EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “ Agreement ”) is made as of the 16th day of September, 2008 (the “ Commencement Date ”), by and between United Fuel & Energy Corporation, a Nevada corporation on behalf of itself and any and all subsidiaries (together, the “ Company ”), and William C. Bousema (“ Employee ”).

In consideration of the mutual covenants and agreements set forth below, it is hereby covenanted and agreed by the Company and Employee as follows:

1.    Employment Term . This Agreement will remain in effect from the Commencement Date and shall end on the date that is the first anniversary of the Commencement Date unless this Agreement is earlier terminated in accordance with its express terms (the “ Initial Term ”); provided , however , that upon the expiration of the Initial Term, and on each anniversary of the Commencement Date thereafter, the term of this Agreement shall automatically extend for an additional one-year term (each a “ Renewal Term ,” and together with the Initial Term, the “ Employment Term ”) unless (a) either Party gives the other Party three (3) months’ written notice of its desire not to extend this Agreement prior to the expiration of the Initial Term or Renewal Term, as applicable, or (b) this Agreement is earlier terminated in accordance with its express terms.

2.    Position . During the Employment Term, Employee shall serve in the position of Executive Vice President and Chief Financial Officer.

3.    Duties . During the Employment Term, Employee shall devote all of his business time, attention and energies to the performance of his duties hereunder. As Chief Financial Officer, Employee will have such duties and responsibilities as determined by Company’s Board of Directors   and Chief Executive Officer consistent with the Company’s Bylaws. If requested by Company, Employee will serve as an officer or director of any subsidiary of Company without additional compensation. Employee will devote his full business energies and abilities and all of his business time to the performance of his duties hereunder and will not, without the Company’s prior written consent, render to others any service of any kind (whether or not for compensation) that, in the Company’s sole but reasonable judgment, would interfere with the full performance of his duties hereunder. Notwithstanding the foregoing, Employee is permitted to spend reasonable amounts of time to manage his personal financial and legal affairs and, with the Company’s consent which will not be unreasonably withheld, to serve on civic, charitable, not-for-profit, industry or corporate boards or advisory committees, provided that such activities, individually and collectively, do not materially interfere with the performance of Employee’s duties hereunder. In no event will Employee engage in any activities that could reasonably create a conflict of interest or the appearance of a conflict of interest. Employee shall be subject to the Company’s policies, procedures and approval practices, as generally in effect from time to time.

4.    Compensation and Benefits . During the Employment Term, the Company shall pay and provide Employee with the following:

(a)    Base Salary . The Company shall pay Employee an initial base salary at a monthly rate of Twenty Thousand Eight Hundred Thirty Three Dollars and Thirty Three Cents ($20,833.33) (the “ Monthly Salary ”) equaling an annual salary of Two Hundred Fifty Thousand Dollars and No Cents ($250,000.00) (the “ Base Salary ), payable in accordance with its normal payroll practices, as in effect from time to time. The Base Salary is first subject to review within the first three (3) months after the end of the fiscal year ending December 31, 2008 and, thereafter, subject to periodic review not less frequently than annually within the first three (3) months after the end of the next successive fiscal year, and to increase (but not decrease) as approved by the Compensation Committee of the Board (“ Compensation Committee ”), or, if the Board desires to approve increases to the Base Salary, the Board, in the sole discretion of the Compensation Committee or the Board, as applicable.

(b)    Incentive Bonuses . During the term of Employee’s employment under this Agreement, Employee will be eligible to participate in all bonus plans applicable to senior executives of the Company established by the Board or the Compensation Committee, if any, subject to the terms and conditions of any such plans. The target amount of incentive bonuses will be determined by the Board or the Compensation Committee, and will be tied to the Company’s achievement of financial objectives established by the Board or the Compensation Committee and individual performance objectives to be established annually by the Compensation Committee. For the avoidance of doubt, incentive bonuses will be payable only if financial and performance objectives established by the Board and/or the Compensation Committee are achieved. Employee must be employed by the Company as of the eligibility date established by the Compensation Committee for a given fiscal year to be eligible for consideration for an incentive bonus for that year. Incentive bonuses will be paid out according to the terms of the applicable bonus plan, if any, but in no event later than March 15 of the year that immediately follows the fiscal year to which the bonus relates.

(c)    Discretionary Bonus . Employee shall also be eligible to receive an annual discretionary bonus. The bonus will be determined at the sole discretion of the Compensation Committee or the Board based on Employee’s performance during the twelve month period ending September 30 ^th of each year or other annual period determined by the Board or Compensation Committee.

(d)    Equity Incentive Grants.

