARTICLE
      FOUR**


**RETENTION
      BONUSES**




4.1  Retention
      Bonus Upon a Change in Control .
      Upon
      the occurrence of a Change in Control, each Retention Participant shall be
      eligible to receive a Retention Bonus in the amount designated by the Committee.
      To be eligible to receive the Retention Bonus, the Participant must be employed
      by the Company or one of its affiliates on the date of the Change in Control.
      If
      the Participant satisfies the above requirements, the Participant’s Retention
      Bonus shall become 100% vested as of the date of the Change in Control and
      shall
      be payable in a lump sum within 15 days of the Change in Control.




4.2  Termination
      of Employment Prior to a Change in Control .
      If,
      prior to a Change in Control, a Participant’s employment is terminated by the
      Company or any of its affiliates for any reason or the Participant terminates
      employment for any reason, then no Retention Bonus shall be payable to such
      Participant.




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**ARTICLE
      FIVE**


**SEVERANCE
      BENEFITS**




5.1  Termination
      by the Company Without Cause; Termination by Participant For Good
      Reason .
      If,
      within 12 months after a Change in Control, the Company or any of its affiliates
      terminates the employment of a Severance Participant other than for Cause,
      death
      or Disability or if, within 12 months after a Change in Control, a Severance
      Participant resigns for Good Reason, the Company shall (in lieu of any severance
      benefits under any Company severance program) pay or provide to such Severance
      Participant compensation and benefits as follows:




(a)  Severance
      Participant will continue to receive his base salary as then in effect through
      his Date of Termination.




(b)  Severance
      Participant shall
      receive, no later than 30 days after Severance Participant’s Date of
      Termination, a lump sum payment equal to (i) Severance
      Participant ’s
      monthly base salary at the time that Severance Participant’s Date of Termination
      occurs, multiplied by (ii) the number of months in the Severance Period.
      The “ **Severance
      Period** ”
shall
      be the period identified in the Acknowledgment Form signed by the Severance
      Participant. The lump sum payment under this paragraph (b) shall not alter
      the
      amounts Severance Participant is entitled to receive under the benefit plans
      described in paragraph (c) below. Benefits under such plans shall be determined
      as if Severance Participant had continued to receive his base salary over the
      applicable Severance Period rather than in a lump sum.




(c)  The
      group
      health and dental care (including any medical plan) and group term life
      insurance benefits coverages provided to Severance Participant at his Date
      of
      Termination shall be continued at the same level as for active employees and
      in
      the same manner as if his employment had not terminated, beginning on the Date
      of Termination and continuing for the Severance Period. Any additional coverages
      Severance Participant had at termination, including dependent coverage, will
      also be continued for such period on the same terms, to the extent permitted
      by
      the applicable policies or contracts. Any costs Severance Participant was paying
      for such additional coverages at the time of termination shall be paid by
      Severance Participant by separate check payable to the Company each month in
      advance. If the terms of the group term life insurance plan, or the laws
      applicable to such plan, do not permit continued participation by Severance
      Participant, then the Company will pay Severance Participant a lump sum amount
      equal to the costs of such coverage(s) for the applicable Severance Period.
      If
      the terms of the group health and dental plans referred to in this subsection
      do
      not permit continued participation by Severance Participant as required by
      this
      subsection, or if the health and dental benefits to be provided to Severance
      Participant and his dependents pursuant to this subsection cannot be provided
      in
      a manner such that the benefit payments will be tax-free to Severance
      Participant and his dependents, then the Company shall (A) pay to Severance
      Participant monthly during the Severance Period an amount equal to the monthly
      rate for COBRA coverage under the health and dental plans that is then being
      paid by former active employees for the level of coverage that applies to
      Severance Participant and his dependents, minus the amount active employees
      are
      then paying for such coverage, and (B) permit Severance Participant and his
      dependents to elect to participate in the health and dental plans for the
      Severance Period upon payment of the applicable rate for COBRA coverage during
      the Severance Period. The coverages provided for in this Section shall be
      applied against and reduce the period for which COBRA coverage will be
      provided.




