The Incentive Stock Option Agreement Pursuant to the United Fuel & Energy Corporation 2005 Equity Incentive Plan

EXHIBIT 10.1

The Incentive Stock Option Agreement
Pursuant to the
United Fuel & Energy Corporation
2005 Equity Incentive Plan

     This Incentive Stock Option Agreement (this “ Option Agreement ”), is made as of November 12, 2008 between United Fuel & Energy Corporation, a Nevada corporation (the “ Company ”), and the above-named individual, an employee of the Company or one of its Subsidiaries (the “ Optionee ”), to record the granting of an incentive stock option pursuant to the Company’s 2005 Equity Incentive Plan (the “ Plan ”). Terms used herein that are defined in the Plan shall have the meanings ascribed to them in the Plan. If there is any inconsistency between the terms of this Option Agreement and the terms of the Plan, the Plan’s terms shall supersede and replace the conflicting terms herein.

     1.  Grant of Option . The Company hereby grants to the Optionee, as of the Date of Grant specified above, an option (the “ Option ”) to purchase up to the number of shares of the Company’s common stock, par value $0.001 per share (the “ Option Shares ”), specified above. The Option Shares shall be purchasable from time to time during the term specified in Section 2 at the Exercise Price. This Option is intended to qualify as an “incentive stock option” as defined in Section 422 of the Code (“ Incentive Stock Option ”). However, notwithstanding such designation, to the extent that the aggregate fair market value of the Option Shares issuable pursuant to Incentive Stock Options which become exercisable for the first time by the Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such portion of this Option, to the extent of the Option Shares covered hereby in excess of the foregoing limitation, shall be treated as Non-Statutory Stock Options (as defined below). For this purpose, Incentive Stock Options shall be taken into account in the order in which they were granted, and the fair market value of the Option Shares shall be determined as of the Date of Grant of the Option with respect to which such Option Shares are issuable. For purposes hereof, “ Non-Statutory Stock Option ” means an Option that does not qualify as an Incentive Stock Option.

     2.  Option Term . Unless the Optionee directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company, this Option shall have a term of ten (10) years measured from the Date of Grant and shall accordingly expire at the close of business on the Expiration Date, unless sooner terminated in accordance with Section 5 . If the Optionee owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company, then this Option shall have a term of five (5) years measured from the Date of Grant.

     3.  Limited Transferability . During Optionee’s lifetime, this Option shall be exercisable only by Optionee and shall not be assignable or transferable other than by will or by the laws of descent and distribution following Optionee’s death.

     4.  Dates of Vesting . This Option shall become exercisable for the Option Shares in twelve equal quarterly installments on the last day of each calendar quarter beginning on March 31, 2009. As the Option becomes exercisable for such installments, those installments shall accumulate and the Option shall remain exercisable for the accumulated installments until the Expiration Date or sooner termination of the term under Section 5 .

     5.  Cessation of Service . The term specified in Section 2 shall terminate (and this Option shall cease to be outstanding) prior to the Expiration Date should any of the following events occur:

     (a) If the Optionee’s service as an employee of the Company is terminated (i) by the Company without Cause (as the term “Cause” is defined in that certain Employment Agreement between the Company and the Optionee dated March 30, 2008, as amended (the “ Employment Agreement ”)), or (ii) by the Optionee for Good Reason (as the term “Good Reason” is defined in the Employment Agreement), then the unvested portion of this Option shall fully vest and this Option may be exercised in full but must be exercised by the Optionee no later than twelve (12) months after the date the Optionee’s employment is terminated (and in no event later than the Expiration Date).

     (b) If the Optionee’s service as an employee of the Company is terminated because of the Optionee’s death or Disability (as the term “Disability” is defined in the Employment Agreement), then the unvested portion of this Option shall fully vest and this Option may be exercised in full but must be exercised by the Optionee (or the Optionee’s legal representative or authorized assignee) no later than six (6) months after the date the Optionee’s employment is terminated (and in no event later than the Expiration Date).