(i)    Stock Options . As will be evidenced by a separate stock option agreement in substantially the form attached hereto as Exhibit A , the Company shall grant to Employee an incentive stock option on the Commencement Date or as soon as administratively feasible thereafter, to purchase 150,000 shares of the Company’s common stock pursuant to the Company’s 2005 Equity Incentive Plan (the “ 2005 Plan ”) . The option will vest in twelve (12) equal quarterly installments with an exercise price equal to the Fair Market Value of the Company’s common stock (as defined in the 2005 Plan) on the Commencement Date or the actual date of grant if the grant occurs after the Commencement Date.

(ii)    Restricted Stock . As will be evidenced by a separate restricted stock agreement in substantially the form attached hereto as Exhibit B , the Company shall grant to Employee pursuant to the 2005 Plan 150,000 shares of the Company’s common stock on the Commencement Date or as soon as administratively feasible thereafter. The restricted stock shall be subject to forfeiture, and will vest in twelve (12) equal quarterly installments.

(iii)    Additional Equity Interests. Employee shall be eligible to receive such additional stock options and restricted stock as the Board or Compensation Committee may determine in its reasonable discretion based on Company and individual performance criteria to be mutually agreed upon by Employee and the Company.

(e)    Benefits .Employee shall be eligible to participate in the employee benefit plans and programs generally provided to its employees, and in all benefit plans and programs afforded to senior or executive management employees, in accordance with the terms thereof, as in effect and as amended from time to time, including the Company’s health benefit plan, vacation, sick leave and any other allowed absences, paid or unpaid.

(f)    Expenses . Upon submission of appropriate documentation, the Company shall reimburse Employee for all previously approved, reasonable business expenses incurred in connection with the performance of his duties hereunder in accordance with the Company’s expense reimbursement policies, as in effect from time to time.

(g)    Termination of Employment . This Agreement may be terminated upon the following terms:

(i)    Termination Upon Death . If Employee should die during the Employment Term, this Agreement will terminate on the date of death.

(ii)    Termination Upon Disability . This Agreement shall automatically terminate upon the Employee’s Disability. “ Disability ” means that the (i) Employee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; (ii) Employee is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employee’s of Company; (iii) Employee is determined to be totally disabled by the Social Security Administration; or (iv) Employee is determined to be disabled in accordance with the disability insurance program under which the Company has provided disability insurance to the Employee, provided that the definition of disability applied under such disability insurance program complies with the requirements of Treasury Regulation Section 1.409A-3(i)(4). Nothing in this Paragraph relieves the Company of any of its obligations of reasonable accommodation under the Americans with Disabilities Act.

(iii)    Termination by Company With Cause . Company will be entitled to terminate Employee’s employment at any time for Cause. “ Cause ” will constitute any one of the following:

(1)    Employee’s demonstrated and material neglect of or failure or refusal to perform the material duties of his position, or failure to follow the reasonable and lawful instructions of the Board or the Chief Executive Officer (other than a failure resulting from a Disability);

(2)    Employee engaging in willful, reckless, or grossly negligent misconduct that the Board reasonably determines has caused, is causing or reasonably is likely to cause harm that is materially injurious to the Company, monetarily or otherwise;

(3)    Employee’s conviction of, or plea of guilty or nolo contender to, a felony or a crime involving moral turpitude, other than a traffic offense that is not punishable by a sentence of incarceration or a felony related to hunting live game, except for felonies pertaining to acts of poaching, criminal trespass or violations of federal or state weapons or firearms laws;

(4)    Employee commits an act of fraud, misappropriation, or personal dishonesty (in each case, that is not de minimus ) that the Board reasonably determines has caused, is causing, or reasonably is likely to cause harm to the Company; and

(5)    Employee commits a material breach of this Agreement and fails to cure such breach within thirty (30) days from the date that the Company gives notice thereof to Employee identifying the provision of this Agreement that the Company has determined has been breached.

Termination pursuant to Section 4(g)(iii)(1) above shall be effective only if such instances of neglect, failure or refusal continue after Employee has been given written notice thereof by the Company, and Employee is given fifteen (15) days after the receipt of such notice to present his position to the Board or to cure the same.

(iv)    Termination by Company Without Cause . Company may at any time terminate Employee's employment without Cause.