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(d)  Except
      as
      expressly provided herein, all other fringe benefits provided to Severance
      Participant as an active employee of the Company (e.g., long-term disability,
      AD&D, etc.), shall cease on his Date of Termination (except to the extent
      Severance Participant has already qualified for benefits under any such
      program), provided that any conversion or extension rights applicable to such
      benefits shall be made available to Severance Participant at his Date of
      Termination or when such coverages otherwise cease.




5.2  Full
      Settlement; No Obligation to Mitigate .
      Except
      as provided in Section 5.3 below, the Company’s obligation to make the payments
      provided for in this Plan and otherwise to perform its obligations hereunder
      shall not be affected by any set-off, counterclaim, recoupment, defense or
      other
      claim, right or action which the Company may have against Severance Participant
      or others. In no event shall Severance Participant be obligated to seek other
      employment or take any other action by way of mitigation of the amounts payable
      to Severance Participant under any of the provisions of this Plan and, except
      as
      explicitly provided herein, such amounts shall not be reduced whether or not
      Severance Participant obtains other employment.




5.3  Severance
      Benefits to Terminate Upon Material Breach of Restrictive
      Covenants .
      In the
      event that Severance Participant breaches any of the Restrictive Covenants
      set
      forth in Article Six of the Plan in a manner which results in demonstrably
      material injury to the Company, all payments and benefits to be paid or provided
      to Severance Participant by the Company shall cease, and the Company shall
      have
      no further obligation to pay or provide any such amounts or benefits. The
      Company’s rights under the preceding sentence shall be in addition to, and not
      in limitation of, any rights or remedies the Company may have against such
      breaching Severance Participant, whether pursuant to the provisions of Article
      Six below, or otherwise.




5.4  Six
      Month Delay for Specified Employees .
      To the
      extent (a) any payments to which a Participant becomes entitled under this
      Plan
      constitute deferred compensation subject to Section 409A of the Code and (b)
      the
      Participant is deemed at the time of such termination of employment to be a
      “specified” employee under Section 409A of the Code, then such payment or
      payments shall not be made or commence until the *earliest* of (i)
      the expiration of the six-month period measured from the date of the
      Participant’s “separation from service” (as such term is at the time defined in
      Treasury Regulations under Section 409A of the Code) with the Company (and
      all
      of its affiliates); (ii) the date the Participant becomes “disabled” (as defined
      in Section 409A of the Code); or (iii) the date of the Participant’s death
      following such “separation from service”; provided, however, that such deferral
      shall only be effected to the extent required to avoid adverse tax treatment
      to
      the Participant, including (without limitation) the additional twenty percent
      tax for which the Participant would otherwise be liable under Section
      409A(a)(1)(B) of the Code in the absence of such deferral. Upon the expiration
      of the applicable deferral period, any payments which would have otherwise
      been
      made during that period (whether in a single sum or in installments) in the
      absence of this paragraph shall be paid to the Participant or the Participant’s
      beneficiary in one lump sum.




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**ARTICLE
      SIX**


**COVENANTS
      BY SEVERANCE PARTICIPANTS**




6.1  General .
      Each
      Severance Participant and the Company understand and agree that the purpose
      of
      the provisions of this Article Six is to protect legitimate business interests
      of the Company, as more fully described below, and is not intended in an
      unreasonable manner to impair or infringe upon Severance Participant’s right to
      work or earn a living after termination or a Change in Control. Severance
      Participant hereby acknowledges that Severance Participant has received and
      will
      continue to receive good and valuable consideration for the restrictions set
      forth in this Article Six in the form of the compensation and benefits provided
      for herein as well as other consideration. Therefore, Severance Participant
      shall be subject to the restrictions set forth in this Article Six.