     (c) If the Optionee’s service as an employee of the Company is terminated (i) by the Company for Cause (as the term “Cause” is defined in the Employment Agreement), or (ii) by the Optionee without Good Reason (as the term “Good Reason” is defined in the Employment Agreement), neither the Optionee, the Optionee’s estate nor such other person who may then hold this Option shall be entitled to exercise it as to any shares on or after the date the Optionee’s employment is terminated.

     6.  Incentive Stock Option Provisions .

     (a) Change in Status of Optionee . In the event of the Optionee’s change in status from Employee, Director or Consultant to any other status of Employee, Director or Consultant, with respect to any Incentive Stock Option that shall remain in effect after a change in status from Employee to Director or Consultant, such Incentive Stock Option shall cease to be treated as an Incentive Stock Option and shall be treated as a Non-Statutory Option on the day three (3) months and one (1) day following such change in status. Except as provided in Sections 6(b) and (c) below, to the extent that the Option was unvested on the date of termination, or if the Optionee does not exercise the vested portion of the Option within the Post-Termination Exercise Period (as defined below), the Option shall terminate. For purposes hereof: “ Employee ” means any person, including

an Officer or Director, who is an employee of the Company or any Related Entity; the payment of a director’s fee by the Company or a Related Entity shall not be sufficient to constitute “employment” by the Company; “ Director ” means a member of the Board or the board of directors of any Related Entity; “ Consultant ” means any person (other than an Employee or a Director, solely with respect to rendering services in such person’s capacity as a Director) who is engaged by the Company or any Related Entity to render consulting or advisory services to the Company or such Related Entity; and “ Related Entity ” means any Parent, Subsidiary and any business, corporation, partnership, limited liability company or other entity in which the Company, a Parent or a Subsidiary holds a substantial ownership interest, directly or indirectly.

     (b) Disability of Optionee . In the event the Optionee’s service as an employee of the Company is terminated as a result of his Disability (as the term “Disability” is defined in the Employment Agreement), the Optionee may, but only within six (6) months from the date the Optionee’s employment is terminated (and in no event later than the Expiration Date), exercise the amount of the Option, including any amount that was not vested on the date the Optionee’s employment was terminated; provided, however, that if such Disability is not a “disability” as such term is defined in Section 22(e)(3) of the Code and the Option is an Incentive Stock Option, such Incentive Stock Option shall cease to be treated as an Incentive Stock Option and shall be treated as a Non-Statutory Option on the day three (3) months and one (1) day following date the Optionee’s employment was terminated. In addition, in the event that the Optionee exercises any portion of the Option that was not vested on the date the Optionee’s employment was terminated, such Incentive Stock Option shall cease to be treated as an Incentive Stock Option and shall be treated as a Non-Statutory Option. To the extent that the Optionee does not exercise the Option within the time specified herein, the Option shall terminate.

     (c) Death of Optionee . In the event the Optionee’s service as an employee of the Company is terminated as a result of his death, or in the event of the Optionee’s death during the Post-Termination Exercise Period, the Optionee’s estate, or a person who acquired the right to exercise the Option by bequest or inheritance, may exercise the amount of the Option, including any amount that was not vested on the date the Optionee’s employment was terminated, within six (6) months from the date of death (but in no event later than the Expiration Date). In the event that the Optionee’s estate, or a person who acquired the right to exercise the Option by bequest or inheritance exercises any portion of the Option that was not vested on the date the Optionee’s employment was terminated, such Incentive Stock Option shall cease to be treated as an Incentive Stock Option and shall be treated as a Non-Statutory Option. To the extent that the Option is not exercised within the time specified herein, the Option shall terminate. “ Post-Termination Exercise Period ” means the period specified in this Agreement commencing on the date of termination of the Optionee’s service as an employee (other than termination by the Company for Cause or termination by the Optionee without Good Reason), during which the Optionee or the Optionee’s estate, or a person who acquired the right to exercise the Option by bequest or inheritance, as the case may be, may exercise the Option.

     (d) Transferability of Option . The Option, if an Incentive Stock Option, may not be transferred in any manner other than by will or by the laws of descent and distribution and may be exercised during the lifetime of the Optionee only by the Optionee. The Optio