(v)    Resignation for Good Reason . Employee may terminate this Agreement for Good Reason (as defined below) by giving written notice of such termination, which termination will become effective on the thirtieth (30th) day following receipt by the Company. As used in this Agreement, “ Good Reason ” shall mean any one of the following: (i) a material reduction in Employee’s Base Salary and/or a material failure to provide the benefits required in Section 4 ; (ii) any other action or inaction that constitutes a material breach by the Company of this Agreement; (iii) a material diminution in Employee’s authority, duties or responsibilities such that they are materially inconsistent with his position as Chief Financial Officer of the Company; (iv) relocation of the Company’s headquarters to a location more than thirty (30) miles from 1800 Katella Avenue in Anaheim, California; and (v) in the event of a Change in Control (as defined below), failure of the successor to the Company or to the Company’s business (A) to offer Employee the position of Chief Financial Officer of the successor company, reporting only to the board of directors and/or the chief executive officer of the successor to the Company, with duties, responsibilities, compensation and benefits materially similar to those enjoyed by Employee immediately preceding the Change in Control, or (B) to assume the obligations of the Company under and to become a party to this Agreement, provided that no termination for Good Reason shall be effective until Employee has given the Company written notice (pursuant to Section 8(g) below) within sixty (60) days of the initial occurrence of any of the foregoing specifying the event or condition constituting the Good Reason and the specific reasonable cure requested by Employee, the Company has failed to cure the occurrence within thirty (30) days of receiving written notice from Employee, and Employee resigns within six (6) months following the initial occurrence. In the event of a termination for Good Reason, Employee will be entitled to the Accrued Benefits and the Severance Benefits, on the same conditions as would apply to Employee if he were terminated without cause on or after the 91st day of the Initial Term.

As used in this Agreement, a “ Change in Control ” shall mean any of the following events:

(1)    the acquisition by any Group or Person (as such terms are defined in Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “ 1934 Act ”)), other than (A) a trustee or other fiduciary holding securities of the Company under an employee benefit plan of the Company, (B) an entity in which the Company directly or indirectly beneficially owns fifty percent (50%) or more of the voting securities of such entity (an “ Affiliate ”), or (C) Frank Greinke or an affiliate of Frank Greinke, of any securities of the Company, immediately after which such Group or Person has beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of more than fifty percent (50%) of (X) the outstanding shares of Common Stock or (Y) the combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors;

(2)    the Company (and/or its subsidiaries) is a party to a merger or consolidation with a Person, or series or related transactions, with a Person other than an Affiliate, which results in the holders of voting securities of the Company outstanding immediately before such merger or consolidation failing to continue to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) 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; or

(3)    all or substantially all of the assets of the Company and its subsidiaries are, in any transaction or series of transactions, sold or otherwise disposed of (or consummation of any transaction, or series of related transactions, having similar effect , other than to an Affiliate;

provided, however, that in no event shall a “Change in Control” be deemed to have occurred for purposes of this Agreement solely because the Company engages in an internal reorganization, which may include a transfer of assets to, or a merger or consolidation with, one or more Affiliates.

(vi)    Voluntary Resignation without Good Reason . In the event that Employee resigns without Good Reason as defined above in Section 4(v) , Employee will be entitled only to the Accrued Benefits through the termination date. The Company will have no further obligation to pay any compensation of any kind (including without limitation any bonus or portion of a bonus that otherwise may have become due and payable to Employee with respect to the year in which such termination date occurs), or severance payments of any kind.

5.    Payments and Benefits upon any Expiration or Termination . Upon termination of employment, the Company shall provide Employee with the payments and benefits set forth in this Section 5 . Upon termination of employment for any reason, Employee shall also resign (and shall be deemed to have resigned) any officerships, directorships or other positions that he then holds with the Company or any of its affiliates.

(a)    General . Upon the termination of Employee’s employment for any reason, the Company shall pay and provide Employee (or, in the case of his death, his surviving spouse or, if none, his estate) with the following amounts and benefits: (i) all earned but unpaid compensation, including accrued unpaid vacation) through the effective date of termination, payable on or before the termination date; (ii) any previously awarded but unpaid cash bonuses, payable on or before the termination date; (iii) reimbursement for all un-reimbursed business expenses incurred on or prior to the date of termination to which Employee would be otherwise entitled; and (iv) continued coverage under the Company’s insurance benefit plans through the termination date and such other benefits to which he may be entitled pursuant to the Company’s benefit plans (other than any severance plan).   The payments and benefits set forth in this Section 5(a) shall be referred to as the “ Accrued Benefits .”

(b)    Special Benefits Upon Death or Disability . Upon the termination of Employee’s employment in the event of Employee’s death or disability pursuant to Sections 4(g)(i) or (ii) above, the stock option described in Section 4(d)(i) above shall fully vest and become exercisable by Employee’s legal representative or authorized assignee for a period of no more than six (6) months following Employee’s date of death and the restrictions shall immediately lapse with respect to the restricted stock grant described in Section 4(d)(ii) above.