6.2  Definitions .
      The
      following capitalized terms used in this Article Six shall have the meanings
      assigned to them below, which definitions shall apply to both the singular
      and
      plural forms of such terms:




(a)  “ **Person** ”
means
      any individual or any corporation, partnership, joint venture, limited liability
      company, association or other entity or enterprise.




(b)  “ **Restricted
      Period** ”
means
      the period of time beginning on the Effective Date and ending on the later
      of
      the date that is (a) twelve months after Severance Participant’s Date of
      Termination or (b) the last day of the Severance Period.




6.3  The
      Company’s Property .




(a)  Upon
      the
      termination of Severance Participant’s employment for any reason or, if earlier,
      upon the Company’s request, Severance Participant shall promptly return all
“Property” which had been entrusted or made available to Severance Participant
      by the Company or any of its affiliates.




(b)  The
      term
“ **Property** ”
means
      all records, files, memoranda, reports, price lists, customer lists, drawings,
      plans, sketches, keys, codes, computer hardware and software and other property
      of any kind or description prepared, used or possessed by Severance Participant
      during Severance Participant’s employment by the Company and, if applicable, any
      of its affiliates (and any duplicates of any such property) together with any
      and all information, ideas, concepts, discoveries, and inventions and the like
      conceived, made, developed or acquired at any time by Severance Participant
      individually or, with others during Severance Participant’s employment which
      relate to the business, products or services of the Company or any of its
      affiliates.




6.4  Trade
      Secrets .




(a)  Severance
      Participant agrees that Severance Participant will hold in a fiduciary capacity
      for the benefit of the Company, and any of its affiliates, and will not directly
      or indirectly use or disclose, any “Trade Secret” that Severance Participant may
      have acquired during the term of Severance Participant’s employment by the
      Company or any of its affiliates for so long as such information remains a
      Trade
      Secret.




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(b)  The
      term
“ **Trade
      Secret** ”
means
      information, including, but not limited to, technical or nontechnical data,
      formulas, patterns, compilations, programs, devices, methods, techniques,
      drawings, processes, financial data, financial plans, product plans, or a list
      of actual or potential customers or suppliers that (a) derives economic value,
      actual or potential, from not being generally known to, and not being generally
      readily ascertainable by proper means by any other Person who can obtain
      economic value from its disclosure or use and (b) is the subject of
      reasonable efforts by the Company and any of its affiliates to maintain its
      secrecy.




(c)  This
      Section 6.4 and Section 6.5 are intended to provide rights to the Company which
      are in addition to, and not in lieu of, those rights the Company has under
      the
      common law or applicable statutes for the protection of Trade Secrets. Any
      provision under applicable trade secret law that provides the Company with
      more
      liberal or generous protection of its Trade Secrets shall prevail over any
      narrower protection afforded by this Plan.




6.5  Confidential
      Information .




(a)  Severance
      Participant, while employed by the Company or any of its affiliates and
      thereafter during the Restricted Period, shall hold in a fiduciary capacity
      for
      the benefit of the Company and any of its affiliates, and shall not directly
      or
      indirectly use or disclose, any “Confidential Information” that Severance
      Participant may have acquired (whether or not developed or compiled by Severance
      Participant and whether or not Severance Participant is authorized to have
      access to such information) during the term of, and in the course of, or as
      a
      result of Severance Participant’s employment by the Company or any of its
      affiliates. Notwithstanding anything to the contrary in this Plan, the foregoing
      durational limitation shall not apply to any Confidential Information that
      constitutes a “Trade Secret” and Severance Participant’s obligation to hold in
      confidence and not use such Trade Secret Confidential Information shall continue
      for as long as the information retains its status as a Trade
      Secret.




(b)  The
      term
“ **Confidential
      Information** ”
means
      any secret, confidential or proprietary information possessed by the Company
      or
      any of its affiliates relating to their business, including, without limitation,
      Trade Secrets, customer lists, details of client or consultant contracts,
      current and anticipated customer requirements, pricing policies, price lists,
      market studies, business plans, operational methods, marketing plans or
      strategies, legal advice and communications with the Company’s counsel, product
      development techniques or flaws, computer software programs (including object
      code and source code), data and documentation data, base technologies, systems,
      structures and architectures, inventions and ideas, past current and planned
      research and development, compilations, devices, methods, techniques, processes,
      financial information and data, business acquisition plans and new personal
      acquisition plans (not otherwise included in the definition of a Trade Secret
      under this Plan) that has not become generally available to the public by the
      act of one who has the right to disclose such information without violating
      any
      right of the Company or any of its affiliates. Confidential Information may
      include, but not be limited to, future business plans, licensing strategies,
      advertising campaigns, information regarding customers, executives and
      independent contractors and the terms and conditions of this Plan.




6.6  Reasonable
      and Continuing Obligations .
      Severance Participant agrees that Severance Participant’s obligations under this
      Article Six are obligations which will continue beyond Severance Participant’s
      Date of Termination and that such obligations are reasonable and necessary
      to
      protect the Company’s legitimate business interests. The Company in addition
      shall have the right to take such other action as the Company deems necessary
      or
      appropriate to compel compliance with the provisions of this Article
      Six.




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6.7  Remedy
      for Breach .
      Severance Participant agrees that the remedies at law of the Company for any
      actual or threatened breach by Severance Participant of the covenants in this
      Article Six would be inadequate and that the Company shall be entitled to seek
      specific performance of the covenants in this Article Six, including entry
      of an
      ex-parte, temporary restraining order in state or federal court, preliminary
      and
      permanent injunctive relief against activities in violation of this Article
      Six,
      or both, or other appropriate judicial remedy, writ or order, in addition to
      any
      damages and legal expenses which the Company may be legally entitled to recover.
      Severance Participant acknowledges and agrees that the covenants in this Article
      Six shall be construed as agreements independent of any other provision of
      this
      Plan or any other agreement between the Company and Severance Participant,
      and
      that the existence of any claim or cause of action by Severance Participant
      against the Company, whether predicated upon this Plan or any other agreement,
      shall not constitute a defense to the enforcement by the Company of such
      covenants.




6.8  Severability
      of Covenants .
      Severance Participant acknowledges and agrees that the Restrictive Covenants
      are
      reasonable and valid in time and scope and in all other respects. The covenants
      set forth in this Plan shall be considered and construed as separate and
      independent covenants. Should any part or provision of any covenant be held
      invalid, void or unenforceable, such invalidity, voidness or unenforceability
      shall not render invalid, void or unenforceable any other part or provision
      of
      this Plan. If any portion of the foregoing provisions is found to be invalid
      or
      unenforceable because its duration, the territory, the definition of activities
      or the definition of information covered is considered to be invalid or
      unreasonable in scope, the invalid or unreasonable term shall be redefined,
      or a
      new enforceable term provided, such that the intent of the Company and Severance
      Participant in agreeing to the provisions of this Plan will not be impaired
      and
      the provision in question shall be enforceable to the fullest extent of the
      applicable laws.




6.9  Reformation .
      The
      parties hereunder agree that it is their intention that the provisions of this
      Article Six be enforced in accordance with their terms to the maximum extent
      possible under applicable law. The parties further agree that, in the event
      any
      tribunal of competent jurisdiction shall find that any provision hereof is
      not
      enforceable in accordance with its terms, the tribunal shall reform these
      covenants such that they shall be enforceable to the maximum extent permissible
      at law.




**ARTICLE
      SEVEN**


**ADMINISTRATION**




7.1  Plan
      Administration .




(a)  The
      Plan
      is administered and interpreted by the Committee. The Committee shall have
      complete discretion to determine eligible Participants, to determine and adjust
      from time to time the details of each Participant’s participation in the Plan,
      and to interpret the Plan. Any decision by the Committee reached in accordance
      with the provisions contained herein shall be final and binding on all
      parties.




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(b)  The
      Committee may delegate all or any portion of the authority referenced in
      subsection (a) above to one or more members of the Committee. As of the
      Effective Date, the Committee delegates to its Chairman authority to approve
      changes to the Participants that are eligible to participate in the Plan, and
      to
      adjust from time to time the details of each Participant’s participation in the
      Plan.




**ARTICLE
      EIGHT**


**NO
      FUNDING OBLIGATIONS**




8.1  Funding .
      The
      obligations of the Company are not required to be funded under the Plan. Nothing
      contained in the Plan shall give a Participant any right, title or interest
      in
      any property of the Company, its subsidiaries or affiliates. The Participant’s
      rights to a Retention Bonus shall be that of an unsecured creditor of the
      Company.




**ARTICLE
      NINE**


**LIMITATION
      ON BENEFITS**




9.1  Notwithstanding
      anything in this Plan to the contrary, any benefits payable or to be provided
      to
      a Participant by the Company or its affiliates, whether pursuant to this Plan
      or
      otherwise, which are treated as Parachute Payments shall, but only to the extent
      necessary, be modified or reduced in the manner provided in Section 9.2 below
      so
      that the benefits payable or to be provided to the Participant under this Plan
      that are treated as Parachute Payments, as well as any payments or benefits
      provided outside of this Plan that are so treated, shall not cause the Company
      to have paid an Excess Parachute Payment. In computing such amount, the parties
      shall take into account all provisions of Code Section 280G, and the regulations
      thereunder, including making appropriate adjustments to such calculation for
      amounts established to be Reasonable Compensation.




9.2  If
      a
      reduction of benefits is required to avoid treatment of any payment as an Excess
      Parachute Payment, the Participant’s Retention Bonus under this Plan shall be
      reduced to an amount which, when combined with all other payments or benefits
      to
      the Participant related to the Change in Control, does not result in payment
      of
      an Excess Parachute Payment.




9.3  This
      Article Nine shall be interpreted so as to avoid the imposition of excise taxes
      on the Participant under Section 4999 of the Code and to avoid the disallowance
      of a deduction to the Company pursuant to Section 280G(a) of the Code with
      respect to amounts payable under this Plan or otherwise.




9.4  For
      purposes of this Article Nine, the following definitions shall
      apply:




(a)  “ **Excess
      Parachute Payment** ”
shall
      have the same meaning as provided in Section 280G(b)(1) of the
      Code.




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(b)  “ **Parachute
      Payment** ”
shall
      have the same meaning as provided in Section 280G(b)(2) of the
      Code.




(c)  “ **Reasonable
      Compensation** ”
shall
      have the same meaning as provided in Section 280G(b)(4) of the
      Code.




(d)  “ **Present
      Value** ”
shall
      have the same meaning as provided in Section 280G(d)(4) of the
      Code.




**ARTICLE
      TEN**


**MISCELLANEOUS**




10.1  Rights
      Not Exclusive .
      Except
      as expressly provided in the Plan, a Participant's right to receive a Retention
      Bonus under the Plan shall be in addition to and not exclusive of his rights
      under any other agreement or plan of the Company or its affiliates, including
      without limitation, any short- or long-term bonus or other remuneration payable
      pursuant to any Participant’s Employment Agreement with the Company, if
      any.




10.2  No
      Contract for Employment .
      Nothing
      in the Plan shall be deemed to give any Participant the right to be retained
      in
      the service of the Company or to deny the Company any right it may have to
      discharge or demote any Participant at any time.




10.3  Withholding .
      All
      amounts payable by the Company hereunder shall be subject to withholding of
      such
      amounts related to taxes as the Company may be legally obligated so to
      do.




10.4  Notices .
      Notices
      will be considered effective upon receipt and shall be sent by hand delivery
      or
      certified mail addressed as follows:




If
      to the
      Company:




James
      River Coal Company


901
      E.
      Byrd Street, Suite 1600


Richmond,
      Virginia 23219


Attention:
      Chief Executive Officer




or
      such
      other address provided to the Participant by the Company




If
      to a
      Participant, at his or her last known address.


10.5  Severability .
      The
      invalidity and unenforceability of any particular provision of the Plan shall
      not affect any other provision of the Plan, and the Plan shall be construed
      in
      all respects as if such invalid or unenforceable provision were
      omitted.




10.6  No
      Assignment or Alienation of Benefits by Participants .
      A
      Participant shall not have any power or right to transfer, assign, anticipate,
      hypothecate, mortgage, commute, modify or otherwise encumber in advance any
      of
      the benefits payable under the Plan, nor shall these benefits be subject to
      seizure for the payment of debt, judgment, alimony or separate maintenance
      owed
      by the Participant, or any person claiming through the Participant, or be
      transferable by operation of law in the event of bankruptcy, insolvency or
      otherwise. Any attempted assignment, anticipation, hypothecation, transfer,
      or
      other disposal of the benefits hereunder, shall be void.




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10.7  Governing
      Law .
      The
      Plan shall be governed by and construed in accordance with the laws of the
      Commonwealth of Virginia to the extent not preempted by federal
      law.




10.8  Successors
      and Assigns .
      The
      Plan shall be binding upon the Company and its successors (including any
      successor to the Company by reason of any dissolution, merger, consolidation,
      sale of assets or other reorganization of the Company) and assigns.




10.9  Amendment;
      Termination .
      Subject
      to the provisions of Section 10.11, the Plan may be amended or terminated at
      any
      time by the Board or the Committee; provided, however, that no such amendment
      or
      termination may be made after the date of a Change in Control without the
      written consent of affected Participants if such amendment or termination would
      negatively affect the rights of Participants who would otherwise be entitled
      to
      a Retention Bonus or severance benefits hereunder. The Plan shall automatically
      terminate following a Change in Control once all Retention Bonuses and severance
      benefits have been paid.




10.10  Headings. The
      headings of the Sections herein are for convenience only and shall have no
      significance in the interpretation of the Plan.




10.11  Compliance
      with Section 409A .
      This
      Plan shall be operated in accordance with the requirements of Section 409A.
      Any
      action that may be taken (and, to the extent possible, any action actually
      taken) by the Company shall not be taken (or shall be void and without effect),
      if such action violates the requirements of Section 409A and would result in
      an
      additional tax to the Participant. Any provision in this Plan document that
      is
      determined to violate the requirements of Section 409A shall be void and without
      effect. In addition, any provision that is required to appear in this Plan
      document to satisfy the requirements of Section 409A, but that is not expressly
      set forth, shall be deemed to be set forth herein, and the Plan shall be
      administered in all respects as if such provision were expressly set forth.
      In
      all cases, the provisions of this Section shall apply notwithstanding any
      contrary provision of the Plan that is not contained in this
      Section.




**JAMES
              RIVER COAL COMPANY**By:
            /s/ Joseph
              H.
              VippermanName:
              Joseph H.
              VippermanTitle: Chairman, Compensation
              Committee




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EXHIBIT
      A




Severance
      Participant Acknowledgment Form




James
      River Coal Company (the “ **Company** ”)
      and
      the undersigned Severance Participant (“ **Participant** ”)
      hereby
      acknowledge that Participant has been designated as a Participant in the James
      River Coal Company Severance and Retention Plan (the “ **Plan** ”).
      The
      Severance Period applicable to Participant is set forth below. Participant
      hereby acknowledges that he/she has read and understands the terms of the Plan,
      and agrees to be bound by the terms of the Plan.




In
      witness whereof, the Company and Participant have executed this Acknowledgment
      Form as of the date indicated below.




**COMPANY**




By:
      ______________________________


Name:
      ____________________________


Title:
      _____________________________


Date:
      _____________________________




**PARTICIPANT**




_________________________________


Name:
      ____________________________


Date:
      _____________________________




Severance
      Period: ___________________